Getting into the weeds of NY’s cannabis taxes
As New York works to get its legal adult-use cannabis industry off the ground, advocates and businesspeople in the space are concerned with two controversial tax issues.
The first is a potency tax on businesses based on THC content, the second is an IRS code known as Section 280E, which prevents cannabis businesses from writing off certain expenses.
Many in the industry think both measures are misguided, but tax experts interviewed by NY Cannabis Insider warn about the possible repercussions of repealing these policies.
New York’s marijuana potency tax
New York’s potency tax structure for the cannabis industry is a departure from earlier legal cannabis states like Massachusetts, but in line with Connecticut, which also plans to tax marijuana partially based on THC content.
New York’s Marijuana Regulation and Taxation Act taxes distributors:
Half a cent per milligram of the amount of total THC for flower
Eight-tenths of one cent per milligram for concentrates
Three cents per milligram for edibles.
That’s in addition to a 9% sales tax and possible further municipal taxes.
“I think that the THC potency tax has all negatives — I think it has no redeeming qualities,” said tax attorney Jason Klimek, co-leader of the Cannabis Team at law firm Barclay Damon.
Klimek, who is also a member of the New York State Bar Association Committee on Cannabis Law, told NY Cannabis Insider that a major problem with the potency tax is that it could drive New York’s weed prices higher than those in other states.
He reasoned that since New York will have a sales tax in addition to the potency tax, the overall tax rate for flower cannabis could reach 30% – or possibly 55% for edibles – compared to Massachusetts’ maximum 20% rate, which is tied to sales.