New Guidance on Recreational Cannabis Taxation in New Jersey

Types : Alerts

It is an exciting time to own a cannabis business in New Jersey and, amidst the excitement, it is essential that cannabis business owners stay informed of any developments in state and local government regulation of recreational cannabis businesses. This update provides a brief summary of the taxes applicable to recreational cannabis businesses in New Jersey.

In July 2022, the New Jersey Division of Taxation released additional guidance on the taxation of recreational cannabis businesses.[1] Recreational cannabis businesses are subject to the New Jersey Sales and Use Tax and cannabis businesses holding “Cultivator Licenses” are subject to the Social Equity Excise Fee (“SEEF”). Recreational cannabis businesses may also be subject to municipal taxes.

Sales and Use Tax

All recreational cannabis sales in New Jersey are subject to the New Jersey Sales and Use Tax at a current rate of 6.625%. These sales must be reported on Form ST-50C and remitted to the New Jersey Division of Taxation quarterly. A recreational cannabis business may be exempt from the New Jersey Sales and Use Tax if it obtains a certificate for: (i) Resale, (ii) Purchase of Production Equipment, (iii) Purchase of Wrapping Supplies, and (iv) Farming Enterprises. These exceptions apply only in certain circumstances and must be approved by the New Jersey Division of Taxation. The sale of medical cannabis is no longer subject to New Jersey Sales and Use Tax.

Cultivator Licenses: Social Equity Excise Fee (SEEF)

All recreational cannabis businesses must obtain a license in one of the following categories: (i) Class 1 Cultivator Licenses, (ii) Class 2 Manufacturer Licenses, (iii) Class 5 Retailer or (iv) Testing Laboratories. Class 1 Cultivators license holders are required to charge a Social Equity Excise Fee on the sale or transfer of recreational cannabis to another cannabis business except when selling to another Class 1 Cultivator or a medical cannabis business. The 2022 SEEF rate is $1.10 per ounce and is determined annually by New Jersey Cannabis Regulatory Commission (“CRC”). The SEEF must be reported on Form SF-100 and remitted to the New Jersey Division of Taxation monthly. The SEEF is not imposed on retail consumers.

Municipal Taxes

Under the CREAMM Act, a municipality in New Jersey may impose a local transfer or use tax on the sale of recreational cannabis by a license holder in any of the four classes. The rates may not exceed: (i) 2% of the receipts from each sale by a cannabis cultivator; (ii) 2% of the receipts from each sale by a cannabis manufacturer; (iii) 1% of the receipts from each sale by a cannabis wholesaler; or (iv) 2% of the receipts from each sale by a cannabis retailer.[2]

If you have any cannabis questions related to your business, please contact our Cannabis Group at Montgomery McCracken Walker & Rhoads, LLP.

________________________

[1]New Jersey State Division of Taxation, Publication ANJ-30: N.J. State Tax. Reporter 402-480 (July 2022).

[2]N.J. Rev. Stat. § 40:48I-1 (2021).