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Arkansas Medical Marijuana Act and Sales Tax

  • Nov 6, 2012 | Gail Cole

Today, Arkansas voters will decide on Issue 5, the Arkansas Medical Marijuana Act. If approved, the medical use of marijuana by qualifying patients will be legal under Arkansas state law. If Issue 5 passes on November 6, 2012, Arkansas will be the first state in the southern United States to legalize marijuana, joining California, Vermont, and fifteen other states.  

Arkansas lawmakers are already considering the tax implications of legalized marijuana. Earlier this year, Senator Jeremy Hutchinson and Senator Johnny Key requested the Arkansas Attorney General's opinion regarding the taxability of marijuana. They asked,

"If passed by voters, will Issue 5 prohibit the General Assemby from taxing the purchase of marijuana, through either sales tax or by levying a special use tax? 

On October 30, Attorney General Dustin McDaniel issued an opinion in response to their inquiry, in which he "respectfully decline[d]" to respond. The issue will be addressed if and when medical marijuana is made legal.

The taxation of marijuana is a complicated issue, especially since it remains illegal at the federal level. In California, where medical marijuana has been legal under state law since 1996, there is still no "statewide regulatory framework for the medical cannabis industry." In Maine, marijuana that is smoked is taxed at 5%, while marijuana that is transmitted by food, as in pot brownies, is taxed at the prepared food tax rate of 7%.

A number of other states are also considering the legalization of marijuana this election, including Washington State and Illinois. Exactly how transactions involving marijuana will be taxed in these states remains to be seen. With Washington's Initiative 502, for example, the assumption is that "[g]eneral state and local sales and use taxes will apply to retail sales of tangible personal property, which includes usable marijuana." However, the initiative recognizes that "some marijuana-infused products could be exempt… ."

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.