Updated: July 1, 2025A 3D topographic relief map of Arizona displayed on a wooden surface. Elevations are shown in layered earthy tones—beige and yellow for lowlands, browns for plateaus, and greenish-grays for mountainous regions. Prominently placed in the foreground are bold white capital letters reading “ARIZONA CANNABIS TAX GUIDE,” casting a subtle shadow on the wood grain background.

Key Points for Cannabis Retailers in Arizona (2025)

  • Adult-use cannabis is subject to a statewide 16% excise tax plus state and local sales taxes (TPT).

  • Medical cannabis is exempt from excise tax but still taxed at the state and local level.

  • Arizona does not decouple from federal IRC Section 280E. That means businesses can only deduct COGS, not ordinary business expenses, on state income taxes.

  • Most cannabis taxes must be filed monthly, and late or inaccurate filings can result in penalties or license suspension.

  • Local tax rates vary, so location can significantly affect total taxes owed.

280E and Arizona State Income Tax

Arizona follows federal tax rules under Section 280E. Cannabis businesses in Arizona:

  • Can only deduct cost of goods sold (COGS) on their state income taxes.

  • Cannot deduct rent, payroll, advertising, or other typical business expenses.

  • Face higher effective tax rates and increased pressure on cash flow.

By contrast, states that have decoupled from 280E allow full deductions at the state level—Arizona is not one of them.

Cannabis Tax Rates in Arizona (2025)

Tax Type Adult-Use Sales Medical Cannabis Sales
Excise Tax 16% Exempt
State TPT (Sales Tax) 5.6% 5.6%
Local Sales Tax 0–5.6% (varies) 0–5.6% (varies)

  • Excise tax funds education, public health, and safety programs.

  • Medical cannabis is exempt from excise tax but still subject to state and local sales tax.

Excise Tax for Adult-Use Retailers

  • The excise tax is a flat 16% rate statewide.

  • It’s collected and remitted by licensed retail dispensaries.

  • Medical patients are not subject to this tax.

  • The state has not announced any rate increases as of July 2025.

Sales Taxes: State and Local

  • The state TPT rate is 5.6%.

  • Cities and counties can add their own tax rates, often 2–3%, but legally up to 5.6%.

Example total tax rates (TPT only):

  • Phoenix: ~8.6%

  • Tucson: ~8.7%

  • Scottsdale: ~8.05%

These rates do not include the excise tax, which is applied separately.

How Cannabis Taxes Are Calculated

Adult-Use Sales:

  1. Add 16% excise tax to the retail price.

  2. Then calculate sales tax (TPT) on the total price including the excise tax.

    • This creates a tax-on-tax effect that increases the effective rate.

Medical Sales:

  • Only state and local sales taxes (TPT) apply.

  • Excise tax does not apply.

Filing and Payment Requirements

Filing Schedule:

  • Most businesses must file monthly.

  • Quarterly filing is available only to small businesses that meet Arizona Department of Revenue (ADOR) thresholds and receive approval.

Required Forms:

E-Filing:

  • Mandatory for all businesses.

  • Zero sales? You still have to file a return.

Medical Cannabis Requirements

  • No excise tax applies.

  • Sales are still subject to state (5.6%) and local sales taxes.

  • Dispensaries must keep detailed records and report medical and recreational sales separately.

Penalties and Compliance Risks

  • Late filings or payments may lead to penalties and interest.

  • Repeated violations can result in license suspension or revocation.

  • The cannabis industry is frequently audited in Arizona.

  • Businesses with poor documentation or payment issues are at higher risk.

Tax Filing Calendar for Arizona Cannabis Operators – 2025

Tax Type Rate / Rules Applies To Filing Frequency Due Date
Excise Tax 16% of retail sales Adult-use retailers Monthly 20th of following month
Sales Tax (TPT) 5.6% + local All cannabis sales Monthly 20th of following month
State Income Tax Follows 280E All cannabis businesses Annually April 15
Medical Exemption No excise tax Medical patients N/A N/A

Note: You must file monthly returns even if you have no sales. Quarterly filing requires prior approval.

Arizona Cannabis Trade Groups

Key Government Contacts

Arizona Department of Revenue (ADOR)

Arizona Department of Health Services 

Stay Informed

To stay compliant:

Disclaimer: This guide reflects general information as of July 1, 2025. Cannabis operators should consult a licensed CPA, attorney, or regulatory advisor before making financial or operational decisions.