Illinois – Medical Cannabis Law Creates New Tax Obligations

SALT Report 2812 – On August 1, 2013, Illinois Governor Pat Quinn signed the Compassionate Use of Medical Cannabis Pilot Program Act into law. The Act imposes a surcharge on all income derived from a medical cannabis cultivation center, a medical cannabis dispensary, and other related properties.  The Act also imposes a privilege tax on medical cannabis cultivation activities and amends the definition for prescription and nonprescription drugs.

Privilege Tax

A 7% tax will be imposed on the per ounce sales price of medical cannabis for the privilege of cultivating medical cannabis. The 7% privilege tax is in addition to all other Illinois state and local occupation and privilege taxes. The privilege tax will only be imposed on cultivation centers; it will not apply to dispensing organizations or patients.

Anyone subject to the tax will be required to apply for a certificate of registration from the Department of Revenue.  However, if a retailer already holds a certificate of registration for purposes of the retailers’ occupation tax, it will not need to register separately as a business selling medical cannabis.

For reporting purposes, the Department will require, on or before the 20th day of each month, anyone subject to the privilege tax to file a return and pay any taxes due to the Department. In addition, the Department has been granted the authority to adopt rules regarding the enforcement of the medical cannabis privilege tax law.

For purposes of the privilege tax, a “cultivation center” is a facility that is operated by an organization or business that is registered by the Department of Agriculture to perform necessary activities to provide registered medical cannabis dispensing organizations with usable medical cannabis.

Prescription and Nonprescription Drugs

For purposes of the sales, use, retailers’ occupation and service occupation taxes, the definition of “prescription and nonprescription drugs” has been amended to include medical cannabis purchased from a registered dispensing organization under the Compassionate Use of Medical Cannabis Pilot Program Act.

The provisions in the Act are effective January 1, 2014.

For Further Information

Illinois State Legislature – Public Act 98 – 122, House Bill 1, Laws 2013