Could California Finally Get Cannabis Tax Reform?

Could California Finally Get Cannabis Tax Reform?

In a previous blog we reported that the California Department of Tax and Fee Administration (CDTFA) which oversees the reporting and collection of taxes for the California cannabis industry after conducting an analysis of statewide market data to determine the average mark-up rate between the wholesale cost and the retail selling price of cannabis and cannabis products, is increasing cannabis taxes effective January 1, 2020 by setting the mark-up rate at 80 percent.

Cannabis Excise Tax

The 15 percent cannabis excise tax is based on the average market price of the cannabis or cannabis products sold in a retail sale. The mark-up rate is used when calculating the average market price to determine the cannabis excise tax due in an arm’s length transaction. In an arm’s length transaction, the average market price is the retailer’s wholesale cost of the cannabis or cannabis products plus, the mark-up rate determined by the CDTFA. In a non-arm’s length transaction, the average market price is the cannabis retailer’s gross receipts from the retail sale of the cannabis or cannabis products.

Cannabis Cultivation Tax

As required by the Cannabis Tax Law, effective January 1, 2020, the cultivation tax rates reflect an adjustment for inflation. The adjusted rates for each category shown below will be reflected on the monthly and quarterly cannabis tax returns beginning January 1, 2020.

CANNABIS CATEGORY

CURRENT RATE

RATE EFFECTIVE 1/1/2020

Flower per dry-weight ounce

$9.25

$9.65

Leaves per dry-weight ounce

$2.75

$2.87

Fresh cannabis plant per ounce

$1.29

$1.35

  • On or after January 1, 2020, the rates apply to cannabis that a cultivator sells or transfers to a manufacturer or distributor.
  • Cultivator cannabis sales or transfers made prior to January 1, 2020, will use the current rate listed above.
  • All fresh cannabis plants must be weighed within two hours of harvesting.

If you are a cannabis retailer, you are required to collect the cannabis excise tax from your customers on each retail sale of cannabis or cannabis products starting January 1, 2018, and pay the excise tax to a distributor. Distributors are liable for paying the cannabis taxes to the CDTFA.

How This Impacts The Black Market

Many believe that the CDTFA’s decision to increase taxes on compliant cannabis operators while still mandating compliance with State and local regulations will widen the price disparity gap between cannabis products sold in the black market vs. cannabis products sold in the legal market. But with the State stepping up its enforcement efforts to uncover and prosecute illegal cannabis operators, the State is hoping to eliminate this discrepancy by eradicating non-compliant operators.

How Governor Newsom Is Looking To Reform This Area

We reported in a blog, Assembly Bill 37 signed into law last year by Governor Gavin Newsom that will approve cannabis companies for tax deductions that have otherwise been denied them under IRC Section 280E. 

On January 10, 2020, Governor Newsom released California’s proposed budget for 2020-2021, which includes proposals requested by the cannabis industry to streamline the regulatory, licensing, and tax process.  

These proposals notably include the following:

  • Consolidating the three licensing authorities (BCC, MCSB, CalCannabis Cultivation) into The Department of Cannabis Control by July 2021 with enforcement responsibilities against the regulated and illicit markets.
  • Proposing to move responsibility for cultivation tax collection to first distributor only (no final distributor or manufacturer). 
  • Proposing to move excise tax collection from the distributor to retailer which like sales taxes establishes liability on the “point of sale”.
  • Dedicating to work with industry on tax reform and reduction including the number of taxes and tax rates to simplify the system and to support a stronger, safer legal cannabis market.

Click here for the governor’s full 2020-2021 Budget Summary.

What Should You Do?

While the Governor’s support for reform is most welcomed, legislators must still approve of these changes which would not go into effect immediately so you still need to start your cannabis business on the right track under existing law.  Protect yourself and your investment by engaging the cannabis tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and other California locations. We can come up with tax solutions and strategies and protect you and your business and to maximize your net profits. Also, if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Starting In 2020 New Worker Classification Law Takes Effect In California

Starting In 2020 New Worker Classification Law Takes Effect In California

On January 1, 2020, Assembly Bill 5 (AB 5) went into effect and may impact whether your workers are treated as employees or as independent contractors under California law.

