New York’s adult-use cannabis marketing and advertising rules allow retailers to offer discounts, loyalty programs and other promotions — but only if the programs are structured in a way that does not undermine New York State and local tax collections.

In our experience, many operators are not computing the discount and retail tax correctly. Under collecting tax can create exposure not only for the business, but also for certain owners, officers and managers who may be treated as “responsible persons” under New York tax law.

Taxes must be computed on the pre-discount price

Under 9 NYCRR § 129.3(b), a licensee may advertise “price reductions or any other discount, coupons, points-based reward systems, customer loyalty programs, or bundled discounts” for adult-use cannabis products, but only if several conditions are met — including the following two that directly affect price and tax calculations:

• Condition (b)(1): no below-market sales. The offer must not result in the sale of cannabis products below “market value.”

• Condition (b)(2): retail tax must be calculated on the pre-discounted price. The retail tax due on discounted products must be calculated on the price before the discount is applied, specifically “so as to not subvert State and local tax collections.”

Under the law, “market value” means the minimum retail price of a cannabis product, which is one and a half times the wholesale price paid by the retailer for the products and units that are being discounted.

Assuming the retailer paid a wholesale price of $50 for a unit and applies a 100 percent markup at retail, the listed (pre-discount) retail price is $100. The “market value” is one and half times the wholesale price for the discounted unit, which is $75. The discounted selling price cannot be lower than $75 under the law. 

• Permitted: A 20% discount off the $100 list price results in a customer price of $80, which is above the $75 market value floor.

• Not permitted: A 30% discount off the $100 list price results in a customer price of $70, which is below the $75 market value floor.

When calculating the retail cannabis tax, it must be calculated on the pre-discount listed price ($100), not the discounted price. The retail tax base does not change with the discount: 

1. Listed price (pre-discount): $100
2. Promotion: 20 percent off (customer pays $80)
3. Retail cannabis tax base per 9 NYCRR § 129.3(b)(2): $100 (not $80)
4. Retail cannabis tax due: $100 × 13 percent
5. Amount due from customer at checkout: $80 + $13 = $93

Many point-of-sale configurations calculate the retail cannabis tax as a percentage of the discounted selling price. The regulation requires the opposite: compute the retail tax on the undiscounted(pre-discount) price, even if the customer ultimately pays less due to a promotion.

Getting the tax calculation wrong creates personal liability exposure

If a retailer calculates retail cannabis tax on the discounted price instead of the pre-discount price, the likely result is an under-collection and under-remittance of tax. New York’s tax enforcement framework commonly imposes personal, joint-and-several liability on certain individuals who are under a “duty to act” for a business in collecting and remitting taxes. For example, under Tax Law § 1133 (the sales and use tax “responsible person” statute), certain owners, officers, directors, employees, managers, partners or members can be held personally liable for taxes collected, or required to be collected, and personal assets may be pursued once a liability becomes fixed and final. 

Under cannabis tax law, under-collection and under-remittance of adult-use cannabis taxes creates not only entity-level exposure, but also the potential for personal assessments against individuals who are treated as responsible persons under the state’s tax framework. Operators should therefore calculate the retail tax on the pre-discounted price a compliance requirement to mitigate potential downstream tax exposure.

Who is most at risk?

Personal exposure issues tend to arise for individuals who have authority over (or meaningful involvement in) financial controls, tax settings or payment decisions, including:

• Owners, members or partners with control over finances or compliance.

• Officers/executives who supervise finance, accounting or store operations.

• Controllers, finance directors and accounting personnel who configure or oversee tax computation and returns.

• Managers with authority to direct payments (including decisions about which vendors get paid when cash is tight).

Steps to fix — or prevent — noncompliance

Cannabis businesses should take the following steps to ensure compliance:

• Audit your Point-of-Sale tax base logic. Confirm the retail cannabis tax is computed on the pre-discount price for every discount type you offer (manual discounts, coupons, loyalty points, bundles, etc.).

• Confirm “market value” compliance. Validate that advertised discounts do not push the selling price below “market value” as that term is defined in the regulations.

• Document discount programs. Maintain written discount/loyalty program terms and internal controls showing how taxes are calculated and remitted.

• Run periodic exception reports. Identify transactions where a discount applied but tax was computed on the discounted base; investigate and correct configuration errors.

• Consider voluntary remediation. If you identify under-collection/under-remittance, consult counsel about corrective filings and payment options before an audit or inquiry.

• Train staff. Ensure store managers and cashiers understand that “discounted price” and “tax base” may differ under 9 NYCRR § 129.3(b)(2).

The bottom line is, businesses should assume regulators and tax authorities will scrutinize discount programs for compliance, and they should treat tax configuration as a governance issue — not merely a cashiering issue.

Jason W. Klimek is co-leader of Harris Beach Murtha’s cannabis industry team.