The New Mexico Supreme Court has ruled that medical cannabis businesses do not have to pay taxes on their gross sales, a decision that will save the industry millions of dollars a year.
The case began in 2014, when a licensed medical marijuana company demanded a refund from the state Taxation and Revenue Department for the gross receipts tax that they had paid. Under New Mexico law, most companies must pay a tax on their total gross sales, without deductions for business expenses. Pharmaceutical companies are exempt from this tax, however, and the cannabis firm argued that it should also be exempt because it produces medicine.
The tax department denied this refund request, and when another company requested a gross receipts refund in 2018, it was also rebuffed. After this second denial, state-licensed cannabis company Sacred Garden filed a legal challenge against the tax department. In February 2020, the state Court of Appeals ruled in favor of the medical pot industry, agreeing that medicinal cannabis should be treated just like any other prescription medication.
“It is reasonably self-evident that the deduction from gross receipts for prescription drugs was similarly intended to make medical treatment more accessible, by lessening the expense to those who require it,” Appellate Court Judge M. Monica Zamora wrote in the 2020 ruling, the Associated Press reports. “These statutes should be read harmoniously, to give effect to their commonality of purpose.”
The tax department appealed the case to the state Supreme Court, and both parties were scheduled to begin presenting their arguments this week. But just days before the scheduled hearing began, the court quashed its review of the case, deciding that it should never have even accepted the appeal. The appeals court's ruling is now the final decision on the matter, and tax officials no longer have an option to appeal.
Charlie Moore, spokesperson for the Taxation and Revenue Department told the Associated Press that his agency was disappointed with the court's decision. Regardless, he said that the department will “respect the decision and will move forward to issue refunds to the affected taxpayers once the court’s decision is mandated to become final.”
The department has yet to announce exactly how much cash they will have to refund, but insiders estimate that the department has collected between $25 and $30 million in gross receipts taxes so far. Ultra Health, one of the state's largest medical pot companies, said that it will receive a $7.4 million tax refund, plus interest. The company, which is also the largest minority-owned cannabis business in the US, said that it had been paying its gross receipts taxes on its own, instead of charging them to its customers.
Many other medical cannabis producers have been passing the gross receipts tax off onto their customers, though, so medical pot prices may decrease once the ruling takes effect. The new tax break will also be a welcome boost for the state's thriving medical pot industry, which currently serves 130,340 patients.
And although the state tax department will be losing money from this ruling, it is about to start raking in millions of dollars in tax revenue from recreational cannabis sales. New Mexico lawmakers voted to legalize weed last spring, and sales are slated to begin this April. Public finance experts have predicted that adult-use sales could exceed $300 million this year, which would bring the state around $20 million in excise taxes.