Cannabis Tax Act in Illinois
The Cannabis Tax Act is part of the Cannabis Regulation and Tax Act (CRTA), which was signed into law on June 25, 2019, and went into effect on January 1, 2020. This landmark legislation legalized the adult-use recreational cannabis market in Illinois, making the state the first in the Midwest to regulate and tax cannabis sales for non-medical use. The Act set up a framework not only for the legalization and regulation of cannabis but also for its taxation at multiple stages of the supply chain.
Key Provisions of the Act
The Cannabis Tax Act outlines how cannabis will be taxed in Illinois. The tax framework consists of several different layers, each of which contributes to the final price of cannabis for consumers.
- Excise Tax: One of the primary components of the Cannabis Tax Act is the excise tax on cannabis products. At the retail level, Illinois imposes a 10% excise tax on cannabis products with less than or equal to 35% THC, 25% on products containing more than 35% THC, and 20% on cannabis-infused products like edibles and beverages. This tiered tax system is designed to reflect both product potency and the varying demand for different types of cannabis products.
- Cultivation Privilege Tax: In addition to the excise tax, the Cannabis Tax Act imposes a 7% cultivation privilege tax on the gross receipts from a cannabis grower’s first adult-use sale. This tax is levied on growers when they sell cannabis to licensed dispensaries, indirectly raising the cost of cannabis sold to consumers.
- Sales Tax: Illinois also imposes a 6.25% Retailers’ Occupation Tax (ROT) on cannabis purchases, which is applicable to all adult-use cannabis sales. Local municipalities and counties may add further taxes, leading to an effective tax rate that can exceed 40% in some areas, such as Cook County and Chicago.
- Revenue Allocation: The Cannabis Tax Act also specifies how the revenue from cannabis taxes will be used. A significant portion of the tax revenue is allocated to fund various state programs, including grants for communities impacted by the war on drugs. The tax revenue also supports public health programs and drug addiction recovery services.
Impact of the Cannabis Tax Act
The Cannabis Tax Act has significantly impacted both the cannabis market and consumers. While it has provided Illinois with a new source of revenue, it has also led to high prices at dispensaries due to the combined taxes. This has prompted some Illinois residents to cross state lines into neighboring states, like Michigan, where cannabis taxes are lower.
In conclusion, the Cannabis Tax Act in Illinois is a key part of the state’s strategy to regulate the cannabis industry and generate revenue. It sets up a multi-layered tax system that influences cannabis prices, which is important for both business owners and consumers to understand. Our dedicated team is ready to present expert assistance. Reach out to Dimov Tax for full compliance with state and IRS rules.