Taxation Relating to Marijuana

(a)

In general

Subtitle E of title I of the Internal Revenue Code of 1986 is amended by adding at the end the following new chapter:

Marijuana

Subchapter A. Producer Tax.

Subchapter B. Special Provisions Relating to Marijuana Enterprises.

Subchapter C. Penalties.

Producer Tax

Sec. 5901. Imposition of tax.

Sec. 5902. Exemption from tax.

Sec. 5903. Special rules.

Sec. 5904. Definitions.

5901.

Imposition of tax

(a)

Imposition of tax

There is hereby imposed a tax on the sale of marijuana by the producer or importer thereof. (b)

Amount of tax

The amount of the tax imposed by subsection (a) shall be 50 percent of the price for which so sold.

5902.

Exemption from tax

(a)

General rule

Under regulations prescribed by the Secretary, no tax shall be imposed under this subchapter on the sale by the producer or importer of an article— (1)for use by the purchaser for further production, or for resale by the purchaser to a second purchaser for use by such second purchaser in further production, or (2)for export, or for resale by the purchaser to a second purchaser for export. (b)

Proof of resale for further production; proof of export

Where an article has been sold free of tax under subsection (a)— (1)for resale by the purchaser to a second purchaser for use by such second purchaser in further production, or (2)for export, or for resale by the purchaser to a second purchaser for export,

subsection (a) shall cease to apply in respect of such sale of such article unless, within the 6-month period which begins on the date of the sale by the producer or importer (or, if earlier, on the date of shipment by the producer or importer), the producer or importer receives proof that the article has been exported or resold for use in further production.

(c)

Producer or importer relieved from liability in certain cases

In the case of any article sold free of tax under this section (other than a sale to which subsection (b) applies), if the producer or importer in good faith accepts a certification by the purchaser that the article will be used in accordance with the applicable provisions of law, no tax shall thereafter be imposed under this chapter in respect of such sale by such producer or importer. (d)

Export

For purposes of this section, the term export includes shipment to a possession of the United States; and the term exported includes shipped to a possession of the United States. (e)

Use in further production

An article shall be treated as sold for use in further production if such article is sold for use by the purchaser for further planting, cultivating, or harvesting. (f)

Further producer liable for tax

For purposes of this chapter, a producer to whom an article is sold or resold free of tax under subsection (a)(1) for use by him in further production shall be treated as the producer of such article.

5903.

Special rules

(a)

Definition of Price

For purposes of this chapter— (1)

Containers, packing and transportation charges

In determining, for the purposes of this chapter, the price for which an article is sold, there shall be included any charge for coverings and containers of whatever nature, and any charge incident to placing the article in condition packed ready for shipment, but there shall be excluded the amount of tax imposed by this chapter, whether or not stated as a separate charge. A transportation, delivery, insurance, installation, or other charge (not required by the foregoing sentence to be included) shall be excluded from the price only if the amount thereof is established to the satisfaction of the Secretary in accordance with regulations. (2)

Constructive sale price

(A)

In general

If an article is sold at retail, sold on consignment, or sold (otherwise than through an arm’s length transaction) at less than the fair market price, the tax under section 5901 shall be computed on the price for which such articles are sold, in the ordinary course of trade, by producers thereof, as determined by the Secretary. In the case of an article sold at retail, the computation under the preceding sentence shall be on whichever of the following prices is the lower: (i)the price for which such article is sold, or (ii)the highest price for which such articles are sold to manufacturers, in the ordinary course of trade, by producers thereof, as determined by the Secretary. This paragraph shall not apply if subparagraph (B) applies. (B)

Special rule

If an article is sold at retail or to a retailer, and if— (i)the producer or importer of such article regularly sells such articles at retail or to retailers, as the case may be, (ii)the producer or importer of such article regularly sells such articles to one or more manufacturers in arm’s length transactions and he establishes that his prices in such cases are determined without regard to any tax benefit under this paragraph, and (iii)the transaction is an arm’s length transaction,

the tax under this chapter shall (if based on the price for which the article is sold) be computed under subparagraph (C).

