On March 31, 2021, former New York Governor Andrew Cuomo signed the Marijuana Regulation and Taxation Act (MRTA), creating a new Tax Law Article 20-C that legalizes and taxes the sale of adult-use marijuana by persons age 21 or older. Broadly speaking, the provisions of MRTA apply to the adult use of marihuana other than for medical purposes [MRTA section 39, adding new Tax Law Article 20-C section 492(a),(b)].
MRTA provides for the taxation of all parts of the cannabis plant as follows:
- The sale of adult-use cannabis products sold by a distributor to a person who sells adult-use cannabis products at retail at the following rates:
- cannabis flower—at the rate of five-tenths of one cent (0.5¢) per milligram of the amount of total THC, as reflected on the product label;
- concentrated cannabis—at the rate of eight-tenths of one cent (.0.8¢) per milligram of the amount of total THC, as reflected on the product label; and
- cannabis edible product—at the rate of three cents (3¢) per milligram of the amount of total THC, as reflected on the product label. [MRTA section 39 adding new Tax Law Article 20-C section 493(a)(1)–(3)]
The MRTA creates five types of cannabis licenses: for cultivation, processing, distribution, delivery, and dispensing of cannabis. The MRTA also authorizes a microbusiness license that authorizes the limited cultivation, processing, distribution, delivery, and dispensing of one’s own adult-use cannabis and cannabis products. A microbusiness licensee may not hold any direct or indirect interest in any other license and may only distribute its own cannabis and cannabis products to dispensaries.
A person who distributes adult-use cannabis is licensed under the cannabis law as a microbusiness or registered organization. Such a person shall be liable for the tax, which will accrue at the time of the retail sale (MRTA section 39).
In addition to the above, the following taxes are imposed by the MRTA:
- A tax of 9% of the amount charged for the sale or transfer of adult-use cannabis products to a retail customer by a person who sells adult-use cannabis products at retail. This tax is imposed on the person who sells adult-use cannabis at retail and accrues at the time of sale or transfer.
- A tax of 4% of the amount charged by such person for adult-use cannabis product. This tax accrues at the time of the sale or transfer of adult-use cannabis products to a retail customer by a person who sells adult-use cannabis products at retail. [MRTA section 39 adding new Tax Law Article 20-C section 493(b),(c)]
Application and Fees
Every distributor that is liable for the taxes discussed above and any persons that sell adult-use cannabis products at retail must file a properly completed application for a certificate of registration with the Commissioner of the New York State Department of Taxation and Finance (DTF) before engaging in business. An application for a certificate of registration must be submitted electronically, on a form prescribed by the DTF, and must be accompanied by a nonrefundable application fee of $600. A certificate of registration is not assignable or transferable, and must be destroyed if one ceases to do business, or if the business never commences [MRTA section 39 adding new Tax Law Article 20-C section 494(a)(1)].
Filing and Payment
Every person liable for taxes discussed above must file electronically a return on forms to be prescribed by the DTF that show the total amount of tax due in such quarterly period, and including such other information as the commissioner may require. These returns are due quarterly, on or before the 20th day of the month following each period ending on the last day of February, May, August, and November [MRTA section 39 adding new Tax Law Article 20-C section 495(a)].
Everyone required to file a return must pay the total amount of tax due for the period covered by the return. If a return is not filed when due, the tax shall be due on the day on which the return is required to be filed [MRTA section 39 adding new Tax Law Article 20-C section 495(b)].
Every cannabis distributor and every person who sells adult-use cannabis products at retail must maintain complete and accurate records as required by the DTF. This includes items such as the total THC content of the adult-use cannabis products sold to or produced by such person; complete records of every retail sale of adult-use cannabis; and any other information that might later be required by the DTF. These records must be preserved for a period of three years after the filing of the related return and must be provided to the DTF upon request [MRTA section 39 adding new Tax Law Article 20-C section 496(a)].
Every distributor subject to taxation and every person who sells adult-use cannabis products at retail who fails to maintain or make available to the DTF the records required under the law is subject to a penalty of up to $500 for each month or part thereof. This penalty may not be imposed more than once for failures during the same period. If the DTF determines that a failure to maintain or make available records was entirely due to reasonable cause and not to willful neglect, the penalty must be remitted for that period [MRTA section 39 adding new Tax Law Article 20-C section 496(b)].
Although the MRTA appears to take effect immediately, the tax provisions will not realistically take effect until related rules and regulations can be promulgated. As of this writing, it is uncertain just when that date will be. However, some commenters have estimated that the sale and taxation of marihuana by a licensed adult-use retail dispensary will begin by the end of 2022. Tax preparers should pay close attention to ongoing developments.
CPAs with an adult-use retail dispensary as a client will have to keep track of and file returns for the various taxes involved.
CPAs should be aware that, according to the proposed regulations (section 116.2), applicants for an adult-use retail dispensary license must provide many numerous documents in order to operate. These documentation requirements may of course change before the regulations are finalized and take effect.
It is imperative that tax professionals with affected clients or employers familiarize themselves with the evolving rules and regulations regarding the licensing and operation of cannabis adult-use retail dispensaries.