Tax Insights

Application of Sales and Use Tax to the medical cannabis industry

Act 42-2017, was enacted on July 9, 2017 to establish the statutory framework applicable to the Medical Cannabis industry. To provide guidance on the provisions of the sales and use tax (SUT) as they relate to this industry, the Puerto Rico Treasury Department issued Administrative Determination 17-0 (DA 17-0) on July 20, 2017.

Following we provide five basic questions and answers that will give you a head start to the new procedures.

What is covered?

Medical Cannabis is defined as:

  1. all compound, derived product, mix or preparation of all parts of the Cannabis Sativa and Cannabis Indica plants.
  2. it also includes any hybrid of the plants, seeds, flowers, or resin. However, it does not include the adult or mature stems.

How is it treated for SUT?

DA 17-06 states that the Medical Cannabis and its derivates are a taxable item for sales and use tax purposes in Puerto Rico. It is not covered by any of the following exemptions:

  1. food or food ingredients
  2. prescription medicines
  3. bona fide farmers
  4. articles for manufacturing
  5. machinery and articles used in health services

What requirements apply?

Merchants in this industry, must comply with all registrations, filings and payments as they apply to all merchants:

  1. Merchants’ Registry
  2. fiscal terminal requirements
  3. filing of monthly sales and use tax and imports returns
  4. deposit of SUT
  5. payment upon importation of taxable items
  6. display in receipts of the sales price separate from the state and municipal SUT.

What NAICS apply?

According to DA 17-06 the following are the possible applicable NAICS:

NAICS Description Commercial Activity
11141 Food crops grown under cover Farming
42459 Other farm product raw material merchant Product
45399 All other miscellaneous store retailers Dispensaries
54138 Testing laboratories Laboratory quality tests
48422 Specialized freight (except used goods) trucking, local Transportation

Those merchants that are already registered, must verify and or change their NAICS to one of the above on or before August 31, 2017. A penalty of $500 may be imposed in case of failure to update the NAICS.

When is DA 17-06 effective?

The provisions of DA 17-06 are effective immediately.

Please contact our Tax Department should additional information is required regarding this or any other tax issue. We will be glad to assist you.

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