April 28, 2020

It could be awhile before the NM Supreme Court decides to rule on cannabis tax case, if at all

Medical cannabis producers in New Mexico will be on the hook for gross receipts taxes for the foreseeable future, or at least until the state Supreme Court decides whether it will weigh-in on the issue. 

Last week, a response filed by New Mexico cannabis producer Sacred Garden was the latest in a pending case between the producer and the state’s Taxation and Revenue Department (TRD). Earlier this month, the TRD filed a petition asking the high court to consider the case, with the hopes that it might overturn a previous state Court of Appeals decision. 

Santa Fe attorney Joe Lennihan, on behalf of Sacred Garden, argued that a review by the Supreme Court was unnecessary since the Court of Appeals already determined that medical cannabis should be viewed in a similar light as prescription drugs, which are exempt from gross receipts taxes. 

“Sales of medical marijuana are restricted to patients approved to use it and must do so under the care and supervision of a physician,” Lennihan wrote. 

Both TRD and Sacred Garden have repeatedly made their respective arguments in previous court filings and now both must wait to see if the state Supreme Court decides to weigh-in. 

For the most part, TRD has argued that since medical cannabis use is recommended, not prescribed, by a doctor, medical cannabis sales are subject to gross receipts taxes. Sacred Garden’s view on the matter is that because a 2019 update to the state medical cannabis law states that medical cannabis should be viewed in a similar light as any other prescription drug, medical cannabis producers should be exempt from the tax. The Court of Appeals ruled in favor of Sacred Garden, citing a lack of expected tax revenue in legislative financial impact reports. 

But in its request for the Supreme Court to consider the case, the TRD turned the legislative intent argument around and said that if the Legislature wanted to exempt medical cannabis from gross receipts taxes, it could have specified this by amending state tax laws. 

Gross receipts taxes, sometimes incorrectly referred to as sales taxes, are charged by the state and local municipalities for goods and services. Businesses often pass the tax along to the consumer, although they are not required to. There are also a number of exemptions, most notably groceries. In its response to the TRD’s petition, Sacred Garden noted that oxygen sales are exempt from gross receipts taxes. 

Even though the issue of whether medical cannabis should be subject to gross receipts taxes is a considerably less pressing issue than that of COVID-19 spread, a cut in revenue this year could add to the pile of financial problems facing the state. Earlier this year, a spokesman for TRD told NM Political Report that cannabis producers paid approximately $24 million in gross receipts taxes over the past three years — which is how far back producers could theoretically go when requesting a tax refund. During one of her press conferences last week, Gov. Michelle Lujan Grisham lamented a lack of recreational cannabis tax revenue. 

It is unclear if or when the New Mexico Supreme Court will decide to hear the case further.