AndreTaxCo, PLLC

Michigan Cannabis & Hemp Industries 

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IRC § 280E Analysis / R&D Tax Credit Eligibility

• Does Section 280E Apply to state individual income tax?

  • No. Sec. 333.27962 Deduction of certain expenses from income. Sec. 12.

    • "In computing net income for marihuana establishments, deductions from state taxes are allowed for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying out a trade or business." Effective Dec. 6, 2018.

• Does Section 280E apply to state corporate income tax?

  • No. Sec. 333.27962 Deduction of certain expenses from income. Sec. 12.

    • "In computing net income for marihuana establishments, deductions from state taxes are allowed for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying out a trade or business." Effective Dec. 6, 2018.

• Are State R&D Tax Credits Potentially Eligible for "Plant Touching" (e.g. producers, cultivators, manufacturers, retailers) Cannabis Companies?

  • Yes​, subject to further 280E analysis regarding company activities, structure, and applicable state laws. 

• Are State R&D Tax Credits Potentially Eligible for Industrial Hemp Companies & "Non-Plant Touching" Separate Trade or Businesses (e.g. testing laboratories)?

  • Yes​, subject to further 280E analysis regarding company activities, structure, and applicable state laws.

• See Michigan R&D Credit Summary​

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State Law Background

(1) Hemp State Law Authority & Background​ 

• Mich. Comp. Laws § 286.841 to 286.859 (2016)  

  • Creates an industrial hemp research program allowing the Michigan Department of Agriculture and Rural Development and institutions of higher education to grow hemp for research purposes.

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(2) Medical Marijuana State Law Authority & Background ​

• Statutory Language (year) - Proposal 1 (2008)

  • Patient Registry or ID cards - Yes

  • Allows Dispensaries - Not in state law, but localities may create ordinances to allow them and regulate them.

  • Specifies Conditions - Yes

  • Recognizes Patients from other states - Yes, for legal protection of possession, but not for dispensary purchases.

  • State Allows for Retail Sales/Adult Use - Proposal 18-1 (2018)

• Are sales of medical marijuana subject to sales tax?

  • Yes. Sales of recreational marijuana are subject to state sales tax (plus applicable local taxes).

  • General Sales Tax Act (GSTA)  imposes a 6% sales tax on the gross proceeds of “all persons engaged in the business of making sales at retail, by which ownership of tangible personal property is transferred for consideration….” See MCL 205.52(1).

    • All marihuana products are “tangible personal property” as defined by the GSTA and UTA. MCL 205.51a(q) and MCL 205.92(k).

  • The Use Tax Act (UTA) imposes a 6% tax “for the privilege of using, storing, or consuming tangible personal property in this state….” See MCL 205.93(1).

  • See Michigan REVENUE ADMINISTRATIVE BULLETIN 2018-2

• Is medical marijuana subject to an excise tax?

  • Yes. Effective December 20, 2016, the Medical Marijuana Facilities Licensing Act imposes a tax on each marijuana provisioning center at the rate of 3% of the provisioning center's gross retail receipts. This tax is imposed in addition to the general sales tax.

  • For reference: Michigan Revenue Administrative Bulletin 2018-2

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(3) Recreational Marijuana State Law Authority & Background​​​

• Ballot Measure: Proposal 1 — Approved Nov. 6, 2018 by 56% of voters

  • State Website: Michigan Department of Licensing and Regulatory Affairs (LARA)

    • MICHIGAN REGULATION AND TAXATION OF MARIHUANA ACT

    • Effective: Unspecified, likely in Dec. 2018

    • Michigan Medical Marijuana Laws: Medical cannabis patients may possess up to 2.5 ounces of usable marijuana and twelve marijuana plants kept in an enclosed, locked facility.

    • Possession and Cultivation Limits: Age: 21+

    • Usable Marijuana: 2.5 oz; up to 10 ounces at home, but amounts over 2.5 ounces must be kept in locked containers

    • Plants: up to 12 plants

    • Hash & Concentrates: 15 grams of marijuana may be in the form of marijuana concentrate

• Are sales of recreational marijuana subject to sales tax?

  • Yes. Sales of recreational marijuana are subject to state sales tax (plus applicable local taxes).

  • General Sales Tax Act (GSTA)  imposes a 6% sales tax on the gross proceeds of “all persons engaged in the business of making sales at retail, by which ownership of tangible personal property is transferred for consideration….” See MCL 205.52(1).

    • All marihuana products are “tangible personal property” as defined by the GSTA and UTA. MCL 205.51a(q) and MCL 205.92(k).

  • The Use Tax Act (UTA) imposes a 6% tax “for the privilege of using, storing, or consuming tangible personal property in this state….” See MCL 205.93(1).

  • See Michigan REVENUE ADMINISTRATIVE BULLETIN 2018-2

• Is recreational marijuana subject to an excise tax?

  • Yes. See Sec. 333.27963 Imposition of excise tax. In addition to all other taxes, an excise tax is imposed on each marihuana retailer and on each marihuana microbusiness at the rate of 10% of the sales price for marihuana sold or otherwise transferred to anyone other than a marihuana establishment.

  • Except as otherwise provided by a rule promulgated by the department of treasury, a product subject to the tax imposed by this section may not be bundled in a single transaction with a product or service that is not subject to the tax imposed by this section.

  • The department of treasury shall administer the taxes imposed under this act and may promulgate rules pursuant to the administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to MCL 24.328, that prescribe a method and manner for payment of the tax to ensure proper tax collection under this act.

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(4) Does the State impose a Stamp Tax or Controlled Substances Tax?

• No