Arizona allows individuals to smoke marijuana for medical and recreational purposes. For tax purposes, what a dispensary is selling can affect what taxes they're required to pay. 

Retail businesses that sell medical marijuana and adult use recreational marijuana must pay the transaction privilege tax (TPT). Unlike other retail businesses, marijuana dispensaries must first apply for and receive a license from the Arizona Department of Health Services (ADHS). 

Businesses cannot apply for a TPT license without first obtaining a license from ADHS. This license authorizes them to sell marijuana. 

Once a business has a license from ADHS, they must complete the Medical, Adult Use, or Dual License Transaction Privilege/Use/Excise Tax Application. This is required if a business sells medical or recreational use marijuana. 

If a business is selling products related to marijuana but not marijuana, it can apply for a regular Transaction Privilege Tax (TPT) license. They don't need a license from ADHS, either. 

Dual-use establishments in Arizona would be liable for filing and paying retail TPT on the sales of adult-use marijuana, medicinal marijuana, and other products sold at the businesses. They must, therefore, hold current TPT licenses and file and pay retail TPT. 

Dispensaries may make payments electronically. They must separately report sales for medical marijuana, recreational marijuana, and other merchandise.  

Excise Tax 

One way that medical and recreational marijuana differs in Arizona is the excise tax. Recreational use is subject to the state's 16 percent Marijuana Excise Tax (MET). Those required to pay the MET must file and pay for the tax every month or risk fines.  

Federal Taxes 

While marijuana is legal for medical and recreational use in Arizona, it remains illegal under federal law. That the drug is illegal doesn't mean individuals can skip paying taxes on any income derived from marijuana. 

To avoid charges of tax evasion, individuals must report all income, regardless of how it was obtained.  

If you need help, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.