The Michigan Department of Treasury (the “Department”) recently released a draft Revenue Administrative Bulletin (“RAB”) entitled Marihuana Provisioning Center Tax and Sales and Use Tax Treatment of Marihuana. An RAB is a directive issued by the Bureau of Tax Policy. The following is an excerpt from the Department’s website describing RABs, generally:
Its purpose is to promote uniform application of tax laws throughout the State by the Bureau of Tax Policy personnel and provide information and guidance to taxpayers. A Revenue Administrative Bulletin states the official position of the Department, has the status of precedent in the disposition of cases unless and until revoked or modified, and may be relied on by taxpayers in situations where the facts, circumstances and issues presented are substantially similar to those set forth in the Bulletin. A taxpayer must consider the effects of subsequent legislation, regulations, court decisions and Bulletins when relying on a Revenue Administrative Bulletin. See RAB 1989-34 for further information.
The draft RAB explains the marihuana provisioning center tax imposed by the Medical Marihuana Facilities Licensing Act (the “MMFLA”) and the sales and use tax treatment of marihuana and marihuana-derived products under both the MMFLA and the Michigan Medical Marihuana Act (“MMMA”). While the draft RAB makes conclusions (discussed below) regarding significant marihuana tax issues, it has not been finalized and thus should not yet be relied upon by taxpayers. The draft RAB is open for review and comment to the general public until November 6, 2017.
The draft RAB makes conclusions on the following three issues: (i) a provisioning center tax, (ii) return and remittance requirements, and (iii) sales and use tax.
Provisioning Center Tax
The MMFLA imposes a tax on gross retail receipts of a provisioning center (dispensary) at a rate of 3 percent. Because the tax applies to all gross receipts, the Department concludes that the provisioning center tax is not limited to marihuana-derived products. Rather, the tax also includes non-marihuana sales such as paraphernalia, clothing, food and other tangible personal property or service. In essence, under the Department’s interpretation, all retail sales made by licensed provisioning centers are subject to the provisioning center tax.
Return and Remittance Requirements and Procedures
The MMFLA requires provisioning centers to remit the provisioning center tax to the Department by 30 days after the end of the calendar quarter for the preceding calendar quarter. The draft RAB states that the remittance must be accompanied by a form prescribed by the Department. The form will require a disclosure of the provisioning center’s gross quarterly retail receipts as well as the amount of provisioning center tax due.
The Department is proposing that the return and remittance of tax will be required to be submitted electronically through Michigan Treasury Online. One significant issue not addressed in the draft RAB is how unbanked businesses are supposed to make payments if the only means the State allows is an online system.
Sales and Use Tax
Under current law, the General Sales Tax Act (the “GSTA”) imposes a 6 percent sales tax on the gross proceeds of all persons engaged in the business of making sales at retail. Similarly, the Use Tax Act (the “UTA”) imposes a 6 percent tax for the privilege of using, storing or consuming tangible personal property in Michigan, if no sales tax has been paid on that property.
The draft RAB states that all retail sales of marihuana and marihuana derived products by a provisioning center will be subject to sales tax. Further, a registered caregiver under the MMMA “may receive compensation for costs associated with assisting a registered qualifying patient in the medical use of marihuana.” Under the MMMA, the compensation received by the caregiver does not constitute the sale of controlled substances. Accordingly, a caregiver’s service is a non-taxable service and not subject to sales tax. The Department, however, is taking the position that a patient who receives marihuana from a caregiver will be subject to a use tax at a rate of 6 percent of the purchase price of the marihuana. The use tax is supposed to be remitted and reported annually on the patient’s Michigan Individual Income Tax Return.
Finally, the draft RAB states that marihuana-infused products (i.e., edible substances, beverages, etc.) are not eligible for the sale/use of food exemptions under the GSTA and the UTA because they are consumed for their medicinal value rather than nutritional purposes.
When it comes to calculating the amount of sales and use tax, the draft RAB states that the sales and use tax bases include the 3 percent provisioning center tax. By way of example, the draft RAB sets forth the following illustration:
“ABC, Inc. is a provisioning center. ABC sells marihuana to Customer for a sales price of $100. ABC is liable for $3 in tax under the MMFLA (i.e., provisioning center tax). ABC also is liable for sales tax based on 6 percent of $103, which amounts to a sales tax liability of $6.18.”
As noted above, the draft RAB is open for review and comment to the public until November 6, 2017. Anyone wishing to offer comments to the Department should email the Department’s tax policy division at firstname.lastname@example.org .