Marijuana Taxes Cause Conundrum for Some States

December 29, 2014 | By: TaxCure Staff

marijuana tax problemsThe number of states legalizing marijuana for different purposes is on the rise. There are states that allow marijuana use for medical purposes, and some even allow it for recreational purposes. However, many states charge a great deal in taxes. On top of that, the fact that marijuana still isn’t legal on a federal level causes its own problems.

High Taxes on Recreational Marijuana

One of the problems that some states are dealing with right now is that there are different taxes on marijuana for medical purposes and different rates for recreational marijuana. Often, the taxes on medical marijuana are much, much lower. In Colorado, the tax on medical marijuana is 2.9 percent, while the tax on recreational marijuana is 27 percent. As a result, it’s not uncommon for some to take their medical marijuana and sell it to the public. This means that states might not be collecting as much in marijuana taxes as they would like.

State Taxes and Federal Taxes

Another issue that some are facing is the fact that marijuana is still illegal under federal law. So, while some states offer tax credits to businesses and dispensaries that collect sales taxes. However, these same businesses don’t end up being able to claim federal deductions for their businesses. It does not matter if the marijuana dispensaries are legal in their own states, and even if they offer marijuana for medical purposes.

In some cases, some dispensaries offer other business services. If the business keeps the dispensary portion completely separate from other portions, the business not involved with marijuana can claim tax deductions. However, this creates a little bit more work for businesses involved with this.

Another situation that sometimes arises is that there are those who travel across state lines to buy marijuana. This provides a little more tax revenue for states with legal marijuana, but it does put others at risk, and, technically, dispensaries are not supposed to sell marijuana to out-of-staters. If you buy marijuana in a state where it’s legal, and then bring it home, you could be subject to the law in your own state, as well as end up with federal drug charges against you.

Federal Decriminalization of Marijuana?

Of course, the fact that some states are seeing tax revenues from legalized marijuana have some at the federal level hoping to raise revenue. The Marijuana Tax Equity Act has been proposed, and it is designed to get rid of the federal prohibition on marijuana. Once that is done, marijuana could be taxed, and businesses could also deduct their expenses related to dispensing it.

However, before you start thinking that marijuana will be legal across the United States, it’s important to understand that the law is moving slowly. According to, the bill was referred to Committee on February 5, 2013, and it’s been slow going, and there is only a 1 percent chance of it being enacted. But, people are talking about it, and as tax season ramps up and as marijuana related businesses in states run into difficulty, there will likely be more movement on efforts to legalize and tax marijuana.