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By: Chad J. Richter 

Under the Compassionate Use of Medical Cannabis Program Act, a surcharge is imposed on a medical marijuana dispensary or cultivation center’s sale or exchange of capital assets, depreciable business property, real property, and certain intangible assets, including the business’s registration under the Act. This surcharge is equal to the amount of federal income tax liability attributable to those sales and exchanges, which essentially means that these businesses will be subjected to double tax liability for these transactions by paying their income tax first to the federal government, and then paying that same amount again to the state of Illinois.

However, the Act provides for several situations where a dispensary or cultivation center will be exempt from this surcharge, the most notable of these occurring when the Illinois Department of Public Health determines that the transfer of a registration is in the best interests of Illinois qualifying patients as defined by the Act. Unfortunately, there is no bright line test or set factors for the Department to follow and thus the Department is left to make its determination on a case-by-case basis.

Accordingly, it is highly recommended any medical cannabis dispensary, cultivation center, or other licensed registrant seeking a surcharge tax exemption secure the representation of an experienced attorney familiar with the process to ensure their application is best situated to qualify for the exemption.

Even if a transfer is subject to the surcharge tax under the Act, whether the tax is constitutional under the Illinois law, which prohibits the State from imposing more than one income-based tax, remains to be tested.

If you own or operate a medical marijuana dispensary, cultivation center, or other licensed registrant and you believe that you could be subject to this surcharge tax, you’re invited to contact the experienced attorneys at Mathis, Marifian & Richter to discuss your options.

Professional Services Disclaimer: Please note that the information presented here is as an educational service, and while it contains information about legal issues, it is not legal advice. No warranty is made regarding the applicability of the information presented to a particular client situation, and the information set forth is not a substitute for original legal research, analysis and drafting for a particular client situation.