By Nick Richards and Keith Buckley
This summer big changes are coming to Marijuana Tax in Colorado. The first change has already taken effect on July 1, 2017, which increased the Retail Marijuana Sales Tax from 10% to 15%. The second change will become effective on August 9, 2017, and will affect how to calculate the Average Market Rate of retail marijuana. Both of these changes will affect the tax obligations of a Colorado Cannabis Business.
Colorado has been taxing Retail Marijuana Sales at a lower rate as allowed under Colorado law. Along with legalization of marijuana came a plethora of laws to regulate and tax marijuana. Under the Colorado tax code, the sale of marijuana may be taxed up to 15%, however, this limit has not been reached until the recent passing of Senate Bill 17-267.
What does this mean for an owner/operator of a retail marijuana store? It simply means that your tax obligations have changed to include collecting additional Retail Marijuana Sales Tax and any applicable State administered city or county sales tax. The good news is that the sale of marijuana is now exempt from Regular Colorado Sales Tax (2.9%).
What did not change was the retail marijuana store’s filing requirements. Even though the sale of retail marijuana is exempt from Regular Colorado Sales Tax, the store must file two separate sales tax returns each month (regular sales tax return and a retail marijuana sales tax return). Remember, the returns must be filed regardless of whether any sales were made and tax collected.
The Average Market Rate of retail marijuana has been adjusted biannually to account for the changing landscape of marijuana sales. The most current adjustment, on July 1, 2017, dropped the price of flower per pound from $1,471 to $1,298. More adjustments are on the way.
Finally, effective August 9, 2017, taxes will be calculated differently for affiliated and unaffiliated businesses. Affiliated retail marijuana businesses will continue to calculate their excise tax rate at 15% of Average Market Rate. However, transfers from an unaffiliated retail marijuana business will now have to calculate their excise tax at 15% of the contract rate. Moving forward, it is important that businesses retain copies of their written contract to substantiate contract rate. The contract will be essential, if and when, a Colorado Cannabis Business is audited by the Department of Revenue.
Colorado’s marijuana rules and regulations are a complex and rapidly shifting landscape. Failure to keep up and comply may result in crippling tax. At Dill Dill Carr Stonbraker & Hutchings, PC, our Denver Tax Attorneys can help you understand your Colorado marijuana sales and excise tax obligations and help resolve your tax problems. Contact us directly at (303)777-3737 or firstname.lastname@example.org.
For additional information see FYI Publication Sales 93
See also the newly released Average Market Rate Change Fact Sheet