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Minnesota Legislature

Tax bill could give marijuana manufacturers room to breathe

As medical marijuana enrollments expand in Minnesota, some lawmakers believe the sizable tax on its manufacturers should shrink.

Rep. Pat Garofalo (R-Farmington) sponsors HF486, which would allow trade or business expense deductions for manufacturers of medical marijuana.

It was held over by the House Taxes Committee Thursday for possible omnibus bill inclusion. The companion, SF265, sponsored by Sen. Dan Hall (R-Burnsville), awaits action by the Senate Taxes Committee.

Minnesota currently conforms to federal law that prohibits a business from claiming any expense as a deduction from federal taxable income if the business consists of trafficking in controlled substances such as medical marijuana, which is listed as a Schedule 1 substance by the federal government.

WATCH Full video of the March 1 House Taxes Committee hearing

Under the bill, medical marijuana manufacturers could subtract business rent, utilities, employee wages and other businesses expenses from their taxable income. Bill supporters argue it would give manufacturers some much-needed breathing room. Department of Revenue audits reveal Minnesota’s two licensed manufacturers, LeafLine Labs and Minnesota Medical Solutions, have experienced net losses in all their years of operation.

Minnesota Medical Solutions CFO Amber Shimpa said federal restrictions on deductions drive the manufacturer’s effective tax rate to nearly 70 percent.

“This is by far the highest tax rate that any Minnesota corporation pays and enough to cause just about any business to shut its doors,” Shimpa said.

Manufacturers are left to pass these expenses on to their customers, Shimpa said, making Minnesota’s medical marijuana prices among some of the highest in the nation. 

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