Cannabis Provisioning Center Taxes: What to Know

Does My Cannabis Provisioning Center Have to Pay Taxes While I’m Waiting for my License Approval?

If you’re already licensed by the state of Michigan, your provisioning center must abide by the General Sales Tax Act (GSTA) to properly collect, file and pay sales tax timely. In addition to the Sales Tax Act, licensed provisioning centers must also adhere to the Provisioning Center Tax (excise tax) imposed by the Medical Marihuana Facilities Licensing Act (MMFLA).

For provisioning centers that are currently operating while their application is pending and under review, they must abide by these two tax acts even though they haven’t been issued a license.

Do you need help understanding the taxes? One of our cannabis business attorneys is also a CPA and can help you. Request a consultation now.

Sales Tax Act Overview

First, a quick introduction of the Sales Tax Act:

1. A Michigan sales tax license shall be obtained by every person selling tangible personal property at retail. A person shall not engage or continue in a business taxable under the sales tax law without securing a license, regardless of the number of sales or the manner of obtaining goods for sale. An application for a license, before or at the time of beginning business, shall be made to the Michigan Department of treasury on a form prescribed by the Michigan Department of treasury. All licenses shall be displayed on the licensed premises.
2. Every sales tax license expires on September 30 of each year, regardless of the date the license is issued and shall be renewed by furnishing such information as the Michigan department of treasury may require. A person selling at retail at more than 1 location or place of business shall display a copy of the license at each location. If a valid license is lost or destroyed, it may be replaced without charge by notifying the Michigan department of treasury.
3. A license is not transferable and a new license shall be secured immediately whenever there is a change of ownership of the business. For example, if a partner is added or dropped, or if a corporation is formed or dissolved, this constitutes a change of ownership necessitating application in the name of the new ownership for a sales tax license to sell at retail. If the new owner fails to apply for a license, the new owner may be subjected to a penalty for operating without a valid sales tax license.
4. The fact that a person is licensed by the Michigan Department of treasury to sell at retail does not automatically mean that sales to the licensed person are exempt from sales tax as sales for resale.
5. The Michigan Department of treasury may deny a license to an applicant if the department considers the applicant to be the agent or representative of a principal required to be licensed and responsible for filing the sales tax returns.
6. The Michigan Department of treasury may require an applicant for a sales tax license to submit a surety bond. The surety bonds can be obtained from an approved agency that is licensed in the state.

The GSTA imposes a 6% sales tax on the gross proceeds of “all persons engaged in the business of making sales at retail, by which ownership of tangible personal property is transferred for consideration….”

The Use Tax Act (UTA) imposes a 6% tax “for the privilege of using, storing, or consuming tangible personal property in this state….”

The GSTA and UTA (Acts) only impose tax on sale/use of tangible personal property not otherwise exempt under the GSTA and UTA and services that are specifically subject to tax.

The retail sales of marihuana and marihuana-derived products by a provisioning center are subject to sales tax.

The sale of any other tangible personal property by a provisioning center or other person that isn’t otherwise exempt from sales or use tax is also subject to tax.

Cannabis Provisioning Center Taxes

In addition to the 6% sales tax, the MMFLA imposes tax on the gross retail receipts of a provisioning center licensed under the MMFLA at a rate of 3%.

This is known as the Provisioning Center Tax which essentially is considered an excise tax.

The MMFLA doesn’t limit the imposition of this tax to marihuana or marihuana-derived products.

Therefore, all gross retail receipts of a cannabis provisioning center are subject to the taxes.

This includes non-marihuana sales such as marihuana paraphernalia, clothing, food, or any other tangible personal property or service.

There are no exemptions for any service or property under the MMFLA.

In other words, all retail sales made by licensed cannabis provisioning centers are subject to the MMFLA’s taxes.

Unlike sales tax, a seller subject to the MMFLA’s gross retail receipts tax may not pass along the incidence of the tax to its customer; the seller may, however, consider the tax in establishing its prices.

For Example: XYZ, Inc. is a provisioning center. XYZ sells glassware, clothing and rolling papers in addition to marihuana products.

XYZ is liable for the 3% tax imposed by the MMFLA for all glassware, clothing, rolling paper, and marihuana product sales.

Further, the sales tax base includes taxes imposed on the seller other than those imposed by the Sales Tax Act.

Therefore, the 3% tax imposed by the MMFLA is also subject to sales tax when a provisioning center or other person sells property that’s subject to sales tax.

Another example is this, XYZ, Inc. is a provisioning center. XYZ sells marihuana to Customer for a sales price of $100.

XYZ is liable for $3 in tax under the MMFLA (excise tax).

XYZ is also liable for sales tax based on 6% of $103, which amounts to a sales tax liability of $6.18.

XYZ must report and remit $3 on its return under the MMFLA and $6.18 on its sales tax return.

You Must File Based on Frequency

Provisioning centers must file sales tax returns based on the frequency directed by Treasury (i.e., monthly, quarterly, or annually).

Filing of returns for sales, use, and withholding taxes may be done electronically through MTO.

Sales, use, and/or withholding tax payments may also be remitted electronically through MTO.

In addition, the MMFLA requires provisioning centers to remit the provisioning center tax for a calendar quarter to the Department of Treasury by 30 days after the end of that calendar quarter, accompanied by a form prescribed by Treasury.

The return must disclose the provisioning center’s gross quarterly retail receipts and the amount of tax due under the MMFLA.

The return must be submitted electronically through Michigan Treasury Online (MTO).

Navigating The Tax Acts

According to the State of Michigan, provisioning centers that are operating but not yet licensed by MMFLA must still abide by these two tax acts.

However, this can be very tricky.

You’ll have to file and pay sales tax through MTO on a monthly basis.

For the MMFLA Provision Center Tax, you’ll only be able to pay the tax but not actually file the return since you have yet to be issued a license number to report on the return.

The Department of Treasury will collect your tax and “hold” this until the quarterly tax return is filed through MTO once you’re licensed.

It’s critical to work with a CPA that understands the cannabis industry and its filing requirements and obligations.

Failure to abide by these rules and regulations could cost you fines, penalties and even revocation of your license.

Do you need help understanding the taxes? One of our cannabis business attorneys is also a CPA and can help you. Or, do you need help filing or getting a license approved? Request a consultation now.