California Cannabis Business Tax Guide & Updates

April 24, 2021 Cannabis Business, Entrepreneurs, Financial Strategy

California cannabis business taxation is in a constant state of motion. With each update, it becomes more crucial to remain up to date on the regulations in place, which is why we’re covering Cali cannabusiness taxes and the latest updates to keep in mind.

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California Cannabis Business Tax Information

California Cannabis Business Tax Information

California Marijuana Tax Update

The California Department of Tax and Fee Administration (CDTFA) has implemented a new online services system that includes cannabis tax accounts. With this in mind, cannabis business operations can now access all of their accounts online 24/7.

California Sales & Use Taxes for Cannabis

California Sales & Use Taxes for Cannabis

California ensures all retail sales of tangible personal property are taxable. However, in some cases, the law might provide specific exemptions. Cannabis and cannabis products fall into the tangible personal property classification and do not have a specific exemption, which means sales of this property are subject to sales and use tax.

California Cannabis Excise Tax & Cultivation Tax Insight

California Cannabis Excise Tax & Cultivation Tax Insight

Retail purchasers of cannabis or cannabis products must pay a 15 percent excise tax. This tax is determined in accordance with the average market price of the cannabis or cannabis products as they’re sold in a retail setting.

Furthermore, harvested cannabis has a cultivation tax upon entering the commercial market. This is the responsibility of cultivators, and the tax is based on cannabis weight and category. These are the three categories in place:

  • Cannabis Flower
  • Cannabis Leaves
  • Fresh Cannabis Plant

Qualifying for the fresh cannabis plant category means weighing the unprocessed cannabis plant within two hours of harvesting.

The CDTFA must adjust cultivation tax rates annually for inflation. However, Assembly Bill 1872 ensured that cultivation tax rates would remain the same for the entire 2021 calendar year. However, beginning in 2022, the CDTFA plans to adjust cultivation tax rates in California.

Registering for a Sales and Use Tax Account & a Cannabis Tax Account in California

Registering for a Sales and Use Tax Account & a Cannabis Tax Account in California

You can register for your sales and use tax account and a cannabis tax account or add your business location to your existing account online. If you already have a username and password, log into your account to register.

To register for your cannabis tax account under your existing username, you’ll click on the More link in the I Want To section. From there, you’ll select the Register a New Business Activity on the Online Services homepage, choosing Cannabis business activities to begin. Then, you’ll enter your information.

Besides registering with the CDTFA to acquire the essential tax permit(s), you’ll also have to get the right cannabis business license(s). Cannabis cultivators get their licenses from the California Department of Feed and Agriculture. Cannabis manufacturers obtain licensing from the California Department of Public Health. Cannabis distributors, microbusinesses, retailers, and testing laboratories receive licensing from the Bureau of Cannabis Control at the California Department of Consumer Affairs.

Business operators also must contact their city and/or county government office to obtain information on which local licenses, if any, they’ll need. Here’s some insight from the CDTFA that should give you a good idea of which permits and licenses you might need:

Seller’s Permit Requirements for Cannabis Businesses in California

Seller’s Permit Requirements for Cannabis Businesses in California

If your business doesn’t sell tangible property in California, you don’t need to hold a seller’s permit. But if you need to meet the state’s commercial cannabis licensing application requirements, you’ll still need a certification letter from the licensing agency. This letter explains that a seller’s permit is not necessary.

To get your certification letter, you’ll email the CDTFA this information:

  • Owner name
  • DBA
  • Business address
  • Contact name
  • Contact phone number
  • Description of your cannabusiness activities

Once the CDTFA receives your email, they will review your information. If you’ve provided enough information, you can expect a certification letter mailed to the address you provided. However, if they need more information, they’ll reach out to you directly.

California Marijuana Business Filing and Payments

Sales and Use Tax Return

If you sell cannabis, you’ll need to file regular sales and use tax returns to report your sales. However, even if you don’t have taxable transactions to report, you’ll still have to file your sales and use tax returns. Also, you still must report your activities to the CDTFA.

Cannabis Tax Return in California

If you distribute cannabis or cannabis products, you must electronically file your cannabis tax return with the CDTFA. This is how you’ll report how much cultivation tax and cannabis excise tax you owe. If you don’t have taxable transactions to report, you’ll still have to file your cannabis tax return and report your activities to the CDTFA.

You’ll have to file your cannabis tax return by the last day of the month after the reporting period. Keep in mind, your cannabis tax account is separate from the other accounts you might have with the CDTFA.

Paying California Cannabis Taxes in Cash

Many Cali cannabis business operators pay their sales and use tax or cannabis tax in cash. If this is something you’re considering, you’ll need to contact the CDTFA to arrange the transaction and request an exemption from its No Cash policy.

The CDTFA grants exemptions if a cannabusiness operator must pay in cash to avoid undue difficulties. You can fill out a No Cash Exemption Request form to explain your business’s operations and why you cannot establish a bank account or pay using a cashier’s check or money order. Once your request is approved or denied, the CDTFA will notify you in writing, offering more information on how you should proceed.

Once you’re approved to pay in cash, you’ll need to contact your local office to schedule an appointment to pay at least 21 days before the payment is due. If your estimated monthly tax liability exceeds $20,000 for cannabis tax accounts or $10,000 for sales and use tax accounts, you’ll have to pay by electronic funds transfer (EFT). If you don’t pay by EFT, you’ll be charged a 10 percent penalty. However, if you receive approval to pay in cash, you’re excluded from this EFT requirement.

California Cannabis Business Tax Assistance

We monitor California’s cannabis regulations for our clients, and we’ll stay up to date on them for you too. Contact us today for expert assistance managing your business’s financials.