CBD Taxation: State & Federal Tax Requirements

Quick Snapshot: Taxes That Can Apply to CBD

CBD businesses rarely face just one tax. Expect a mix depending on what you sell and where you sell it.

• Sales and use tax on retail sales (most states)
• Possible state or local excise taxes on certain products (e.g., hemp-derived THC edibles, beverages, or vapes)
• Federal and state income taxes (C-corp, S-corp, partnership, or sole proprietor)
• Payroll taxes if you have employees
• Gross receipts or business & occupation taxes in select states and cities
• Licensing fees and product registration costs (often separate from taxes)

Bottom line: Map your product catalog to the correct taxes in every state where you have obligations.

CBD Taxation at the Federal Level

At the federal level, there is currently no CBD-specific federal excise tax. Hemp-derived CBD (containing no more than 0.3% delta-9 THC on a dry weight basis) is federally legal under the 2018 Farm Bill, subject to FDA and state rules.

Federal income tax and deductions

• CBD companies pay federal income tax like other businesses (C-corp, S-corp, partnership, etc.).
• Section 280E generally does not apply to compliant hemp-derived CBD businesses because 280E targets Schedule I/II controlled substances. Marijuana (above 0.3% delta-9 THC) is still Schedule I; hemp is not.
• Use standard rules for cost of goods sold (COGS) and inventory under IRC Section 471. Keep clean purchase, manufacturing, and freight records.

Other federal considerations

• FDA rules limit how CBD can be marketed in foods and supplements; this affects labeling and, indirectly, tax collection if products must be reclassified.
• Vape hardware and certain e-liquids can trigger e-cigarette or ENDS rules in some jurisdictions and may be subject to separate state excise regimes.
• Online sellers must consider marketplace facilitator rules and post-Wayfair economic nexus for state sales tax (discussed below).

State CBD Taxation: Sales Tax, Excise, and Local Rules

States control most CBD tax policy. Many treat CBD like any other tangible personal property for sales tax, but some have added special taxes to certain products.

Sales and use tax: the default for most CBD products

• Retail CBD oils, topicals, capsules, and pet products are usually taxable at standard state and local sales tax rates unless a specific exemption applies.
• If you ship to another state, you may owe that state’s sales tax once you exceed its economic nexus thresholds (e.g., $100,000 in sales or 200 transactions, thresholds vary by state).
• Marketplace facilitators (e.g., major e-commerce platforms) often collect and remit tax for you, but you remain responsible for your own site and wholesale channels.

Excise taxes and “hemp taxes” on special products

While many states impose cannabis excise taxes on marijuana, a growing number also apply excise taxes to certain hemp-derived consumables.

• Some states impose excise taxes on hemp-derived THC edibles and beverages (in addition to sales tax). For example, Minnesota taxes cannabis products, including many hemp-derived THC edibles and drinks, at 10% of gross receipts.
• Other jurisdictions have enacted separate hemp taxes on retail sales of consumable hemp or CBD products. Scope and rates vary widely; always verify on your state’s Department of Revenue website.
• CBD beverages may also be subject to local beverage or prepared food taxes in certain cities and counties.
• Vape devices/liquids can trigger e-cigarette excise regimes even when nicotine-free.

Action item: Build tax profiles by SKU. A tincture, gummy, topical, drink, and vape may all be taxed differently in the same state.

Licensing, registration, and product approvals

• Expect to obtain a sales tax permit and, in many states, a hemp/consumable hemp license for retail or manufacturing.
• Some states require product registration, COAs, age restrictions for certain products, and location-specific signage.
• Labels often need batch numbers, QR links to COAs, and state-specific warnings—errors here can lead to product holds and tax trouble.

Step-by-Step Compliance Checklist

1. Define your catalog: CBD-only, hemp-derived THC, topicals, ingestibles, beverages, and vapes.
2. Register: Get your federal EIN, state sales tax permits, and any hemp/consumable hemp licenses before selling.
3. Map taxability by SKU: Use a tax engine or CPA to assign sales tax and any excise tax rules per state.
4. Set up collection: Configure your e-commerce, POS, and marketplace channels to collect the right taxes at checkout.
5. Track nexus: Monitor economic and physical nexus monthly; register when you cross thresholds.
6. Maintain COAs and labels: Keep lot-level records; some states tie compliance checks to tax audits.
7. Remit and file: File sales/excise returns on time (monthly/quarterly). Automate calendar reminders.
8. Bookkeeping: Separate COGS, excise taxes, sales taxes payable, and shipping. Reconcile collected vs. remitted taxes.
9. Inventory accounting: Apply consistent valuation under Section 471; document landed costs.
10. Review annually: Re-check state rules, especially for hemp taxes and new excise taxes on edibles and beverages.

Real-Life Example: The $12,000 Lesson

RiverLeaf Botanicals, a small CBD brand, expanded into hemp-derived THC seltzers. They added the new SKUs to their site but kept the same tax settings.

Three months later, a state notice arrived: they had not collected the required 10% excise tax on qualifying hemp-derived THC beverages, on top of sales tax. Between back taxes, penalties, and interest, they owed $12,000.

Fix: They implemented SKU-level tax mapping in their checkout, registered for the excise account, and set up a monthly filing cadence. They also trained staff to flag new SKUs for tax review before launch.

Takeaway: New product types can change your tax picture overnight. Treat each new SKU as a mini tax project.

Expert Tips to Get CBD Business Taxes Right

• Don’t assume “CBD is CBD.” Edibles, drinks, vapes, and topicals can be taxed differently.
• Use SKU-level tax codes in your POS/e-commerce rather than a single storewide setting.
• Document nexus decisions with sales reports and registration dates for audit trails.
• Automate certificate management if you sell wholesale; expired or missing resale certificates lead to tax assessments.
• Reconcile sales tax collected vs. returns filed every filing period to catch discrepancies early.

Common Mistakes (and How to Avoid Them)

• Applying only sales tax when an excise tax also applies. Avoid by reviewing state hemp/cannabis FAQs for your product types.
• Missing economic nexus in new states. Avoid by tracking trailing 12-month sales and order counts monthly.
• Poor inventory and COGS records. Avoid by standardizing SKU codes, purchase orders, and landed cost worksheets.
• Ignoring FDA/state labeling rules. Avoid by integrating compliance checks into your product launch checklist.
• Assuming 280E applies to hemp CBD. Clarify: 280E applies to Schedule I/II controlled substances; compliant hemp-derived CBD is not Schedule I.

CBD Taxation FAQs

Conclusion

Done right, cbd taxation doesn’t have to be scary. Map taxes by SKU, register on time, and automate filings. If your catalog includes edibles, beverages, or vapes, double-check whether excise taxes or hemp taxes apply. Strong processes reduce risk, protect margins, and streamline growth.