On May 29, 2024, the Circuit Court of Buchanan County, Missouri upheld the Department of Revenue’s interpretation of the local government’s constitutional authority to assess an additional three percent tax on the sale of recreational marijuana. The local dispensary involved in the dispute, Vertical Enterprise LLC (the “Taxpayer”), has already filed an appeal to the Western District Court of Appeals as of June 24, 2024. The case involves an interesting question about possible double taxation for Missouri dispensaries located within both a city and county that have enacted separate local marijuana taxes. The outcome of this case could have a major impact on the sale of recreational marijuana in Missouri and could create disadvantages for some dispensaries solely based on their location.
Missouri’s Sales Tax on Recreational Marijuana Following Passage of Amendment 3
The people of Missouri adopted Amendment 3 on November 8, 2022, through a ballot initiative. The ballot legalized the sale of recreational marijuana by amending Article XIV Section 2 of the Missouri Constitution. As a part of this movement, Amendment 3 also established a statewide sales tax of six percent on all non-medical marijuana sold at retail. The new law further authorized the governing body of any local government to impose an additional sales tax of up to three percent on all retail sales of marijuana.
Understanding Vertical Enterprise LLC’s Challenge to Buchanan County’s Three-Percent Sales Tax on Recreational Marijuana
The Taxpayer is located within the incorporated City of St. Joseph, which is located within the greater Buchanan County. Following the passage of Amendment 3, the City of St. Joseph enacted a three percent sales tax on adult use marijuana. Buchanan County also passed a three percent sales tax, including retail sales within the city limits of St. Joseph. The result was an effective six percent local sales tax on marijuana for the Taxpayer and its customers.
On September 12, 2023, the Taxpayer filed a petition to the Circuit Court of Buchanan County claiming the three percent tax by Buchanan County is unconstitutional because it is not authorized under Article XIV, Section 2. The Taxpayer argues that Buchanan County is not a “local government” in relation to it, as defined under Article XIV, Section 2(2)(12), because the Taxpayer is in the incorporated area of the City of St. Joseph. Under the Missouri Constitution, local government means, “in the case of an incorporated area, a village, town, or city and, in the case of an unincorporated area, a county.” In other words, the Taxpayer asserts the location of its dispensary subjects it to the City of St. Joseph’s marijuana tax, which in turn, precludes it from Buchanan County’s marijuana sales tax.
The Circuit Court Decision and Next Steps in the Appeal Process
The Circuit Court of Buchanan County rejected the Taxpayer’s argument in its recent decision, citing its obligation to give statutory terms a meaning that avoids absurd results that make terms meaningless and defeats the legislative purpose. The Court further emphasizes that the definition of local government includes both cities and counties, which authorizes both jurisdictions to impose and collect a tax on Marijuana sales. The Taxpayer quickly appealed the decision to the Western District of the Missouri Court of Appeals, which the Court acknowledged in a filing on June 25, 2024. The case could see further appeal to the Supreme Court of Missouri depending on the outcomes in the Western District Court.
Concerned about State and Local Taxes on Marijuana Following an Audit or Assessment?
The language of Amendment 3 did not expressly consider the application of local marijuana sales taxes on dispensaries located within the jurisdiction of both a city and a county. Based on the recent court decision, the result for some dispensaries in Missouri is an obligation to collect multiple local taxes from customers, which may place them at a competitive disadvantage compared to dispensaries located outside of incorporated areas.
State and local sales taxes are an important consideration for dispensaries and other marijuana distributors when selecting a location and making other business decisions. If your company has concerns about its regulatory and tax obligations for selling marijuana in Missouri or another state, consider meeting with our tax professionals today. We help clients with their licensing, audits, assessment appeals, and other compliance efforts across the United States.