Cannabidiol (CBD) is a naturally occurring substance produced in hemp plants. While it carries a connotation to the term marijuana, the truth is these products vary in their composition. CBD contains minute or no amounts of Tetrahydrocannabinol (THC), the psychoactive compound in marijuana. When ingested, CBD product does not give the user the same feeling of intoxication. The theory behind CBD products is to promote therapeutic benefits. In many cases, these products have not been approved by the FDA (Epidiolex has been approved, used to treat children with epileptic syndromes). In 2018, the US Farm Law that legalized the cultivation of industrial hemp, also made hemp-derived CBD legal.
Selling CBD Oil
When looking at CBD oil from a sales tax perspective, it is important to note that state laws vary widely on the topic. Some states only allow usage for medical treatments. Others limit the amount of THC content that can be found in CBD. Laws are continuously being developing to maintain and tax this product.
No formal ruling has been issued to regulate CBD oil specifically. It is currently available to consumers from multiple retail locations (i.e., Vape shops and gas stations). These products can also be purchased online. New York State taxes CBD oil as Tangible Personal Property (“TPP”), stating this product does not qualify as a health supplement or medicine. One important note, CBD oil is also not a form of Medical Marijuana by New York law, which is subject to a 7% excise tax.
California makes a distinct determination of CBD products that contain cannabis and ones that only have a trace amount. The cannabis excise tax is 15% charged to all cannabis retailers from distributors in California. The retailers then charge their consumers the excise tax rate as well. However, there are exemptions from sales of medicinal cannabis.
On the other hand, CBD products that are derived from the hemp plant and contain only traces of THC are not subject to the cannabis excise tax. However, they are subject to sales tax as the sale of TPP.
CBD oil is taxable as TPP, unless it qualifies for a medicinal product or is sold by a Medical Marijuana Treatment Center (MMTC). Many people involved in CBD dealings believe that it qualifies for the Nontaxable Medical Items and General Grocery List. They argue that this product qualifies for health supplements, however, Florida State disagrees.
The state of Vermont “recognizes hemp as an agricultural product that may be lawfully grown as a crop, produced, possessed, and commercially traded in the state (6 VSA § 563).” It is considered to be TPP, which is subject to a 6% rate. CBD is not exempt as an agricultural supply, a drug, a food ingredient, or dietary supplement.
In the case of meal tax, CBD products can be exempt from sales tax. Since meals and sales tax are exclusive in nature, CBD, as part of a meal would not be eligible to be taxed for sales. It would be either taxable or exempt for meals tax, as it follows the taxability of the meal.
Beginning 1/1/2019, sales of hemp-based CBD products are subject to a 3% Louisiana excise tax for retail sales (Act 247 (HB 560), Laws 2019). This tax will not replace other taxes on the good but will be adding on to other state taxes. Medicinal CBD products that are approved will not be subject to the new excise tax.
The laws defining and governing CBD products derived from hemp plants are constantly changing. There is a lot of gray area, as new laws and government rulings are being made on a state-by-state basis. It is important to know the tax implications as a seller of CBD. For more information, please feel free to contact us at Info@pmbusinessadvisors.com.