(C)

Price for purposes of special rule

The price computed under this subparagraph is whichever of the following prices is the lower: (i)the price for which such article is sold, or (ii)the highest price for which such articles are sold by such producer, or importer to manufacturers. (D)

Definition of lowest price

For purposes of subparagraphs (A) and (C), the lowest price shall be determined— (i)without requiring that any given percentage of sales be made at that price, and (ii)without including any fixed amount to which the purchaser has a right as a result of contractual arrangements existing at the time of the sale. (E)

Arm’s length

(i)

In general

For purposes of this section, a sale is considered to be made under circumstances otherwise than at arm’s length if— (I)the parties are members of the same controlled group, whether or not such control is actually exercised to influence the sale price, or (II)the sale is made pursuant to special arrangements between a manufacturer and a purchaser. (ii)

Controlled groups

(I)

In general

The term controlled group has the meaning given to such term by subsection (a) of section 1563, except that more than 50 percent shall be substituted for at least 80 percent each place it appears in such subsection. (II)

Controlled groups which include nonincorporated persons

Under regulations prescribed by the Secretary, principles similar to the principles of subclause (I) shall apply to a group of persons under common control where 1 or more of such persons is not a corporation. (3)

Partial payments

In the case of— (A)a contract for the sale of an article wherein it is provided that the price shall be paid by installments and title to the article sold does not pass until a future date notwithstanding partial payment by installments, (B)a conditional sale, or (C)a chattel mortgage arrangement wherein it is provided that the sales price shall be paid in installments,

there shall be paid upon each payment with respect to the article a percentage of such payment equal to the rate of tax in effect on the date such payment is due.

(4)

Sales of installment accounts

If installment accounts, with respect to payments on which tax is being computed as provided in paragraph (3), are sold or otherwise disposed of, then paragraph (3) shall not apply with respect to any subsequent payments on such accounts (other than subsequent payments on returned accounts with respect to which credit or refund is allowable by reason of section 6416(b)(5)), but instead— (A)there shall be paid an amount equal to the difference between— (i)the tax previously paid on the payments on such installment accounts, and (ii)the total tax which would be payable if such installment accounts had not been sold or otherwise disposed of (computed as provided in paragraph (3)); except that (B)if any such sale is pursuant to the order of, or subject to the approval of, a court of competent jurisdiction in a bankruptcy or insolvency proceeding, the amount computed under subparagraph (A) shall not exceed the sum of the amounts computed by multiplying— (i)the proportionate share of the amount for which such accounts are sold which is allocable to each unpaid installment payment by (ii)the rate of tax under this chapter in effect on the date such unpaid installment payment is or was due.

The sum of the amounts payable under this subsection and subsection (c) in respect of the sale of any article shall not exceed the total tax.

(b)

Certain uses treated as sales

Any producer of marijuana which uses such marijuana before it is sold shall be liable for the tax imposed by section 5901 in the same manner as if such marijuana were sold by such producer. (c)

Application of tax in case of sales by other than producer

In case any person acquires from the producer of marijuana, by operation of law or as a result of any transaction not taxable under section 5901, the right to sell such marijuana, the sale of such marijuana by such person shall be taxable under this chapter as if made by the producer, and such person shall be liable for the tax.

5904.

Definitions

For purposes of this chapter— (1)

Marijuana

The term marijuana has the meaning given such term by section 102(16) of the Controlled Substances Act (21 U.S.C. 802). (2)

Marijuana product

The term marijuana product means any article which contains marijuana, including an article which is a concentrate, an edible, a tincture, a marijuana-infused product, or a topical. (3)

Producer

The term producer means any person who plants, cultivates, harvests, or in any way facilitates the natural growth of, marijuana. (4)

Manufacturer

The term manufacturer means a person who manufactures, compounds, converts, processes, prepares, or packages marijuana or marijuana products. (5)

Importer

The term importer means— (A)any person in the United States to whom nontaxpaid marijuana products, or any processed marijuana, manufactured in a foreign country, Puerto Rico, the Virgin Islands, or a possession of the United States are shipped or consigned; and (B)any person who smuggles or otherwise unlawfully brings marijuana or marijuana products into the United States. (6)

Distributor

The term distributor means a person who distributes marijuana or marijuana products. (7)

Retailer

The term retailer means a person who sells marijuana or marijuana products to consumers. (8)

Marijuana enterprise

The term marijuana enterprise means a producer, importer, manufacturer, distributor, retailer or any person who transports, stores, displays, or otherwise participates in any business activity that handles marijuana or marijuana products.

