Tax Benefit Question:

Do medical marijuana facilities qualify for the manufacturer’s sales and use tax exemptions?

This important tax benefit can realize a one-time or even annualized savings of more than six figures for manufacturing companies.

Highlights

A gray area of an important Missouri tax benefit has been clarified recently for the medical marijuana (MMJ) industry in Missouri.

MoCannTrade, the Missouri Medical Cannabis Trade Association, met with Missouri Department of Revenue (DOR) leadership to gain clarification on how the manufacturer’s sales and use tax exemptions apply to the MMJ industry.

Response from Missouri Department of Revenue

“There is no prohibition to a marijuana facility to qualify as a manufacturer due to their specific industry or category of product produced. Medical cannabis manufacturing facilities will have to follow the same procedures as any other business claiming a manufacturing exemption and it will be determined on a case by case basis, as it would be for any other business,” said DOR Senior Counsel Thom Houdek.

David Smith, president of Smith Patrick CPA, participated in the MoCannTrade discussions with the Missouri DOR.

“We had a number of conversations with the DOR, clarifying our position. Although it looked a little rocky at times, we’re pleased to get a positive formal position statement on the tax policy. It’s beneficial that medical marijuana facilities will be considered for the same tax benefits as any other manufacturer in Missouri,” Smith said.

Supporting Documentation and Forms

To help facilitate this process for MMJ cultivation or manufacturing facilities in MO, here’s the FAQ directly from the DOR website on this specific matter.

Does Missouri offer a sales tax exemption for manufacturers?

Yes. Replacement machinery, equipment, and parts, and the materials and supplies solely required for the installation or construction of such replacement machinery, equipment, and parts, used directly in manufacturing, mining, fabricating or producing a product which is intended to be sold ultimately for final use or consumption are exempt.

Materials and supplies are also exempt when they are required solely for the operation, installation or construction of the machinery and equipment purchased and used to establish a new, or to replace or expand existing, material recovery processing plants in the state of Missouri.

Parts, and the materials and supplies are also exempt when they are solely required for the installation or construction of such machinery and equipment purchased and used to establish new or to expand existing manufacturing, mining or fabricating plants in the state of Missouri, if such machinery and equipment is used directly in manufacturing, mining or fabricating a product which is intended to be sold ultimately for final use or consumption.

Section 144.054 RSMo, exempts purchases of machinery, equipment, materials and chemicals used or consumed in manufacturing, processing, compounding, mining, or producing any product or used in research and development related to manufacturing, processing, compounding, mining, or producing any product from state tax and local use tax, but not local sales tax.

For additional MO exemptions info, please refer to Section 144.030 RSMo which also highlights exemptions for Electrical energy used in the actual primary manufacture, processing, compounding, mining or producing of a product, or electrical energy used in the actual secondary processing or fabricating of the product, or a material recovery processing plant as defined in subdivision (4) of this subsection, in facilities owned or leased by the taxpayer. Keeping in mind, it is the facility or taxpayers responsibility to ensure it qualifies for these benefits.

In Summary

Manufacturing companies in the medical marijuana industry do qualify for the manufacturer’s sales and use tax exemptions just like any other manufacturing company. However, keep in mind that it is the facility or taxpayer’s responsibility to ensure qualification for these benefits and exemptions, with DOR making the final determinations.

More Information

For additional guidance and clarity on the process and requirements to qualify for manufacturer’s sales and use tax exemptions, view MoCannTrade’s article and listing of other important links to the relevant state laws and rules.

If you’re looking for advisors who are knowledgeable and involved in regulatory environment for the cannabis industry accounting and tax rules, call 314-961-1600 or schedule directly here to discuss your situation.

About Smith Patrick CPA

Smith Patrick CPA is a St. Louis-based, family-owned CPA firm dedicated to providing personal guidance on taxes, investment advising and financial services to small businesses and financially active individuals. For over 30 years, our firm has focused on providing excellent service to businesses, non-profits, individuals and government agencies in St. Louis and the surrounding areas. Investment Advisory Services are offered through Wealth Management, LLC, a Registered Investment Advisor.