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New Mexico Lawsuit Sparks Marijuana Business Tax Debate

Paying business taxes is a key source of friction for many legal marijuana companies in the nation, particularly for companies that operate on a cash-only basis. A lawsuit in New Mexico is reigniting the debate over marijuana business taxes, only this time, the controversy surrounds how to classify these companies under state tax code.

Recent reports in the Santa Fe New Mexican said medical marijuana operator Ultra Health, based in New Mexico, has filed a lawsuit with the state’s Taxation and Revenue Department (TRD), arguing that the company should receive a $1.5 million refund.

Ultra Health said the products it sells should be considered medicine, and, therefore, treated like prescription drugs. Under the state’s tax rules, prescription drug sales are exempt from gross receipt taxes. According to Ultra Health CEO Duke Rodriguez, failure to treat medical marijuana sales as medicine means added tax costs are passed on to consumers.

“Affordability is an issue for all New Mexicans, and even a more significant burden to the severe qualifying conditions suffered by medical cannabis patients,” he said in a statement provided to the publication by his lawyer.

He added that if the average out-of-pocket cost for a medical marijuana buyer is $2,300 every quarter, the tax burden on those sales is nearly $1,000 a year.

Ultra Health had requested the more than $1.5 million refund from the state for gross receipt taxes between Jan. 1, 2015 and May 31, 2018, the lawsuit stated, but the TRD denied the request. The company is now requesting the refund, plus interest and attorney’s fees, reports said.

The publication noted that a similar lawsuit last year saw Santa Fe-based marijuana producer Sacred Garden pursue legal action after being denied its refund for gross receipt taxes as well. The company’s case is now pending in the Court of Appeals.

Last November, reports said the U.S. government collected approximately $4.7 billion in taxes during 2017 from nearly $13 billion in legal revenue from marijuana businesses. Most of those companies were forced to pay taxes in cash.

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