To pay cannabis taxes, confirm the taxes your state and locality require, register with the proper tax agency, file each return by its due date, and remit payment through the agency’s approved portal or payment channel. Licensed cannabis businesses usually owe excise tax, sales and use tax, income tax, payroll tax, and local cannabis taxes, while consumers typically pay cannabis taxes at checkout as part of the retail price.
Who Pays Cannabis Taxes?
Cannabis taxes reach different parties depending on the tax and the state. Consumers pay retail cannabis taxes at the point of sale. Licensed cultivators, processors, distributors, and retailers collect, report, or pay taxes based on their license and activity. A business that holds more than one license may have more than one filing obligation.
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Paying one cannabis tax does not satisfy the others. A retailer might remit sales tax, cannabis excise tax, local business tax, and payroll withholding through different accounts and due dates. Always match each return to the correct license, account number, and tax period.
Step-by-Step: How to Pay Cannabis Taxes
- Confirm your tax obligations. Review your license type, state tax registration, local rules, and the taxes that apply to cultivation, manufacturing, distribution, or retail sales. List excise, sales and use, income, payroll, and local taxes separately.
- Register with the right agencies. Apply for a sales tax permit or seller’s permit, a cannabis excise account, and any local cannabis tax account. Register for payroll withholding and unemployment accounts when you hire employees. Use the legal business name, license number, and federal employer identification number consistently.
- Set up filing and payment access. Create online portal credentials, enroll in electronic funds transfer or ACH if required, and confirm accepted payment methods. Some agencies accept check, money order, or in-person cash payment; others require electronic payment.
- File each return by its due date. Report gross receipts, taxable sales, excise quantities or prices, deductions, credits, and exemption certificates as required. File a zero return when the agency requires one, even if no tax is due.
- Remit payment with the return or by the separate payment deadline. Include the account number, license number, and tax period in the payment reference. Save the confirmation number and a copy of the submitted return.
- Reconcile and keep records. Compare point-of-sale reports, seed-to-sale or track-and-trace data, invoices, exemption certificates, returns, and payment confirmations. Retain records for the period your state requires.
Common Cannabis Tax Types
- Cannabis excise tax. A tax on cannabis products, often calculated by weight, potency, or retail price. The licensed business generally reports and pays it, though the cost may be built into the retail price.
- Sales and use tax. A tax on retail sales and certain purchases. Retailers collect it from customers and remit it to the state or local tax agency.
- Income tax. Federal and state income tax on business profits. Federal rules for cannabis businesses can limit deductions, so review IRC Section 280E with a tax professional.
- Payroll taxes. Withholding, Social Security, Medicare, federal unemployment, and state unemployment taxes for employees.
- Local cannabis taxes. City or county taxes, business license taxes, or special cannabis fees that may require separate registration and filing.
Payment Methods and Banking
Use the payment method your agency accepts. Electronic funds transfer and ACH are common for business taxpayers. Credit and debit card payments may be unavailable or limited for cannabis tax payments because of federal banking rules. Some state offices accept cash in person, and some businesses use approved third-party payment processors. Keep business bank accounts separate from personal accounts, and do not send cash by mail.
Federal Income Tax and IRC Section 280E
Cannabis is still a controlled substance under federal law, but cannabis businesses remain subject to federal income tax. IRC Section 280E limits deductions for expenses paid or incurred in carrying on a trade or business that consists of trafficking in controlled substances. This can raise taxable income even when the business has cash-flow pressure. Make estimated tax payments and work with a tax professional who understands cannabis.
Deadlines, Penalties, and Payment Plans
Due dates come from state and local agencies and can differ by tax type. Late returns and late payments can trigger penalties and interest. If you cannot pay in full, contact the tax agency before the due date to ask about a payment plan or short-term relief. Skipping a return usually makes the problem worse than paying late.
If You Are a Consumer
If you are asking how to pay cannabis taxes as a customer, you usually do not file a cannabis tax return. The retailer adds the applicable sales tax and cannabis excise tax to your purchase, and you pay them at checkout. Check your receipt to see the taxes charged, and keep the receipt for your records.
When to Get Professional Help
Get help if you hold licenses in more than one state, operate multiple license types, have back taxes, face an audit, or need to apply IRC Section 280E. A cannabis tax accountant or attorney can map your filings, payment deadlines, and recordkeeping requirements.