Special Provisions Relating to Marijuana Enterprises

Sec. 5911. Occupational tax.

Sec. 5912. Application for permit.

Sec. 5913. Permit.

Sec. 5914. Inspection of books.

5911.

Occupational tax

(a)

Imposition of tax

There is hereby imposed a special tax to be paid by each person who is engaged in a marijuana enterprise. (b)

Amount of tax

The amount of the tax imposed under subsection (a) shall be— (1)$1,000 per year in the case of a producer, importer, or manufacturer, and (2)$500 per year in the case of any person engaged in a marijuana enterprise who is not described in paragraph (1).

5912.

Application for permit

Every person, before commencing business as a marijuana enterprise, and at such other time as the Secretary shall by regulation prescribe, shall make application for the permit provided for in section 5913. The application shall be in such form as the Secretary shall prescribe and shall set forth, truthfully and accurately, the information called for on the form. Such application may be rejected and the permit denied if the Secretary, after notice and opportunity for hearing, finds that— (1)the premises on which it is proposed to conduct the business are not adequate to protect the revenue, (2)the activity proposed to be carried out at such premises does not meet such minimum capacity or activity requirements as the Secretary may prescribe, or (3)such person (including, in the case of a corporation, any officer, director, or principal stockholder and, in the case of a partnership, a partner)— (A)is, by reason of his business experience, financial standing, or trade connections or by reason of previous or current legal proceedings involving a felony violation of any other provision of Federal criminal law relating to marijuana or marijuana products, not likely to maintain operations in compliance with this chapter, (B)has been convicted of a felony violation of any provision of Federal or State criminal law relating to marijuana or marijuana products, or (C)has failed to disclose any material information required or made any material false statement in the application therefor.

5913.

Permit

(a)

Issuance

A person shall not engage in business as a marijuana enterprise without a permit to engage in such business. Such permit, conditioned upon compliance with this chapter and regulations issued thereunder, shall be issued in such form and in such manner as the Secretary shall by regulation prescribe. A new permit may be required at such other time as the Secretary shall by regulation prescribe. (b)

Suspension or Revocation

(1)

Show cause hearing

If the Secretary has reason to believe that any person holding a permit— (A)has not in good faith complied with this chapter, or with any other provision of this title involving intent to defraud, (B)has violated the conditions of such permit, (C)has failed to disclose any material information required or made any material false statement in the application for such permit, (D)has failed to maintain his premises in such manner as to protect the revenue, (E)is, by reason of previous or current legal proceedings involving a felony violation of any other provision of Federal criminal law relating to marijuana, not likely to maintain operations in compliance with this chapter, or (F)has been convicted of a felony violation of any provision of Federal or State criminal law relating to marijuana or marijuana products,

the Secretary shall issue an order, stating the facts charged, citing such person to show cause why his permit should not be suspended or revoked.

(2)

Action following hearing

If, after hearing, the Secretary finds that such person has not shown cause why his permit should not be suspended or revoked, such permit shall be suspended for such period as the Secretary deems proper or shall be revoked. (c)

Information reporting

The Secretary may require— (1)information reporting by any person issued a permit under this section, and (2)information reporting by such other persons as the Secretary deems necessary to carry out this chapter. (d)

Inspection or disclosure of information

For rules relating to inspection and disclosure of returns and return information, see section 6103(o).

5914.

Regulations

The Secretary may issue such regulations or other guidance as the Secretary determines necessary or appropriate to carry out this chapter, including the filing of returns under this chapter in electronic format.

Penalties

Sec. 5921. Civil penalties.

Sec. 5922. Criminal penalties.

5921.

