The Advantages of Being a “Qualified Manufacturer” in the Cannabis Industry

NEW YORK — In the ever-expanding landscape of New York’s cannabis industry, entrepreneurs face a multitude of challenges on their path to success. From navigating the complexities of licensing to competing against illicit market players, the journey is undoubtedly arduous. However, savvy business owners have discovered a glimmer of hope amidst the obstacles: the potential tax relief that comes with attaining the coveted status of a “Qualified New York Manufacturer.”

Being recognized as a “Qualified Manufacturer” opens up a treasure trove of benefits that can significantly alleviate the fiscal burdens faced by these businesses. The most notable advantage is the zero percent rate on their business income base, offering substantial relief compared to prevailing tax rates. Additionally, these businesses enjoy reduced taxes and caps on their capital tax base, lower fixed dollar minimum tax amounts, and the possibility of receiving a real property tax credit. When combined, these benefits can result in substantial tax savings, giving companies a competitive edge in the market.

But what exactly does it mean to be a “Qualified Manufacturer”? This distinction applies to businesses primarily engaged in manufacturing, processing, assembly, extraction, farming, agriculture, and similar activities. Crucially, the company must own property in New York State, as defined by the state’s investment tax credit legislation, with an adjusted basis of at least $1 million at the end of the tax year for New York State tax purposes. Alternatively, the business must have all its real and personal property located within the state.

Furthermore, the state defines a business as “principally engaged in manufacturing” if it derives over 50% of its gross receipts from the sale of goods resulting from the aforementioned activities. This definition opens the door for vertically integrated cannabis businesses, even those with significant retail revenue from third-party products, to qualify as Qualified Manufacturers.

For these businesses, the benefits extend to state franchise taxes. While the usual tax rate ranges from 6.5% to 7.25% for business income, Qualified Manufacturers enjoy a zero percent rate. Similarly, the Business Capital Tax drops from 0.1875% of capital to nil. Additionally, the Fixed Dollar Minimum Tax is significantly reduced, ranging from $19 to $3,740, compared to the typical range of $25 to $200,000.

The advantages of being a Qualified Manufacturer also extend to the tax framework in New York City. While the regular city income tax rate varies from 6.5% to 8.85%, attaining Qualified Manufacturer status allows businesses to lower that rate to a more manageable 4.425%. It’s important to note that the City’s corporation tax only applies when total income from New York City sources reaches $1 million or more.

As the cannabis industry in New York continues to evolve, businesses must adapt their strategies accordingly. Achieving Qualified Manufacturer status can offer much-needed tax relief for these pioneering companies, fueling their growth in an increasingly competitive and regulated industry. As they navigate the complex maze of legality, these tax benefits could serve as a compass, guiding them towards profitability.