California State Officials have made major strides to control, regulate and tax recreational and medical marijuana since voters passed Proposition 64 in November of 2016. While the regulatory framework is still in the process of being created, the State has solidified a taxation platform in which cannabis will be levied from seed to sale commencing January 1, 2018. To obtain the highest return for your business, it is imperative to be aware of the imposed state tax and understand the possible tax exemptions you may qualify for.
To own a business that sells cannabis and cannabis related products, you are required by the State to obtain a Seller’s Permit and regularly file your sales and use tax returns. You can register with the Board of Equalization (BOE) here. There is no cost to register and you don’t have to disclose what you plan to sell. Once registered, the BOE will notify you of how often you must file your returns and make your payments.
When it comes to record keeping, California requires you preserve all tax records for the preceding four years, so it would be a smart idea to invest in a sturdy file cabinet. These files include: sales and purchase records, receipts, resale certificates, sales and use tax exemption transaction receipts and normal books of your account.
2018 Imposed Taxes: Cultivators, Manufacturers, Retailers & Customers
January 1, 2018 will mark the beginning of the State’s taxation on commercial and medical cannabis. For the cultivator, there will be a tax of $9.25 per dry-weight ounce for marijuana flowers and $2.75 tax per dry-weight ounce for marijuana leaves when the cultivator sells wholesale to either a manufacturer or retailer. To sell wholesale, the buyer must provide the seller with a valid and timely resale certificate for the buyer not be liable for California’s excise cannabis tax. To access and view the required elements of a resale certificate, visit the BOE’s page for Sale and Purchases for Resale. If the cultivator is selling to a manufacturer, the manufacturer is then responsible to test for contaminants like pesticides to the plant.
Once the final product is in the hands of the retailer, there will be a 15% excise tax based on the gross receipts of sale imposed on all retail purchases of commercial and medical marijuana products. However, if you are a qualified patient or their primary caregiver, you are exempt from sales and use tax if you provide your valid Medical Marijuana Identification Card issued by the California Department of Public Health and valid ID to the retailer at time of purchase. Sales and use tax exemptions solely apply to the sales of medical cannabis, medical cannabis concentrate, edible medical cannabis or topical cannabis. Retailers are held accountable to preserve supporting documentation to substantiate exempt transactions and must claim all exemptions on their sales and use tax return.
Partial Exemption on Farm Equipment and Machinery….
Cannabis growers implementing husbandry may be eligible for partial tax exemptions on the sale and purchase of their farm equipment, machinery and devises utilized to produce, control and manufacture their product. The tax anatomy of California sales tax consists of 5% allotting to the state general fund and the remainder percentage derived by the sales tax rate according to the purchase location. Growers are eligible to eliminate the state general fund tax of 5% (subject to change throughout years), therefore only having to pay the location sales tax by meeting all following requirements:
- Item must be sold to a “qualified person” (Defined by the BOE as a person engaged in the line of business selling agricultural commodities, further information here)
- Item to be exclusively used for conducting agricultural operations ·
- Item defined as farm equipment: tools, devices, apparatuses, machines or appliances used to harvest agricultural commodities
Below is a list of farm equipment and machinery that may qualify for exemption:
- Planting equipment
- Trimming tools
- Drying racks and trays
- Grow tents and lights
- Environmental controls
- Hydroponic equipment
- Solar equipment
- Plant support equipment: irrigation equipment, trellis systems and fencing systems
- Handling and packing equipment and conveyers
- Data processing equipment – operating and application programs
When managing a business strictly monitored by the state, it is wise to be conscious of California’s cannabis tax structure which will hold you accountable for as a cultivator, manufacturer or retailer. Regarding your city of operation, it is equally critical to understand how you will be levied on the local level to obtain the highest return on your investment. Knowledge is power in this industry, so operate proficiently and succeed exponentially.
All information derived from State Officials and Board of Equalization.