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Everything You Need To Know About Arizona Weed Tax

This post is part of our Best Dispensaries in Arizona series, brought to you by Cannabist Tempe.

If you live, work, or play in Arizona, then you know all about the endless opportunities and luxuries this great state provides.  Arizona is replete with breathtaking landscapes, electric entertainment venues, world-class shopping, eclectic arts, culture, fine dining and so much more.  Now, since the voter-approved Proposition 207 was passed in April of 2020, Arizonians find themselves enjoying all the pleasures associated with possessing and purchasing adult-use, legal marijuana too. But what about Arizona weed tax? What’s that all about? Let’s find out.

At the time of this writing, the state’s cannabis industry now exceeds $1 billion in revenue annually, which means high times for both consumers and respectable AZ dispensaries like Cannabist Tempe and SWC Arizona in Prescott. What’s more, $215 million of that billion-plus chunk of change accounts for taxes collected on medical and recreational marijuana sales during last year alone, according to the Arizona Department of Revenue. 

That’s a lot of dough, and you might be asking yourself, “How much is tax on weed in Arizona?”  If so, you’ve come to the right place. Read on for eye-opening facts and details about Arizona weed tax rates, where all that money goes, and what it means for the Grand Canyon State.

Is Weed Taxed In Arizona? 

Yes. There is tax on weed in Arizona. But how the state taxes and collects weed tax revenue is much different than other states such as California weed tax policies or Utah. In AZ, tax is collected on all marijuana-derived products, including edibles, CBD products, medicinals, etc.  However, different tax rates apply depending upon the situation. For instance, consumers with a valid, state-issued medical marijuana (MMJ) card pay a different amount of tax than adults purchasing pot for recreational use. 

In addition to sales tax, the state collects AZ dispensary tax, also known as an excise tax. According to the Arizona Marijuana Tax Handbook, retailers and dispensaries in AZ are liable to pay both sales and excise taxes immediately upon becoming licensed to sell adult-use marijuana to Arizona consumers.  

Nevertheless, as a consumer, you will pay Arizona marijuana tax at the time of purchase at a licensed dispensary. That said, there are caveats and nuances you should know when getting the full answer to the question, “How much is tax on weed in Arizona?” 

Tax Rate for Medical Marijuana in Arizona 

The Arizona weed tax rate (also known as TPT, which stands for Transaction Privilege Tax) is 5.6% for medical marijuana.  So, if you are a patient who has a valid, state-issued MMJ card, you can expect to pay 5.6% sales tax (TPT) on your medical marijuana purchase.  However, MMJ card-carriers are exempt from paying an additional Marijuana Excise Tax (MET).   

Tax Rate for Recreational Marijuana in Arizona 

The Arizona marijuana tax rate is the same for recreational marijuana as it is for medical.  That means if you purchase adult-use pot for recreational use, you will pay 5.6% TPT (sales tax) on your purchase.  

And remember that excise (MET) tax we mentioned earlier? You can expect to pay that too, because dispensaries pass on the cost of Marijuana Excise Tax on recreational pot to consumers.  The MET tax rate is 16%. So, if you’re buying weed for recreational use, expect to pay 5.6% TPT plus an additional 16% MET at time of purchase.

Lastly, be aware that various counties and cities in Arizona can assess a local TPT (sales tax) in their jurisdictions on marijuana sales.  Local and city tax rates vary from 1% – 4% depending upon the jurisdiction.  This is an additional Arizona weed tax on top of the statewide rate of 5.6% and is payable by consumers of both medical and recreational marijuana users.

Is Medical Marijuana Tax Deductible In Arizona?

Nope. Medical marijuana is not tax deductible in Arizona. That’s because the federal tax code, specifically Section 280E, prohibits businesses involved in the trafficking of controlled substances (including cannabis) from deducting typical business expenses. This restriction on Arizona weed tax applies regardless of state law, which means medical marijuana expenses cannot be deducted from federal tax returns.

Where Does Arizona Weed Tax Go To? 

If we’ve left your head spinning regarding how much is tax on weed in Arizona, take heart.  There are actually many worthwhile benefits associated with Arizona weed tax. To elaborate, the Marijuana Excise Tax goes into a state government fund called the Smart and Safe Arizona Fund (SSAF).  

Once the Arizona cannabis tax revenue is collected by the state, it is distributed among various government-funded programs and organizations.  Currently, weed tax revenues are used to fund community colleges, fire departments, transportation departments, criminal justice programs, and law enforcement.

Comparing Arizona Weed Tax to Other States

According to the Tax Foundation.org, Arizona’s weed tax structure includes a 16% excise tax on recreational marijuana sales.  Additionally, there’s a state-wide Transaction Privilege Tax (TPT) of 5.6% that applies to both medical and recreational marijuana. In case you’re wondering, the excise Arizona marijuana tax rate is relatively high compared to other states. For example, California imposes a 15% excise tax, Colorado has a 15% retail marijuana tax plus a 2.9% state sales tax, and Michigan has a 10% excise tax along with a 6% sales tax. States like Nevada charge a 15% excise tax on wholesale sales and a 10% retail excise tax. In contrast, states such as Missouri have lower rates, with a 6% retail tax, while Montana applies a 20% excise tax on adult-use marijuana.

The Last Word on Tax on Weed in Arizona

With the continued increase of sales of recreational weed, the Arizona marijuana tax is proving to be a lucrative and welcomed source of income for the state budget. In fact, tax revenue collected from cannabis sales has surpassed alcohol and tobacco tax revenue combined.  In the words of the AZ Dispensary Association’s Director, Sam Richard, “The legalization of cannabis in Arizona has been a boon for the Arizona economy and the state tax coffers.”  So the next time you’re tempted to complain about the price of tax on weed in Arizona, you might stop to consider that those tax dollars are funding vital services and infrastructures of the fine state of Arizona.