AndreTaxCo, PLLC

Illinois 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. Illinois conforms to the Internal Revenue Code. The starting point is Federal Adjusted Gross Income. There is no provision that states Section 280E does not apply.

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

  • Yes. Illinois conforms to the Internal Revenue Code. The starting point is Federal taxable income. There is no provision that states Section 280E does not apply.

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

  • No, subject to 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 Illinois R&D Credit Summary​

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State Law Background

(1) Hemp State Law Authority & Background​ - N/A

• Ill. Ann. Stat. ch. 720 § 550/15.2 (2016)

  • Creates an industrial hemp pilot program which allows the Illinois Department of Agriculture or state institutions of higher education to grow hemp for research purposes.

  • Requires institutions of higher education provide annual reports to the department.

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(2) Medical Marijuana State Law Authority & Background 

• Statutory Language (year) - HB 1 (2013) Eff. 1/1/2014

• Rules Adult use legalization SB 0007 bill passed legislature May, 2019, signed by governor June 25, 2019, Effective Jan. 1, 2020.

  • Patient Registry or ID cards - Yes

  • Allows Dispensaries - Yes

  • Specifies Conditions - Yes

  • Recognizes Patients from other states - No

  • State Allows for Retail Sales/Adult Use - Measure approved by legislature in May, 2019, signed by governor June 25, 2019. Effective Jan. 1, 2020.

• Are sales of medical marijuana subject to sales tax?

  • Yes, but at a reduced rate. Medical marijuana is taxed at the 1% pharmaceutical rate. See ILCS Chapter 35 § 120/2-10; ILCS Chapter 35 § 105/3-10; Ill. Admin. Code 86 Sec. 130.311(a).
    For reference: Illinois Admin. Code

• Is medical marijuana subject to an excise tax?

  • Yes. In addition to other occupation or privilege taxes, until July 1, 2020, a Medical Cannabis Cultivation Privilege Tax is imposed on the privilege of cultivating medical cannabis at a rate of 7% of the sales price per ounce. The tax is calculated based on the sales price of the number of ounces or partial ounces of usable medical cannabis sold by a cultivation center. The tax will be paid by the cultivation center and is not the responsibility of a dispensing organization or a qualifying patient. See ILCS Chapter 410 Sec. 130/200(a); ILCS Chapter 410 Sec. 130/220 Ill. Admin. Code 86 Sec. 429.110(a); Ill. Admin. Code 86 Sec. 429.110(d).

    • For reference: Medical Cannabis Cultivation Privilege Tax Regulations

  • NOTE: Income Tax surcharge. Effective January 1, 2014, a surcharge is imposed on all taxpayers on income arising from the sale or exchange of capital assets, depreciable business property, real property used in the trade or business and IRC Sec. 197 intangibles of an organization registrant under the Compassionate Use of Medical Cannabis Pilot Program Act. See ILCS Chapter 35 Sec. 5/201(o); Ill. Admin. Code 86 Sec. 100.2060(a).

    • For reference: Compassionate Use of Medical Cannabis Surcharge

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(3) Recreational Marijuana State Law Authority & Background​​​ (Recreational – permitted sales still pending)​

• Legislation: HB 1438

• Law: Cannabis Regulation and Tax Act

  • Effective: Jan. 1, 2020

  • Illinois Medical Marijuana Laws: Medical cannabis patients are not subject to the limits of the recreational law and may possess up to 2.5 oz marijuana per 14 days and grow up to five plants that exceed five inches tall.

  • Possession and Cultivation Limits: Age: 21+

  • Usable Marijuana: up to 1 oz (30 g) for residents and 500 milligrams of THC contained in a cannabis-infused product for state residents (15 g/250 mg non-residents)

  • Plants: None

  • Hash & Concentrates: up to 5 g (2.5 g non-residents)

• Are sales of recreational marijuana subject to sales tax?

  • N/A; Effective: Jan. 1, 2020

• Is recreational marijuana subject to an excise tax?

  • N/A; Effective: Jan. 1, 2020

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

• Yes. The Cannabis and Controlled Substances Tax on dealers who illegally possess cannabis. A dealer is a person who, in violation of the Illinois Controlled Substance Act or Cannabis Control Act, manufactures, produces, ships, transports, imports, sells, or transfers or possesses with intent to deliver to another person more than 30 grams of cannabis. The rate is $10 on each gram of cannabis or part of a gram.

• For reference: Cannabis and Controlled Substances Tax Act