The question of whether taxes on medical cannabis sales in New Mexico should be deductible before this year is one step closer to hearing in the state’s Supreme Court.
The attorney general filed a brief Monday with the New Mexico Supreme Court on behalf of the New Mexico Taxation and Revenue Department, arguing that state lawmakers did not intend to allow gross income tax deductions on the sale of medical cannabis until this year to allow.
The problem arises from a request from medical cannabis maker Sacred Garden to deduct gross income taxes from its sales. The department denied the claim on the grounds that medical cannabis is not prescribed like other drugs. In New Mexico, gross income taxes on prescription drugs are deductible, and medical cannabis is recommended, not prescribed, by a doctor. A panel of the New Mexico Appeals Court ruled in favor of Sacred Garden last January, writing that the difference between a referral and a prescription regarding medical cannabis is negligible. TRD took the case to the Federal Supreme Court, where it has been pending since last year. Since then, New Mexico law has passed the Cannabis Regulatory Act, which legalizes recreational cannabis but also explicitly allows gross income tax deductions for medicinal cannabis. This law does not come into force until June 29th.
In the file filed on Monday, Assistant Attorney General Cordelia Friedman outlined a series of “problems” which she said show the New Mexico Court of Appeals got it wrong.
“These questions show that the alleged legal building analysis of the [New Mexico Court of Appeals] was wrongly done and did not provide the evidence necessary to support this court’s conclusion that medical marijuana is prescribed by prescription and, as such, is a prescription drug on which proceeds from sales are not taxable in New Mexico, ”Friedman wrote . “It is not.”
At the heart of the state’s argument about allowing deductions for past cannabis sales is the fact that medicinal cannabis is not prescribed by a doctor.
“Firstly, a ‘certification’ is not the ‘functional equivalent’ of a legally designated deductible item, in this case a doctor’s prescription, and cannot meet the requirement that the right to deduction must be expressed ‘clearly and unambiguously’ by the legislature. Friedman wrote.
Legislative intent was a key issue in previous filings of the year-long dispute. And both the appeals court and TRD have written in previous court records that New Mexico law likely avoided using the term “prescription” in drafting state medical cannabis law to help health professionals face federal legal issues protect.
In the brief filed Monday, Friedman wrote that the Supreme Court should “reject the concept that marijuana, a state-controlled substance, can be legally” prescribed “for use by anyone under New Mexico state law.
In order to justify its January 2020 ruling, the appeals court cited a report on the impact of the legislation on legislation for the Compassionate Use Act of Lynn and Erin that made no mention of potential tax revenues.
Friedman, however, argued in Monday’s statement that the Supreme Court should deny that claim because the mere mention of potential tax revenues in a written analysis does not mean that lawmakers intend to allow tax deductions.
“The fact that this FIR does not mention taxation does not support a clear and unambiguous finding that Sacred Garden is entitled to a tax deduction,” Friedman wrote.
Friedman argued in the letter that by including medical cannabis tax deductions in the Cannabis Regulatory Act, lawmakers had clarified that they would not allow medical cannabis tax deductions until this year.
“Since the clear meaning of the legal language is clear that medical marijuana cannot be prescribed, it was not the legislature’s intention to allow such withdrawal,” Friedman wrote. “Another piece of evidence to support this conclusion is the recently passed Cannabis Regulatory Act that explicitly exempts medical marijuana from gross income taxation.”
Sacred Garden has until June 16 to respond to the state’s letter. The state then has six days to reply again. The Supreme Court could then ask for oral explanations before making a decision.
In April, shortly after signing the Cannabis Regulatory Bill, Governor Michelle Lujan Grisham spoke to Growing Forward, the collaborative podcast between NM Political Report and New Mexico PBS. When asked why the state continued to contest Sacred Garden’s request, Lujan Grisham said she understood why Sacred Garden would require a deduction and that she believes “cannabis is medicine” but that TRD should not adopt legislative intent .
“This is an area where there is clarity because otherwise you have a department that based on your opinion, guess or not guess legislative intent,” said Lujan Grisham. “They would enable a department to be challenged all the time to make arbitrary and capricious decisions as they guess or take the side of the taxpayer.”
Ironically, in January a district court judge ruled in favor of a group of medical cannabis producers who described the medical cannabis rules promulgated by the state’s Department of Health as arbitrary and capricious.