The Compassionate Use of Medical Cannabis Act Surcharge

The retail sale of medical cannabis in Illinois is subject to the state’s 1% Retailers’ Occupation Tax. This is not a special surcharge but the standard state sales tax rate for items classified as “qualifying foods, drugs, and medical appliances,” a category that includes medical cannabis. This tax is distinct from the higher taxes that apply to adult-use cannabis and is applied instead of the state’s general merchandise sales tax.

Tax Rate and Calculation

The state tax on medical cannabis is set at a rate of 1% of the gross receipts from the sale. The term “gross receipts” refers to the total amount of money or other consideration received by the dispensary for the cannabis sold. This includes the full retail price paid by the patient at the point of sale, without any deductions for the dispensary’s own costs, such as the cost of the product, labor, or other operational expenses.

For example, if a qualifying patient purchases medical cannabis for a retail price of $150.00, the tax would be $1.50 ($150.00 x 0.01), and the total amount the patient would pay would be $151.50. This tax must be stated separately from the selling price on the customer’s receipt. Unlike general merchandise or adult-use cannabis, medical cannabis is exempt from many other local sales taxes.

Collection and Remittance Responsibilities for Dispensaries

Medical cannabis dispensaries are legally mandated to act as the collection agent for the state. This responsibility begins at the point of sale, where the dispensary must accurately calculate and collect the 1% tax from the purchasing patient.

Once collected, these funds are not the property of the dispensary. The dispensary holds the collected tax amounts in trust for the state of Illinois and must account for these funds separately from its own revenue. Co-mingling tax funds with general operating funds can lead to significant accounting and compliance issues. The final step in this duty is the remittance of the collected funds to the Illinois Department of Revenue.

Required Registration and Forms

Before a dispensary can begin collecting and remitting the medical cannabis tax, it must register with the Illinois Department of Revenue. This registration is completed electronically through the MyTax Illinois web portal. During registration, the business will need to provide essential information, including its legal business name, address, Federal Employer Identification Number (FEIN), and details about its state-issued license from the Illinois Department of Financial and Professional Regulation.

The primary form for reporting medical cannabis sales for sales tax purposes is Form ST-1, the Sales and Use Tax and E911 Surcharge Return. In addition to Form ST-1, dispensaries must also file Form CD-1, the Cannabis Dispensary Tax Return, to specifically detail their cannabis sales. The information from Form CD-1 is used to properly complete Form ST-1.

When completing Form ST-1, a dispensary must first report its total gross receipts from all sales, including both cannabis and non-cannabis products, on Line 1. Because the 1% medical cannabis tax is handled differently than the standard 6.25% sales tax, the receipts from medical cannabis sales are then deducted. This is done on Schedule A of Form ST-1. The dispensary will list the total from medical cannabis sales as a deduction, ensuring that these sales are not taxed at the higher general merchandise rate.

Filing and Payment Procedures

The state requires electronic filing for cannabis-related tax returns. Dispensaries must use the MyTax Illinois portal to submit their completed Form ST-1 and Form CD-1. Concurrent with filing, the dispensary must remit the total tax amount due for the reporting period. Payment must also be made electronically. The MyTax Illinois portal facilitates several payment methods, including electronic funds transfer (EFT) directly from the dispensary’s bank account.

The deadline for both filing the returns and making the payment is the 20th day of the month following the end of the reporting period. For example, for sales made during the month of January, the returns and payment are due by February 20th. If the 20th falls on a weekend or a state holiday, the due date is extended to the next business day. After successfully submitting the return and payment, the dispensary will receive an electronic confirmation number, which should be retained for its records as proof of timely filing.

Penalties for Non-Compliance

If a dispensary fails to file a return within 30 days after the Illinois Department of Revenue issues a notice of non-filing, a penalty is imposed. This penalty is the greater of $250 or two percent of the tax due. A separate penalty is assessed for the late payment of the tax. If the payment is made 1 to 30 days after the due date, the penalty is 2% of the tax owed. This rate increases for longer delays.

In addition to fixed penalties, interest accrues on any unpaid tax amount. Interest begins to accumulate from the day after the original due date and continues until the liability is paid in full. The interest rate is set by the state and can change periodically.