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New Jersey and the Taxation of Medical Marijuana and Treatment Centers

The use of medical marijuana has been legal for "qualifying patients" in New Jersey since 2010. Late last month, the New Jersey Division of Taxation issued a tax bulletin that explains how New Jersey sales and use tax pertains to medical marijuana and medical marijuana alternative treatment centers.

According to TB-68, "Retail sales of medical marijuana are subject to tax." (N.J.S.A. 54:32B-3(a)). Qualifying patients are permitted to purchase medical marijuana "from authorized treatment centers which are responsible for producing and distributing the marijuana."

The first two treatment centers established in each region of New Jersey must be not-for-profit. Additional centers may operate for profit or not, as they choose. However, due to a number of State and Federal laws and regulations, medical marijuana treatment centers can not qualify as §501(c)(3) organizations; therefore they do not qualify for sales and use tax exemptions normally allowed for §501(c)(3) organizations.

That said, medical marijuana alternative treatment centers do qualify for certain sales and use tax exemptions in New Jersey.

Allowed Exemptions

"Medical marijuana alternative treatment centers which produce medical marijuana" are permitted to "purchase machinery which is used directly and primarily in the production of the medical marijuana without paying tax… ." (N.J.S.A. 54:32B-8.13(a)).

Some medical marijuana treatment centers also operate as a farming enterprise, in that they grow or cultivate medical marijuana. In such cases, sales tax exemptions may be claimed for "sales of tangible personal property and production and conservation services for use and consumption directly and primarily in the production, handling, and preservation for sale of medical marijuana. (N.J.S.A. 54:32B-8.16).

Items exempted under this statute include, but are not limited to:

  • farm equipment used for tilling, planting, maintaining or harvesting medical marijuana;
  • seeds, plants, liners, fertilizers when used directly at the farming enterprise for the purpose of producing and selling medical marijuana.

Suppliers must be given a properly completed Farmer's Exemption Certificate (Form ST-7).

Anything used to "contain, protect, wrap, and deliver medical marijuana to customers is exempt from New Jersey sales tax… ." (N.J.S.A. 54:32B-8.15).

New Questions for the Future

The taxation of marijuana is an interesting subject. On November 6, 2012, voters in both Washington State and Colorado approved the legalization of recreational marijuana. The people want the right to light a joint without being bothered by the authorities; the state governments want the revenue generated by the legal sale of marijuana. Now those states are tasked with figuring out how to tax something that is still illegal according to federal law.

photo credit: Matthew Kenwrick via photopin cc

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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.