Hemp and cannabidiol products derived from hemp may be legally sold in Vermont. Hemp plants that are purchased as an agricultural supply are exempt from the Vermont Sales and Use Tax under the agricultural exemption. Cannabidiol is generally subject to the Vermont Sales and Use Tax, with the exception of one form of cannabidiol that has been approved by the FDA, and therefore qualifies for the drug exemption from sales tax. Additionally, cannabidiol that is incorporated into a taxable meal is subject to the Vermont Meals and Rooms Tax and as a result, is exempt from sales tax. The explanation below summarizes the legal basis for taxing or exempting hemp and cannabidiol products in Vermont.
Disclaimer: This information does not constitute legal advice. Vermont tax statutes, regulations, court decisions, or Vermont Department of Taxes rulings supersede information provided here.
Vermont Sales and Use Tax
Vermont imposes a 6% sales and use tax on retail sales of tangible personal property in Vermont, unless an exemption applies. 32 V.S.A. § 9771(1). Tangible personal property is personal property that “may be seen, weighed, measured, felt, touched, or in any other manner perceived by the senses.” 32 V.S.A. § 9701(7). Vermont law exempts the sale of certain categories of tangible personal property from tax, including drugs intended for human use, agricultural supplies, food and food ingredients including dietary supplements, and meals that are taxed or exempted under the meals tax chapter. 32 V.S.A. § 9741(2), (3), (10), and (13). Some hemp and products derived from hemp (such as cannabidiol) are taxed by the Vermont sales tax and some are exempt.
Vermont law recognizes hemp as an agricultural product that may be lawfully grown as a crop, produced, possessed, and commercially traded in the state. 6 V.S.A. § 563; see, Vermont Attorney General’s Office, “Vermonters Need Not Fear State Prosecution For Simple Possession Of Hemp Oil Products” (April 15, 2015). Hemp is defined under Vermont statute as “ the plant Cannabis sativa L. and any part of the plant, including the seeds and all derivatives, extracts, cannabinoids, acids, salts, isomers, and salts of isomers, whether growing or not, with the federally defined tetrahydrocannabinol concentration level of hemp.” 6 V.S.A. § 562(3).
Hemp is tangible personal property, which means that it is subject to Vermont Sales and Use Tax unless an exemption applies. Hemp plants sold as an agricultural supply qualify for the agricultural exemption from sales tax, and therefore are not taxable in Vermont.
Agricultural Sales Tax Exemption
Vermont law provides an exemption from sales tax for certain specified agricultural supplies, including plants, in order to promote Vermont's agricultural economy. 32 V.S.A. §§ 9706(b), 9741(3). The agricultural exemption is generally product-based, although the specific supplies listed in the statute are only exempt if they are “for use and consumption directly in the production for sale of tangible personal property on farms.” 32 V.S.A. § 9741(3). In other words, only supplies purchased for agricultural use are exempt, not hemp plants purchased for personal use.
The Vermont Sales and Use Tax Regulation further provides that the exemption is for supplies of the type that is “typically used in agriculture.” Vt. Reg. § 1.9741(3)-1. The regulations define “agriculture” as “the science or act of producing agronomic and horticultural crops, farm products, and raising livestock.” Vt. Reg. § 1.9741(3)-1(A). Hemp is a plant, which is an exempt product that is specifically listed under statute, and hemp can be used and consumed directly in the production for sale of tangible personal property on farms. Moreover, the Vermont statute on hemp explicitly recognizes hemp as an agricultural product. 6 V.S.A. § 563. Therefore, hemp purchased for agricultural uses qualifies for the agricultural exemption.
More Information on Industrial Hemp and Growing Hemp in Vermont
Vermont's Industrial Hemp Program is administered by the Agency of Agriculture, Food and Markets. The agency's website has information on industrial hemp, growing hemp in Vermont, and how to register as a hemp grower or processor.
Cannabidiol (CBD) is a chemical derived from the Cannabis sativa L. plant. CBD is a different chemical than tetrahydrocannabinol (THC), which is the primary psychoactive component of cannabis. This means that CBD, unlike THC, does not cause intoxication. CBD, as a derivative of hemp, may be sold at retail. 6 V.S.A. § 563. It is commonly found in oil form, as capsules, salves, and as an additive to foods or beverages.
The sale of CBD products in Vermont is subject to sales tax as tangible personal property unless an exemption applies. 32 V.S.A. § 9771(1). The sales tax exemptions that apply to specific CBD products are discussed below.
CBD Is Generally Not Exempt as a Drug
Vermont law exempts the sale of certain categories of tangible personal property from sales tax, including drugs intended for human use, in order to support the health and welfare of Vermont residents. 32 V.S.A. §§ 9706(a), 9741(2). Drugs are defined as:
“a compound, substance, or preparation, and any component of a compound, substance, or preparation, but not including food and food ingredients, dietary supplements, alcoholic beverages, or grooming and hygiene products, that is:
(A) recognized in the official United States Pharmacopeia, official Homeopathic Pharmacopeia of the United States, official National Formulary, or in supplements to any of them;
(B) intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease; or
(C) intended to affect the structure or any function of the body.” 32 V.S.A. § 9701(29).
