Introduction
Massachusetts has enacted significant legislation affecting the cannabis industry, specifically regarding sales tax audits and tax treatment. These changes aim to promote fairness and support social equity within the state’s growing cannabis market.
Cannabis Equity Law: Key Provisions
Deduction Allowances Under IRC § 280E
Massachusetts enacted cannabis equity legislation (L. 2022, S3096) effective for tax years beginning January 1, 2022. This law promotes equity in the cannabis industry by allowing a deduction for any amount paid or incurred during the taxable year in carrying on the trade or business of a marijuana establishment or a medical marijuana treatment center. This deduction applies even for expenses that would have been disallowed under IRC § 280E at the federal level.
Exemption from Excise Tax
The law also exempts marijuana products and marijuana accessories from the cigarette excise tax. However, there is an important exception:
- Marijuana accessories manufactured to also deliver nicotine are considered electronic nicotine delivery systems and remain subject to the excise tax.
Allocation to Social Equity Trust Fund
Furthermore, the legislation establishes a mechanism to directly support social equity within the industry:
- 1% of the total sales price received from a marijuana retailer that qualifies as a social equity business is allocated to a Social Equity Trust Fund.
- The Trust Fund provides loans and grants to cannabis entrepreneurs who qualify as social equity and economic empowerment applicants.
Conclusion
Massachusetts continues to refine its approach to cannabis taxation, focusing on fairness, equity, and economic empowerment for those disproportionately affected by prior cannabis laws. Businesses operating in this industry should remain vigilant regarding compliance with sales tax audits and take advantage of deductions and exemptions now available under state law.
Frequently Asked Questions
What is the purpose of Massachusetts’ cannabis equity law?
The cannabis equity law in Massachusetts aims to promote fairness in the cannabis industry by providing tax relief and support mechanisms for businesses, especially those qualifying as social equity or economic empowerment applicants.
Can cannabis businesses in Massachusetts deduct expenses disallowed under federal law?
Yes. Massachusetts allows cannabis businesses to deduct ordinary and necessary business expenses, even if those expenses are disallowed under IRC § 280E at the federal level, effective from tax years beginning January 1, 2022.
Are marijuana products subject to the Massachusetts cigarette excise tax?
No, marijuana products and accessories are generally exempt from the cigarette excise tax. However, accessories that also deliver nicotine, like vape pens, are still subject to the excise tax as electronic nicotine delivery systems.
What is the Social Equity Trust Fund?
The Social Equity Trust Fund is a state-established fund that receives 1% of the total sales price from marijuana retailers who qualify as social equity businesses. It provides loans and grants to support cannabis entrepreneurs from disadvantaged backgrounds.
How should cannabis businesses prepare for sales tax audits in Massachusetts?
Cannabis businesses should maintain accurate financial records, understand applicable state tax deductions and exemptions, and ensure full compliance with Massachusetts tax law to avoid issues during sales tax audits.