Civil penalties

(a)

Omitting Things Required or Doing Things Forbidden

Whoever omits, neglects, or refuses to comply with any duty imposed upon him by this chapter, or to do, or cause to be done, any of the things required by this chapter, or does anything prohibited by this chapter, shall in addition to any other penalty provided in this title, be liable to a penalty of $1,000, to be recovered, with costs of suit, in a civil action, except where a penalty under subsection (b) or (c) or under section 6651 or 6653 or part II of subchapter A of chapter 68 may be collected from such person by assessment. (b)

Exception

No penalty shall be imposed under subsection (a) if it is shown that there was a reasonable cause and that the taxpayer acted in good faith. (c)

Failure To Pay Tax

Whoever fails to pay any tax imposed by this chapter at the time prescribed by law or regulations, shall, in addition to any other penalty provided in this title, be liable to a penalty of 5 percent of the tax due but unpaid. (d)

Sale of Marijuana or Marijuana Products for Export

(1)Every person who sells, relands, or receives within the jurisdiction of the United States any marijuana or marijuana products which have been labeled or shipped for exportation under this chapter, (2)every person who sells or receives such relanded marijuana or marijuana products, and (3)every person who aids or abets in such selling, relanding, or receiving,

shall, in addition to the tax and any other penalty provided in this title, be liable for a penalty equal to the greater of $1,000 or 5 times the amount of the tax imposed by this chapter. All marijuana and marijuana products relanded within the jurisdiction of the United States shall be forfeited to the United States and destroyed. All vessels, vehicles, and aircraft used in such relanding or in removing such marijuana or marijuana products from the place where relanded, shall be forfeited to the United States.

(e)

Applicability of Section 6665

The penalties imposed by subsections (b) and (c) shall be assessed, collected, and paid in the same manner as taxes, as provided in section 6665(a). (f)

Cross References

For penalty for failure to make deposits or for overstatement of deposits, see section 6656.

5922.

Criminal penalties

(a)

Fraudulent Offenses

Whoever, with intent to defraud the United States— (1)

Engaging in business unlawfully

Engages in business as a marijuana enterprise without filing the application and obtaining the permit where required by this chapter or regulations thereunder, (2)

Failing to furnish information or furnishing false information

Fails to keep or make any record, return, report, or inventory, or keeps or makes any false or fraudulent record, return, report, or inventory, required by this chapter or regulations thereunder, (3)

Refusing to pay or evading tax

Refuses to pay any tax imposed by this chapter, or attempts in any manner to evade or defeat the tax or the payment thereof, (4)

Sales and transfers of marijuana or marijuana products unlawfully

Sells or otherwise transfers, contrary to this chapter or regulations thereunder, any marijuana or marijuana products subject to tax under this chapter, or (5)

Taxable event after tax exemption

With intent to defraud the United States, purchases, receives, possesses, offers for sale, or sells or otherwise disposes of, any marijuana or marijuana product— (A)upon which the tax has not been paid or determined in the manner and at the time prescribed by this chapter or regulations thereunder, or (B)which, without payment of tax pursuant to section 5902, have been diverted from the applicable purpose or use specified in that section,

shall, for each such offense, be fined not more than $10,000, or imprisoned not more than 5 years, or both.

(b)

Other Offenses

Whoever, otherwise than as provided in subsection (a), violates any provision of this chapter, or of regulations prescribed thereunder, shall, for each such offense, be fined not more than $1,000, or imprisoned not more than 1 year, or both. (c)

Liability to tax

Any person who possesses marijuana or marijuana products in violation of subsection (a) shall be liable for a tax equal to the tax on such articles.

(b)

Study

Not later than two years after the date of the enactment of this Act, and every five years thereafter, the Secretary of the Treasury shall— (1)conduct a study concerning the characteristics of the marijuana industry, including the number of persons operating marijuana enterprises at each level (e.g., producers, distributors, manufacturers), the volume of sales, the amount of tax collected each year, the areas of evasion, and (2)submit to Congress recommendations to improve the regulation of the industry and the administration of the related tax. (c)

Conforming Amendment

Section 6103(o)(1)(A) of such Code is amended by striking and firearms and inserting firearms, and marijuana. (d)

Clerical amendment

The table of chapters for subtitle E of title I of such Code is amended by adding at the end the following new chapter:

Chapter 56. Marijuana.

(e)

Effective date

(1)

In general

The amendments made by this section shall apply to— (A)applications for permits under section 5912 of the Internal Revenue Code of 1986 (as added by subsection (a)) after the date of the enactment of this Act, and (B)sales after December 31, 2013. (2)

Special rules for existing businesses

In the case of any producer operating under a permit issued on or before the date of the enactment of this Act under State law, the requirements under section 5912 of such Code (as so added) shall apply beginning on the date that is 6 months after the date of the enactment of this Act.