The Michigan Regulation and Taxation of Marihuana Act (MRTMA) imposes an excise tax on marijuana retailers and microbusiness licensed under the Act. We have fielded a number of inquiries as many firms have only recently prepared their quarterly filings. Here are four (4) early takeaways and frequently discussed topics.
1. An Extra Sixty Cents (Taxing tax) – Most retailers are accustomed to preparing and sending (hopefully) monthly sales tax returns. Those returns impose a 6% tax on the gross receipts of the retailer after discounts and allowances. The 10% excise tax calculation departs from the sales tax calculation when determining the composition of the tax base. Whereas the sales tax considers only the gross receipts minus discounts, the excise tax base determination begins with not only the retailers selling price, but also the 10 percent excise tax collected at the point for sale. This means that a $100 MRTMA purchase is first subject to a 10% excise tax, and then a 6% sales tax on both the gross selling price minus discounts and the excise tax collected, bringing the total price $116.60 (and not just $116).
2. Receipts Matter – Section C of Michigan Revenue Administration Bulletin (RAB) 2019-17 talks specifically of Bundled Transactions (e.g., combing the sales data of adult-use marijuana sold with property or service receipts stemming from transactions other than marijuana where the other products and/or services are sold for one non-itemized price). In such circumstances, retailers will subject the entire sales to the 10% excise tax, and not just the portion that constitutes adult use marijuana. Retailers should show extreme diligence and care to ensure their Point of Sale (POS) system processing transactions does not lump non-marijuana adult use items in with adult-use cannabis. For example, bowls, batteries, CBD Hemp Flower, shirts, and other swag items all constitute non-marihuana products and services that are sold under MRTMA, and yet remain exempt from the 10% excise tax.
According to RAB 2019-17, an invoice or similar sales document that separately itemizes and prices marijuana and non-marijuana property or services that are purchased together does not constitute a prohibited “bundled” or “single transaction.” Accordingly, then, patients are permitted to receive one paper invoice, however in order to mitigate tax exposure, as a best practice, the excise tax should be separately calculated and itemized.
3. Choosing the Best POS System – The point of sale systems available to Michigan firms are not created equally. Many of the budget friendly systems are unable to produce the type of reports necessary to accurately prepare and complete the Michigan Excise Returns because they do not provide relevant sales information in enough detail for analysis.
Retailers should make sure they select a POS system with customizable reporting metrics which include gross sales price, discounts or allowances, net sales price, and any corresponding tax calculation or estimate that management finds vital. This information should be easily reconcilable to the retailer’s general ledger, sales and excise tax returns and income tax returns.
Its also important to note that much of the information gleamed from these reports can also be used when the retailer undergoes its Annual Financial Statement Review. Having this information readily available will undoubtedly lead to a smoother engagement and perhaps a reduced fee.
4. MTO Online and Making Payment – Form 5676 is not available for download. It therefore must be prepared and filed online which means the firm must be registered with Michigan Treasury Online. Those retailers with access to banking should take advantage of the Michigan Treasury Online Direct Pay option to submit timely payments electronically. Others should practice extreme caution and diligence in ensuring that their returns are received and that payments are processed timely and accurately.
According to RAB 2019-17, the (Treasury) Department will determine how frequently marijuana retailers and microbusiness licensed under MRTMA must file returns and remit excise tax payments. According to the most recently release guidance, payments are accepted at any time during the week those returns are due. For those firms without access to banking, the Michigan Treasury has established several state-wide campuses for accepting and processing excise tax payments. Those locations, which require an appointment, are located throughout the state.
With the rules and regulations surrounding adult-use marihuana in Michigan being new, it’s reasonable to expect delays and confusion. COVID-19 has certainly added an unplanned level of complexity. For example, there are now an even fewer number of ways for firms to make their excise tax payments. Also unconsidered was the limited operating hours of the on-campus service centers and how that affects these mostly cash-based businesses from paying their tax timely.
For many businesses, the best strategy involves taking the steps necessary to keep tax accounts in compliance and documenting those efforts. If not registered on MTO Online, use the fast-file option and print the confirmation to provide evidence that the firm did in-fact seek to meet the filing window, but was unable to. Also keep also receipts of tax payments made. If assesses a penalty, these records may be helpful in seeking abatement.
