The Maryland Comptroller’s Office issued guidance on the sales and use taxation of cannabis, including licensing, registration, filing requirements, and exemptions.
This guidance contains answers to questions about cannabis businesses, including the collection and payment of sales and use tax, as well as recordkeeping and licensing requirements. Cannabis businesses must also adhere to other requirements imposed by the Maryland Cannabis Administration, the Alcohol, Tobacco, and Cannabis Administration, and other state agencies.
Cannabis Taxation
As previously reported on Conduit Street, HB 556/SB 516 of 2023 imposes a sales and use tax on the sale of adult-use cannabis in Maryland. The tax rate is 9 percent of the purchase price of any product containing cannabis. The tax begins in fiscal year 2024 (July 1, 2023).
A mere five percent of state cannabis tax revenue goes to local governments. That translates to local governments receiving a mere 45 cents for a single purchase of $100 of cannabis- the smallest in the nation. Municipalities will receive half of the local revenue share for transactions within municipal boundaries (counties will retain the other half on such transactions). In addition, 35 percent of the tax proceeds will go to the Community Reinvestment and Repair Fund, a new fund for local organizations that support marginalized communities.
However, sales of most other products (e.g., glass pipes, rolling papers, hookahs, hemp products, clothing, food or edible products not containing cannabis, and souvenirs) are taxed at the usual state sales tax rate of 6 percent, with special rates applicable to specific items including electronic smoking devices and tobacco pipes and vaping liquids that do not contain cannabis or cannabis products.
The law distinguishes cannabis from hemp based on the plant’s delta-9-tetrahydrocannabinol concentration level. “Cannabis” means the plant Cannabis sativa L. and any part of the plant, including all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9-tetrahydrocannabinol concentration greater than 0.3% on a dry weight basis. “Hemp” has a delta-9-tetrahydrocannabinol concentration that does not exceed 0.3% on a dry weight basis.
Licensing and registration requirements
Businesses must register with the Maryland State Department of Assessments and Taxation (SDAT) before applying for the sales and use tax license as required for any Maryland business entity. In addition, a cannabis business must comply with the licensing requirements of the Maryland Cannabis Administration.
A cannabis business making retail sales of cannabis and cannabis products must obtain the Sales and Use Tax License from the Maryland Comptroller for each business location and a Traders License from the county’s circuit court clerk. If a cannabis business operates more than one sales location subject to the same ownership or general management, the cannabis business must obtain a Chain License from the circuit court clerk.
Filing Requirements
Dispensaries and on-site consumption establishments that make retail sales of cannabis or cannabis products must collect the sales and use tax. Businesses can file online or via a paper return.
Cannabis businesses operating in more than one location in Maryland must file a separate return for each site. Businesses assigned a monthly filing frequency must file by the 20th day following the end of the month. Businesses assigned a quarterly filing frequency must file by the 20th day following the end of the quarter.
Businesses that file on time can claim a credit against the tax payment. The maximum available credit per return is $500.
The credit can be claimed on each return for businesses operating in multiple locations. Businesses must keep sales records for four years.
Exemptions
Business-to-business transactions: The tax does not apply to sales of cannabis between cannabis businesses licensed by the Maryland Cannabis Administration (e.g., a sale by a cannabis grower to a cannabis processor).
The buyer must present a resale certificate to the seller, who retains the certificate as part of the sales record. The buyer should include the buyer’s sales and use tax license number or, if not required to have a sales and use tax registration number, a Maryland Cannabis Administration license number on the certificate.
Medical cannabis: The tax does not apply to sales of medical cannabis at dispensaries or on-site consumption establishments. The buyer must present their medical identification card issued by the Maryland Cannabis Administration or, if not expired, by the predecessor agency, the Maryland Medical Cannabis Commission. However, any amount of cannabis sold to a patient or caregiver that exceeds the amount certified by their provider is subject to sales and use tax.
Existing exemptions: Purchases of cannabis or cannabis products by nonprofit charitable, educational, and religious organizations or farmers can be exempt under the existing exemptions for purchases made to carry on the work of nonprofit organizations or purchases of farm equipment used for traditional agricultural purposes. However, nonprofit organizations cannot purchase and resell cannabis to raise funds or otherwise distribute cannabis for fundraising purposes.
Maryland also has an existing exemption for sales of tangible personal property used directly and predominantly in production activities or sales of tangible personal property for resale or incorporation as material or part of tangible personal property produced for sale.
Useful Links
Maryland Comptroller: Questions and Answers for Cannabis Businesses
Previous Conduit Street Coverage: 2023 End of Session Wrap-Up: Cannabis