Under the Vermont Sales and Use Tax Regulations, for a drug to be exempt, it must be either a prescription drug or an over-the-counter drug that contains a label that identifies the product as a drug as required by federal regulation. Vt. Reg. § 1.9741(2)(A); 21 C.F.R. § 201.66.
Most CBD products do not qualify for the Vermont sales tax exemption for drugs because they are not recognized in any of the official U.S. pharmacopeias, formularies, or their supplements, they cannot be prescribed, and they are not required to be labeled as a drug under federal regulation. 32 V.S.A. § 9741(2); Vt. Reg. § 1.9741(2)(A)(1), (2); 21 C.F.R. § 201.66. CBD is generally not recognized and cannot be prescribed or labeled as a drug because it is derived from the cannabis plant, which is a Schedule I controlled substance under federal law. 21 U.S.C.A. § 812, Sch. I, (c)(10). Classification under Schedule I means that the drug or other substance has been found to have a high potential for abuse, no currently accepted medical use in treatment in the U.S., and that there is a lack of accepted safety for use of the drug under medical supervision. 21 U.S.C.A. § 812(b)(1). Due to this Schedule I classification, most CBD products do not meet the requirements to qualify for the Vermont sales tax exemption for drugs.
There is one exception: Epidiolex. This is the only CBD product that qualifies for the Vermont sales tax exemption for drugs because it has been approved by the Food and Drug Administration (FDA) and can therefore be prescribed for the cure, mitigation, treatment, or prevention of disease. See, FDA News Release, “FDA approves first drug comprised of an active ingredient derived from marijuana to treat rare, severe forms of epilepsy” (June 25, 2018).
Epidiolex is the first FDA-approved drug made from the cannabis plant. It is used to treat seizures associated with two forms of epilepsy, Lennox-Gastaut syndrome and Dravet syndrome, in patients two years of age and older. FDA approval acknowledges that Epidiolex has a currently accepted medical use in treatment in the U.S. for the purposes of federal law, and therefore no longer meets the criteria to be a Schedule I drug. As a result, the Drug Enforcement Administration removed Epidiolex – but no other forms of CBD – from Schedule I and placed it in Schedule V of the Controlled Substances Act. 21 U.S.C.A. 812; 21 C.F.R. §§ 1308.15, 1312.30.
The taxation of CBD products is to be distinguished from the sale of cannabis for legal recreational use or therapeutic use by a registered Vermont dispensary to a registered patient or caregiver through the Medical Cannabis Program. 18 V.S.A. ch. 86. The sale of cannabis by a dispensary to a registered patient or caregiver is exempt from the Vermont sales and use tax because it qualifies for the exemption for drugs intended for human use. 32 V.S.A. § 9741(2). Purchasers of CBD are not required to register as patients on the Vermont medical cannabis registry, and therefore their purchases of CBD at retail are not eligible for the drug exemption from sales tax.
CBD Is Not Exempt as Food or a Food Ingredient or Dietary Supplement
Vermont law exempts the sale of certain categories of tangible personal property from sales tax, including “food and food ingredients sold for human consumption off the premises where sold,” in order to “limit the cost of goods that are necessary for the health and welfare of all people in Vermont.” 32 V.S.A. §§ 9706(e), 9741(13). Vermont statute defines “food and food ingredients” as “substances, whether in liquid, concentrated, solid, frozen, dried, or dehydrated form, that are sold for ingestion or chewing by humans and are consumed for their taste or nutritional value.” 32 V.S.A. § 9701(31); see also, Vt. Reg. § 1.9741(13). Food and food products include candy and dietary supplements. Id.
Vermont statute defines “dietary supplement” as “any product, other than tobacco, intended to supplement the diet” that must meet three requirements. 32 V.S.A. § 9701(27). The first requirement is that the product must contain at least one dietary ingredient, including an herb or other botanical, or “a concentrate, metabolite, constituent, extract” of an herb or other botanical. 32 V.S.A. § 9701(27)(A). The second requirement is that the product must be “intended for ingestion in tablet, capsule, powder, softgel, gelcap, or liquid form, or if not intended for ingestion in such form, is not represented as conventional food and is not represented for use as a sole item of a meal or of the diet.” 32 V.S.A. § 9701(27)(B). The third requirement is that the product must be “required to be labeled as a dietary supplement, identifiable by the “supplemental facts” box found on the label and as required pursuant to 21 C.F.R. § 101.36.” 32 V.S.A. § 9701(27)(C); see, 21 C.F.R. § 101.36.
