We may see some tax changes for New York cannabis businesses. New York Governor Kathy Hochul has proposed changing New York’s potency-based cannabis tax system with a simplified wholesale tax structure under her proposed $233 billion budget plan. The proposed new system includes a 9% excise tax at the wholesale level for the transfer of products from a distributor to a cannabis retailer. Vertically integrated microbusinesses and registered organizations, where arm’s length transactions are nonexistent, would be taxed 9% of 75% of the retail price charged to a retail customer. The existing 9% state sales tax and 4% local sales tax on retail sales would not change under the plan.
Governor Hochul’s budget summary states the goal is to promote the expansion of the legal adult-use cannabis market and simplify tax collection for cultivators, processors, and distributors. The proposed change is estimated to lower the effective tax rate on the New York cannabis industry from its current 40% to an effective tax rate of approximately 30%. While this represents a substantial tax cut for suppliers and a price-based systems helps legitimate cannabis businesses compete with the illicit market, the new effective rate would still be higher than the effective rates of neighboring states (approximately 20% in Massachusetts and 10% in New Jersey).
The policy change is part of broader tax proposals and aims to be revenue-neutral. The Governor’s budget plan contains other tax proposals that are being challenged. The proposed budget will be negotiated with the Democratic-controlled Legislature with the goal of agreement on a final budget before the start of the fiscal year on April 1st. Of course, New York is no stranger to budget battles and late budget enactments.
Hurwitz Fine’s Cannabis Law team continues to monitor and analyze updates. Please contact any member of the firm’s team for guidance on these evolving issues at 716-849-8900, or by e-mail.