Under Minnesota law, medical cannabis is defined as cannabis provided to a registered patient taken as a liquid, pill, or by vaporizing. Minn. Stat. § 152.22, subd. (6).
The following information was obtained at a Minnesota Department of Health meeting to discuss Minnesota’s medical marijuana statue.
Are There Taxes Applied to the Sale of Medical Cannabis?
No. Medical cannabis is not subject to sales or tobacco tax.
Do I have to Buy Marijuana Stamps or Controlled Substance Stamps?
No. Buying marijuana stamps or controlled substance stamps are not required. In other states, there is a tax on marijuana that requires distributers to purchase and attach stamps on marijuana. This is not the case in Minnesota.
Does any Tax Applied to the Sale of Devices Used to Vaporize Medical Cannabis?
Yes. Sales tax applies to the purchase of a vaporizing device used for medical cannabis. Most vaporizers on the market are expensive and the most popular models start at approximately $250 and can run as much as $700. Sales of these types of items provide for tax rate revenue to the state.
Our Payments for Medical Appointments or Test Used for the Diagnosis Subject to Tax?
Yes. The payments for medical appointments and tests that a healthcare provider uses to diagnose and certify a patient by medical cannabis are subject to the Minnesota Care provider tax. The healthcare provider is responsible for paying the tax.
Two Other Minnesota Care Taxes Applied to the Sale of Medical Cannabis?
No. The wholesale drug distributor tax and legends drug tax not applied to the sale of medical cannabis. The wholesale drug distributor tax is a tax that is imposed on each wholesale drug distributor equal to 2% of its gross revenues. Minn. Stat. § 295.52, subd. 3. The legend drugs tax requires certain individuals to file in Minnesota care tax return if those legend drugs were from a vendor that is not required to pay the wholesale drug distributor tax. Legend drugs are drugs or gases that are classified by the FDA as a drug, not at the device, and are required by federal law to be sold or dispensed in a container that bears one of the following statements, “caution,” or “RX only.”
Is the Patient’s Purchase of Medical Cannabis Deductible? Does it Qualify for Pre-Tax Medical Discounts?
No. Under federal law, you cannot use pretax medical accounts to purchase medical cannabis nor can you deduct medical cannabis as a medical expense on your income tax return.
How will Land Use by Medical Cannabis Manufacturers be Classified for Property Taxes?
Property used to produce medical cannabis will most likely be considered Class 3 commercial and industrial property.
Business Tax Deductions:
Ordinary Business Expenses:
Medical cannabis manufacturers conduct certain expenses that were claimed under federal tax return. No additional form is required because Minnesota falls federal tax treatment of business expenses. Generally, they can deduct expenses reported on federal form 1125A, Costs of Goods Sold, but they cannot deduct “ordinary business expenses” covered by section 162 of the Internal Revenue Code. It is important that potential Minnesota medical marijuana manufacturers realize that they cannot deduct what are considered ordinary business expenses, most notably, wages. Section 162 that discusses ordinary business expenses is the most widely used authority for deductions by businesses. This means that a Minnesota medical manufacturers gross income for taxation be considerably higher than an ordinary business in Minnesota because they will be unable to deduct ordinary business expenses.
Sales Tax Exemptions:
Agricultural production includes the following activities when they result in a product that will ultimately be sold at retail, agriculture, aquaculture, floriculture, horticulture, maple syrup harvesting, and silviculture. Cultivation of medical cannabis also qualifies for the exemption. Materials consumed in production of agriculture may be exempt from tax.The exemption includes materials consumed in production, such as chemicals, fuel and electricity for agricultural facilities, fuel and electricity for grain drying, petroleum products in certain circumstances, packaging materials, plants and see, and nurseries and greenhouses. To buy items without tax, the purchaser must give supplier of fully completed Certificate of Exemption, form ST3.
Industrial Production Exemption:
Minnesota’s medical marijuana manufacturers also qualifies for industrial production tax exemption because they qualify as businesses engaged in industrial production such as bakeries, breweries, candy factories, creameries, etc. Because they qualify as an industrial production business they can buy items exempt from tax such as chemicals, materials, and supplies it used in treating waste, chemicals used or consumed in production including chemicals used for cleaning food processing equipment, component parts ingredients of a product, fuels, electricity, natural gas, water, steam, and propane gas, industrial gases used in production, such as oxygen, acetylene, and argon, materials that directly affect the product, such as grinding and polishing compounds, and sanding discs, materials used for the original painting and cleaning of products, materials used once in production, not consumed, the discarded after one use, petroleum products and lubricants used in production equipment, product identification labels, product packaging materials, and separate attachable tools. Similar to the materials consumed in production exemption, to buy items that are exempt from tax pursuance to the industrial production exemption the producer must give the vendor a fully completed Certificate of Exemption form ST3.
In addition, medical marijuana manufacturers may also be eligible for tax exemptions on certain purchases of farm machinery and equipment and capital equipment exemption.