Authorizing the Production, Processing and Retailing of Recreational Marijuana
On November 6, 2012, Washington State voters passed Initiative 502 (I-502). The initiative makes it legal for businesses holding the appropriate marijuana license(s) to produce, process, or make retail sales of marijuana for recreational use.
The Liquor Control Board (LCB) approves, regulates, and enforces marijuana licenses. For information on these topics, see LCB’s I-502 web page.
Taxes on marijuana-related businesses
- Administered by the Liquor Control Board
The initiative establishes a 25 percent excise tax on marijuana producers, processors, and retailers. These taxes will be administered by LCB.
- Administered by the Department of Revenue
The business & occupation (B&O) tax applies to producers, processors, and retailers of marijuana and marijuana-infused products.
Retail sales tax applies to sales of marijuana and marijuana-infused products to consumers.
The amount subject to the B&O tax and retail sales tax is the “selling price” (RCW 82.08.010). The selling price can include, but is not limited to:
- Cost of goods sold.
- Markup, which may include:
- The 25% marijuana excise tax imposed on the producer.
- The 25% marijuana excise tax imposed on the processor.
- The 25% marijuana excise tax imposed on the retailer.
- Business expenses.
- Additional markup for desired profit.
Marijuana/marijuana-infused products are not food or prescription drugs
Whether sold for recreational or medical purposes, marijuana and marijuana-infused products are not considered food or food ingredients, nor are they considered prescription drugs since they cannot be legally prescribed. Therefore, these products do not qualify for the food or prescription drug retail sales tax exemptions. (See our Special Notice - Sales of Medical Cannabis Remain Subject to Sales Tax.)
Marijuana sales to nonresidents
Marijuana sales to nonresidents are subject to retail sales tax. Since marijuana sold in Washington cannot be legally transported outside of this state, the sales tax exemption under RCW 82.08.0273 does not apply. That exemption is limited to goods used outside of Washington State.