Last week, the Liquor and Cannabis Board (LCB) sent a message that the 2024 legislative fact sheets are now available on our website. In that message, we noted that we would follow up with additional information regarding Substitute House Bill 1453 which pertains to a temporary excise tax exemption under certain circumstances.
SHB 1453 creates a temporary excise tax exemption on cannabis sales that meet three conditions.
First, the buyer must be a registered patient in the Department of Health’s (DOH) Medical Cannabis Authorization database.
Second, they must buy the cannabis from a retailer holding a current medical endorsement.
Third, only DOH-compliant medical cannabis under WAC 246-70-040 qualifies for the excise tax exemption. No other cannabis products qualify for the excise tax exemption, which expires on June 30, 2029.
To further clarify, we are providing this infographic and some brief FAQs. Within the FAQs are links to DOH’s medical cannabis program as well as the location on LCB’s site for applying for a medical endorsement.
Effective June 6, 2024
The effective date for the exemption is June 06, 2024. Retailers must keep accurate records demonstrating the 37% excise tax exemption was provided by a medically endorsed store, to a qualifying patient, or their designated provider, in the DOH registry, and for medically compliant product under WAC 246-70-040. Retailers are responsible and liable for proper tax collection and remittance. Retailers providing inappropriate tax exemptions will need to pay the taxes on any sale not in compliance with the law.
Proper Documentation
The LCB audit team cannot provide an exact list of required processes and documents outside of WAC rules that are needed because each business is run differently and the documents to be reviewed can changed based off the business. Our audit and tax teams are working on building the rules and requirements for verifying qualifying sales. Until then, Licensees should review their processes for compliance with the law and maintain records that justify the sales and qualifying exemptions.
Since that message, the Liquor and Cannabis Board (LCB) has received additional questions and requests for formal guidance in advance of the June 6, 2024 effective date. To help provide clarity we have provided an additional guidance document, linked below.
LCB Formal Guidance
At the request of the industry, the Liquor and Cannabis Board (LCB) produced this Cannabis Excise Tax Exemption Guidance. Please use this to supplement the infographic and other guidance supplied on May 20 to help remain compliant with the excise tax exemption.
Dept. of Health Q and A
Additionally, we worked with the state Dept. of Health on questions specific to the medical cannabis program and its regulations. Below are some questions we received and the Dept. of Health’s response.
Question
While a retailer is able to verify whether or not a patient is in the registry, they are unable to verify that the original medical authorization from the provider is authentic. In other words, if a patient walks into a medically endorsed store with a medical authorization from a provider, the store will make that patient a card and put them into the registry. There is no process or ability for the retailer to communicate with the physician to ensure that the medical authorization form is authentic, furthermore if retailer 1 puts a patient into the registry and issues the patient a card and then that patient uses their card at another medically endorsed store (retailer 2) and requests a tax exemption. Retailer 2 can verify that the patient is in the registry but they cannot verify that the card was issued to the patient in a compliant manner.
So this question is for the purpose of executing this tax exemption at the point of sale, does the retailer have any responsibility to ensure that the card was issued in a compliant manner or do they just need to confirm that the patient is in the registry?
Dept. of Health Answer
Just a note regarding the authorization verification: The cannabis consultant is the one that is expected to ensure the authorization is on the correct form and completed in full. (WAC 246-71-020(5)). We (Dept. of Health) are working on a resource guide for retailers and consultants to help them verify the authenticity of a form. If any part of the form is left incomplete, or if the form appears invalid, the consultant is to instruct the patient and/or DP (Designated Provider) to go back to the medical professional.
Question
In the event of an audit, how can a retailer verify that a sale was made to a patient that was in the registry at the time of the sale, if that patient is no longer in the registry? Cards have an expiration date, and someone may choose to not renew their medical authorization. If a retailer makes a sale and is audited three years later and that patient is no longer in the registry, how can they prove that they were in the registry at the time of the transaction?
Dept. of Health Answer
Currently DOR receives a report of all card numbers, the date the card was issued, the date expired (if applicable) and date verified at which store. The tax reporting structure allows for records to reflect cards that are both active and expired. RCW 69.51A.230(1)(f) requires the database to provide information and reports to DOR for tax exemption verification. The information sent to DOR includes both active and expired recognition cards and the date the card was scanned at the store. So even if a card is expired, the card number and use history is retained for the purposes of tax exemption.
Question
Does the sales tax exemption still exist for patients with a medical card? And if so, could you clarify when it applies? Is it on the sale of non DOH compliant products? If it is a DOH compliant product does the patient receive an excise tax exemption and a sales tax exemption?
Dept. of Health Answer
The DOH policy that clarifies compliant product as any product purchased by a registered patient will remain in effect even after the effective date of HB 1453.
Registered patients who purchase any regulated product in a medically endorsed store qualify for the sales and use tax exemption.
Registered patients who purchase DOH Medical Product (products with the additional testing requirements and the DOH logo attached) in a medically endorsed store qualify for the excise tax exemption.
The policy will be absorbed into the current (Dept. of Health) rule-making process for 246-70 WAC, and will clarify that any product purchased by a registered patient is eligible for the sales and use tax exemption. However, product purchased by a registered patient that meets the requirements of WAC 246-70-040 will also be eligible for the excise tax exemption.
Just for additional details: RCW 82.12.9998 and RCW 82.08.9999 provide an allowance for compliant product under the entire chapter of 246-70 WAC to be eligible for the sales and use tax exemption. For purposes of RCW 82.08.9888(1)(a) and 82.12.9998(1)(a), and in alignment with WAC 246-70-010, the department’s policy is any cannabis product purchased by qualifying patients possessing a recognition card is considered a “compliant cannabis product” as identified in chapter 246-70 WAC and is considered “beneficial for medical use.” HB 1453 further identified that medical products meeting the standard specifically outlined in WAC 246-70-040 are eligible for excise tax exemption.
