Sales Tax on CBD Oil
The sale of hemp has grown dramatically over the last 12 months, and the popular CBD is a natural compound extracted from hemp. You will find over 3,000 listings on Amazon.com alone for CBD oil.
The CBD products (most popular is oils) are recognized for potential health benefits.
These products’ sudden rise has led to several state and local tax issues in a concise period.
Each state must determine if CBD is subject to sales tax. It is not like cut-and-dry products that are subject to sales tax in the 45 states and D.C. This is closer to taxable supplements in some states, but not others, based upon ingredients.
If a state determines your CBD product is subject to sales tax, you will need to measure your gross revenue and transactions in most states. Since the 2018 U.S. Supreme Court Case, Wayfair vs. South Dakota, states now have thresholds that create sales tax nexus when passed.
Track Your CBD Oil Sales and Transactions by State to Determine if You have Created Economic Nexus.
The most common is $100K in sales or 200 transactions. In states like California, you must pass $500K in sales before creating sales tax nexus. Once you have sales tax nexus, you are responsible for collecting and remitting sales tax from your customers in that state.
If you sell on a Marketplace facilitator like Amazon, they collect and remit sales tax for their third-party sellers in 47 states.
CBD oil is made from the hemp plant’s leaves, flowers, and stalks—the only parts of the plant where cannabidiol is found.
Hemp, which is different from its higher THC cousin, marijuana, has been legal in many states for years but not entirely legal at the federal level. That changed when Congress passed the 2018 Farm Bill, which allowed the hemp market to skyrocket.
The hemp industry, which was $1.1-billion in 2018, is expected to double to 2.6-billion by 2022. The CBD market alone may reach over $20-billion by 2022.
As you can imagine, the states are salivating for an opportunity to earn additional revenue from this explosive growth.
The states have several areas where these hemp manufactures could generate additional tax revenue. They include:
- Licensing and regulations
- Sales tax
- Or excise tax instead of sales tax
- Of course, state income taxes on profits in states that have a state income tax.
Most states allow you to sell CBD products as long as they are properly labeled and meet other requirements (like being extracted from hemp sources with less than 0.3% THC of dry weight). Lousiana has a 3% excise tax on cannabidiol. However, medicinal CBD items are not subject to that excise tax.
In California, the taxes on CBD topicals and gummies is different from the purchase of actual cannabis from a distributor.
An excise 15% tax is charged to those retailers that are passed on to the customer. However, CBD products that contain only trace amounts of THC are not subject to that excise tax and just sales tax. Here is the California tax guide on cannabis.
Minnesota, like several states, is very clear that any products sold with CBD oil are taxable. See Minnesota’s tax on CBD products here.
There are four states where it is not legal to buy or sell cannabidiol (CBD), including Alabama, Iowa, Mississippi, and North Carolina.
If you are selling CBD derived from marijuana sources (more than 0.3% dry weight TH), then additional marijuana excise taxes will likely apply. The product might also not be legal, depending on the particular state.
More resources and updates by states:
Here is another resource with a list of states with legal cannabidiol (CBD).
Sales Tax System will soon be providing sales tax registration and licensing service for the cannabis industry. If you want registration updates, please email us firstname.lastname@example.org to contact CBD oil sales tax updates.
[2021 Sales Tax Nexus Map for CBD] Includes Economic Nexus Thresholds