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Utah Cannabis & Hemp Industries 

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

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

    • Yes. There is no provision that states Section 280E does not apply. 

    • Provisions of the Internal Revenue Code (IRC) that Utah incorporates by reference are adopted as in effect during the year in which Utah taxable income is determined. (Sec. 59-7-101(19), Utah Code Ann. ) It is Utah State Tax Commission policy to follow federal requirements if possible in the determination of net income, unless (1) state and federal laws differ or (2) the Tax Commission disagrees with the federal determinations and does not consider them controlling for Utah corporation franchise tax purposes.

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

    • Yes. There is no provision that states Section 280E does not apply. 

    • Provisions of the Internal Revenue Code (IRC) that Utah incorporates by reference are adopted as in effect during the year in which Utah taxable income is determined. (Sec. 59-7-101(19), Utah Code Ann. ) It is Utah State Tax Commission policy to follow federal requirements if possible in the determination of net income, unless (1) state and federal laws differ or (2) the Tax Commission disagrees with the federal determinations and does not consider them controlling for Utah corporation franchise tax purposes.

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

    • No​, subject to further 280E restrictions. 

  • 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 Utah R&D Credit Summary​

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State Law Background

(1) Hemp State Law Authority & Background​ ​

  • Utah Code Ann. § 4-41-101 to 4-41-105 (2016)

    • Allows the Utah Department of Agriculture to grow hemp for research purposes.

    • Requires that the department certify institutions of higher education to grow hemp for research purposes.

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(2) Medical Marijuana State Law Authority & Background - Limited Access Marijuana Product Laws (low THC/high CBD- cannabidiol)

  • Statutory Language (year) - HB 105 (2014) Hemp Extract Registration Act; Prop 2 (2018) replaced by HB 3001 HB 3001 2018- Third Special Session (2018 Comprehensive Update)

  • On December 3, 2018, Utah lawmakers passed House Bill 3001: Utah Medical Cannabis Act. This legislation replaces Ballot Proposition 2, which was approved by Utah voters in the November 2018 general election.

  • The Utah Medical Cannabis Act directs the Utah Department of Health (UDOH) to issue medical cannabis cards to patients, register medical providers who wish to recommend medical cannabis treatment for their patients, and license medical cannabis pharmacies. These activities must be implemented by  March 1, 2020. However, the UDOH is working to implement the Utah Medical Cannabis Act as quickly as possible prior to the March 2020 deadline.

  • See Medical Cannabis Processing License Procurement

    • Patient Registry or ID cards – Yes (Yes - 2018 Prop 2)

    • Allows Dispensaries - Not completely clear, however it may allow higher education institution to grow or cultivate industrial hemp. (Yes - 2018 Prop 2)

    • Specifies Conditions - Yes, intractable epilepsy that hasn't responded to three or more treatment options suggested by neurologist. (Yes - 2018 Prop 2)

    • Recognizes Patients from other states – No (Yet to be determined - 2018 Prop 2)

    • State Allows for Retail Sales/Adult Use - "Hemp extracts" with less than .3% THC by weight and at least 15% CBD by weight and contains no other psychoactive substances

  • Are sales of medical marijuana subject to sales tax?

    • Medical cannabis and medical cannabis products are exempt from sales tax.

    • See  59-12-104.10. Exemption from sales tax for cannabis

  • Is medical marijuana subject to an excise tax?

    • In addition to the exemptions described in Section 59-12-104, the sale by a licensed medical cannabis pharmacy or the state central fill medical cannabis pharmacy of the following is not subject to the taxes this chapter imposes:

      • (a) cannabis in a medicinal dosage form; or

      • (b) a cannabis product in a medicinal dosage form.

    • The sale of a medical cannabis device by a medical cannabis pharmacy or the state central fill medical cannabis pharmacy is subject to the taxes this chapter imposes.

    • See  59-12-104.10. Exemption from sales tax for cannabis

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(3) Recreational Marijuana State Law Authority & Background​​​ - N/A​

  • Are sales of recreational marijuana subject to sales tax?

    • N/A.

  • Is recreational marijuana subject to an excise tax?

    • N/A.

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

  • No. The Illegal Drug Stamp Act was repealed effective July 1, 2012. See Utah Code Ann. § 59-19-103.

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