CBD products are substances that are sold for ingestion or chewing by humans off the seller’s premises, but they are consumed for their therapeutic value, rather than for their taste or nutritional value. They also do not meet Vermont’s definition of a dietary supplement. 32 V.S.A. § 9701(27)(C). CBD could be construed as the extract of an herb that is intended in certain forms to be ingested in capsule form, which meets the first and second parts of the definition of “dietary supplement.” However, the FDA has concluded that CBD is excluded from the definition of dietary supplement under federal law, which means that it fails to comply with the third requirement of Vermont’s definition of dietary supplement. Food and Drug Administration Warning Letters (February 4, 2016); 21 U.S.C. § 321(ff)(3)(B)(ii). CBD products therefore do not qualify for the food exemption because they are not consumed for their taste or nutritional value and they are not required to be labeled as a dietary supplement under federal regulation.
The food and food ingredient exemption is limited to food sold for consumption off the seller’s premises. Another exemption exists for meals subject to the meals and rooms tax, whether consumed on or off the seller’s premises.
CBD Is Exempt from Sales Tax When Sold as Part of a Meal that Is Subject to or Exempt from Meals Tax
Vermont law exempts the sale of meals that are taxed or exempted under the meals tax chapter, whether consumed on or off the seller’s premises. 32 V.S.A. § 9741(10); Vt. Reg. § 1.9741(13). This means that the sales tax and meals tax are mutually exclusive and prevents them from applying to the same transaction. CBD products that are sold as part of a taxable meal, such as a latte with a dose of CBD, are subject to meals tax, and are therefore exempt from sales tax. When CBD products are sold as part of a meal that is exempt from meals tax, such as grocery-type items sold by a grocery store, then they are exempt from both meals tax and sales tax.
Vermont Meals and Rooms Tax
Vermont imposes a 9% meals and rooms tax on taxable meals. 32 V.S.A. § 9241(b). Generally, taxable meals are food or beverage offered for a charge, to be consumed on or off premises, available for immediate consumption. 32 V.S.A. § 9202(10)(A), (15); Vt. Reg. § 1.9202(10)-1. The Vermont meals tax statute defines “food or beverage” as “any substance used by humans for food, drink, confectionery or condiment, except alcoholic beverages.” 32 V.S.A. § 9202(12). With limited exceptions, all food or beverage sold by restaurants is taxable. Id.
A restaurant is defined as an “establishment from which food or beverage for immediate consumption is sold or for which a charge is made.” 32 V.S.A. § 9202(15)(A); Vt. Reg. § 1.9202(15)-1(A). A restaurant includes stationary, mobile, temporary, or permanent eating establishments. Vt. Reg. § 1.9202(15)-1(A). Examples include a café, cafeteria, dining room, diner, lunch counter, snack bar, salad bar, private or social club, bar or tavern, theater concessions, street vendor, street cart, food truck, caterer. 32 V.S.A. § 9202(15)(A); Vt. Reg. § 1.9202(15)-2. Special rules apply to determine if an establishment that sells both taxable and nontaxable alcoholic beverages, food, and beverage qualifies as a restaurant. 32 V.S.A. § 9202(15)(B); Vt. Reg. §§ 1.9202(15)-1(B), 1.9202(15)-2.
Only certain food or beverage typically sold for immediate consumption, and that is sold by an establishment that is not a restaurant, is taxable. 32 V.S.A. § 9202(10)(B), (10)(C). These include all nonprepackaged food or beverage whether furnished for consumption on or off the premises, such as heated food or beverages, items from a salad bar, and party platters and prepared food. Other foods such as single-serving bakery items sold in quantities of three or more, or delicatessen and nonprepackaged candy sold by weight or measure, are not taxable. 32 V.S.A. § 9202(10)(D)(i); Vt. Reg. § 1.9202(10)-1(D).
CBD products sold alone in capsule or oil form are a substance that is used for therapeutic value, which does not meet the requirement of the Vermont meals tax definition that food or beverage be “used by humans for food, drink, confectionery or condiment, drink, confectionery or condiment.” 32 V.S.A. § 9202(12). Therefore, CBD alone does not qualify as food or drink subject to the Vermont meals tax.
CBD products that are incorporated into substances used by humans for food, drink, confectionery or condiment may be taxable under the Vermont meals tax. If the food or beverage that incorporates CBD is taxable, then the meals tax applies to the total sales price of the meal. Examples of taxable meals that incorporate CBD products are: generally, all meals sold by a restaurant; a non-prepackaged cookie (or two) with CBD baked into it, a latte with a dose of CBD, or a salad dressed with CBD oil.
Local Option Tax
Vermont law allows towns to vote to impose a 1% local option tax in addition to the State sales tax, meals and rooms tax, or alcoholic beverages tax. 24 V.S.A. § 138. These local option taxes apply to all transactions that are taxable for State tax purposes. 24 V.S.A. § 138(c); Vt. Reg. § 1.9202(15)-4. This means that if a taxable sale of CBD or hemp plants takes place in a jurisdiction with a local option tax, then the total tax paid will be increased by 1% (totaling 7% for sales tax and 10% for meals tax). The Vermont Department of Taxes typically administers local option taxes, except for the cities of Burlington and Rutland. 24 V.S.A. § 138(c). For more information see, Local Option Tax: What Is It and When Does It Apply?.