Starting July 1, 2023, Maryland will impose a sales and use tax rate of 9% on retail sales of adult-use cannabis and cannabis products. The Office of the Comptroller (“Comptroller”) released further guidance on the sales and use taxation of adult-use cannabis, including licensing, filing and recordkeeping requirements. Here’s a breakdown:

Licensing and Registration

• In addition to the licensing requirements imposed by the Maryland Cannabis Administration (“MCA”), cannabis businesses, namely dispensaries and on-site consumption lounges, making retail sales of cannabis and cannabis products must obtain a Sales and Use Tax License from the Comptroller for each business location and a Traders License from the Clerk of the Circuit Court of the county in which the business is located. If a cannabis business operates more than one sales location subject to the same ownership or general management, the business must also obtain a Chain License from the Clerk of the Circuit Court.
• Cannabis businesses must register with the State Department of Assessments and Taxation prior to applying for the above-noted licenses.

Filing Tax Returns and Remitting Payments

• The Comptroller strongly encourages businesses to file sales and use tax returns online using bFile. If online filing is not feasible, a business may file a paper return. It is important to note that cannabis businesses operating more than one location must file a separate sales and use tax return for each location.
• Due to federal requirements, the sales and use tax form does not include the term “cannabis” but refers to the bill number of the cannabis reform legislation.
  • Sales and Use Tax Return Form 202 should be used to report sales of cannabis.
    • Businesses must provide the physical address from which the business makes the sales.
    • Line 23 reads: “Taxable purchases subject to 9% rate under Senate Bill 516 of 2023”
  • Cannabis businesses must comply with the filing frequency assigned by the Comptroller, typically either monthly or quarterly based on sales volume.
    • Businesses assigned a monthly filing frequency must file by the 20^th day following the end of the month.
    • Businesses assigned a quarterly filing frequency must file by the 20^th day following the end of the quarter.
  • A business that files the sales and use tax return by the due date may claim a credit against the sales and use tax payment to the Comptroller. The maximum available credit per return is $500.00.

Record Retention

• By law, a business is required to make its business records available for inspection by an auditor from the Comptroller’s Office at any time during business house. Businesses bear the burden of demonstrating that it collected and paid the sales and tax correctly. Records must adequately distinguish taxable sales and purchases from non-taxable sales and purchases.
• Businesses must retain all records pertaining to sales and purchased for 4 years.

Exemptions

• Medical Cannabis – Sales of medical cannabis remain exempt from the sales and use tax.
  • Qualifying patients and caregivers must provide their MCA-issued medical identification card. Any amount of cannabis sold to a patient or caregiver that exceeds the amount certified by their provider is subject to the sales and use tax.
• Business-to-Business Transactions – The sales and use tax does not apply to sales of cannabis between cannabis businesses that licensed by the MCA.
  • In business-to-business transactions, buyers must present a re-sale certificate to sellers, which must include the buyer’s sales and use tax license number.
  • If a buyer is not required to have a sales and use tax registration number (because it does not engage in retail sales), the buyer should instead include its MCA license number on the resale certificate. The select should verify the buyer’s license number with the MCA and retain the resale certificate for audit purposes.
• Nonprofit Charitable, Educational or Religious Organizations – Such organizations are exempt from the sales and use tax on the condition that the purchase of cannabis or cannabis product is made to carry on the work of the organization. Any purchase to be used for an unrelated trade or for personal use is not

To learn more, visit https://www.marylandtaxes.gov/cannabis. If you would like to schedule a call to discuss how these developments may impact you or your cannabis business, contact Jonathan Wachs at jwachs@offitkurman.com or 301-575-0302.