Minnesota Cannabis & Hemp Industries
IRC § 280E Analysis / R&D Tax Credit Eligibility
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Does Section 280E Apply to state individual income tax?
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Yes. Minnesota 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.
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For reference: Medical Cannabis Laws and Rulemaking; Tax Information on Medical Cannabis
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Does Section 280E apply to state corporate income tax?
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Yes. Minnesota conforms to the Internal Revenue Code. The starting point is Federal taxable income. There is no provision that states Section 280E does not apply.
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For reference: Medical Cannabis Laws and Rulemaking; Tax Information on Medical Cannabis
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Medical cannabis manufacturers can deduct certain expenses that were claimed on their federal tax return. No additional form is required because Minnesota follows federal tax treatment of business expenses. Generally:
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They can deduct expenses reported on federal Form 1125A, Cost of Goods Sold.
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They cannot deduct “ordinary business expenses” covered by Section 162 of the Internal Revenue Code pursuant to Section 280E.
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Are State R&D Tax Credits Potentially Eligible for "Plant Touching" (e.g. producers, cultivators, manufacturers, retailers) Cannabis Companies?
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No, subject to further 280E restrictions.
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Are State R&D Tax Credits Potentially Eligible for Industrial Hemp Companies & "Non-Plant Touching" Separate Trade or Businesses (e.g. testing laboratories)?
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Yes, subject to further 280E analysis regarding company activities, structure, and applicable state laws.
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State Law Background
(1) Hemp State Law Authority & Background
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Minn. Stat. § 18K.01 to 18K.09 (2016)
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Establishes a commercial hemp licensing program overseen by the Minnesota commissioner of agriculture.
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Applicants must prove they comply with all federal hemp regulations, meaning that commercial licenses may not be available until federal law changes.
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Allows the commissioner to implement an industrial hemp pilot program. Institutions of higher education may apply to participate in this program.
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(2) Medical Marijuana State Law Authority & Background
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Statutory Language (year) - SF 2471, Chapter 311 (2014)
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Patient Registry or ID cards - Yes
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Allows Dispensaries - Yes, limited, liquid extract products only
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Specifies Conditions - Yes
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Recognizes Patients from other states - No
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State Allows for Retail Sales/Adult Use - N/A
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Are sales of medical marijuana subject to sales tax?
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No. Medical cannabis is not subject to sales or tobacco tax. However, sales tax applies to the purchase of a vaporizing device used for medical cannabis.
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Sales Tax Exemptions. Medical cannabis manufacturers may be eligible for the following sales tax exemptions on certain purchases:
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Agricultural production
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Farm machinery and equipment
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Capital equipment exemption
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Industrial production exemption
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Is medical marijuana subject to an excise tax?
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No
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(3) Recreational Marijuana State Law Authority & Background - N/A
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Are sales of recreational marijuana subject to sales tax?
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N/A.
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Is recreational marijuana subject to an excise tax?
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N/A.
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(4) Does the State impose a Stamp Tax or Controlled Substances Tax?
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No. Buying marijuana stamps or controlled substance stamps is not required for medical marijuana.
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However, the Minnesota Marijuana and Controlled Substance Tax imposes a tax on any person who, in violation of Minnesota law, manufactures, sells, or is in possession of unstamped marijuana. The tax rate is $3.50 on each gram of marijuana, or each portion of a gram. Persons lawfully in possession of marijuana are not required to pay the tax. Official stamps, labels or other indicia to be affixed to all marijuana must be purchased from the Commissioner of Revenue.