In 2018, the California Supreme Court adopted “the ABC test” in Dynamex v. Superior Court. Under the ABC test, a worker is considered an employee, and not an independent contractor, unless the hiring entity can demonstrate that it meets all three of the following requirements:

  1. The individual is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  2. The individual performs work that is outside the usual course of the hiring entity’s business; and
  3. The individual is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Assembly Bill (AB 5) was signed into law to codify – or write into statute – the ABC test from the Dynamex v. Superior Court decision. Under AB 5, the “ABC test” must be used to determine the appropriate classification of workers in most occupations for purposes of the Labor Code, the Unemployment insurance Code, and Industrial Welfare Commission (IWO) wage orders.

There are two exceptions to the current application of AB 5:

  1. AB 5 applies to work performed after January 1, 2020. Exceptions have specific requirements and the EDD will use the Borello common law test in these cases. View AB 5 for more details on exceptions.
  1. Additionally, AB 170 exempts newspaper distributors and carriers from the ABC test until January 1, 2021.

Federal Worker Classification Status More Complicated

Under Federal law, the determination of worker classification can be complex and depends on the facts and circumstances of each case. The determination is based on whether the person for whom the services are performed has the right to control how the worker performs the services. It is not based merely on how the worker is paid, how often the worker is paid, or whether the work is part-time or full-time.

There are three basic categories of factors that are relevant to determining a worker’s classification:

  • Behavioral control (whether there is a right to direct or control how the worker does the work),
  • Financial control (whether there is a right to direct or control the business part of the work), and
  • Relationship of the parties (how the business and worker perceive the relationship).

Generally, if you are an independent contractor you are considered self-employed and should report your income (nonemployee compensation) on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship), or Schedule C-EZ (Form 1040), Net Profit From Business (Sole Proprietorship). Most self-employed individuals will need to pay self-employment tax (comprised of social security and Medicare taxes) if their income (net earnings from self-employment) is $400 or more. Use Schedule SE (Form 1040), Self-Employment Tax, to figure the tax due.

Generally, there is no tax withholding on income you receive as a self-employed individual as long as you provide your taxpayer identification number (TIN) to the payer. However, you may be subject to the requirement to make quarterly estimated tax payments. If you do not make timely estimated tax payments, the IRS may assess a penalty for an underpayment of estimated tax. Unlike independent contractors, employees generally pay income tax and their share of social security and Medicare taxes through payroll deductions (withholding).

California Employment Development Department

The Employment Development Department (EDD) administers payroll taxes which includes all employer paid taxes, State Income Tax Withholding of employees, State Disability Insurance (“SDI”) Taxes and Unemployment Insurance (“UI”) Taxes.

The greatest impact of AB 5 is that: after January 1, 2020, workers will be considered employees unless proven otherwise. The hiring entity must show that workers meet all conditions of the ABC test in order to classify them as independent contractors, unless there is a statutory exclusion or determination of employment. AB 5 does not change how out-of-state workers are classified. You can be certain that if your business is selected for audit by the EDD, the EDD will be applying AB 5.

Generally, the EDD employment tax audits cover a three-year statutory period, comprising the 12 most recently completed calendar quarters. An audit begins with the examination of records for a test year which is generally the most recent completed calendar year. However, the examination may be expanded to include the records for the entire period covered by the audit and in some situations may extend beyond the three-year statutory period.

Don’t Take The Chance And Lose Everything You Have Worked For.

Protect yourself. Federal and State Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also, if you are involved in cannabis, check out what our cannabis tax attorney can do for you. Additionally, if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

California Raising Cannabis Taxes In 2020

California Raising Cannabis Taxes In 2020

The California Department of Tax and Fee Administration (CDTFA) which oversees the reporting and collection of taxes for the California cannabis industry under Emergency Regulation 3700 established a new category and tax rate for the cannabis cultivation tax that took effect January 1, 2018, along with the other existing cultivation tax rates. Every six months the CDTFA re-determines the cannabis markup rate. An analysis of statewide market data was used to determine the average mark-up rate between the wholesale cost and the retail selling price of cannabis and cannabis products. Based on this analysis, effective January 1, 2020, the CDTFA is setting the mark-up rate at 80 percent.

Cannabis Excise Tax

The 15 percent cannabis excise tax is based on the average market price of the cannabis or cannabis products sold in a retail sale. The mark-up rate is used when calculating the average market price to determine the cannabis excise tax due in an arm’s length transaction. In an arm’s length transaction, the average market price is the retailer’s wholesale cost of the cannabis or cannabis products plus, the mark-up rate determined by the CDTFA. In a non-arm’s length transaction, the average market price is the cannabis retailer’s gross receipts from the retail sale of the cannabis or cannabis products.

Cannabis Cultivation Tax

As required by the Cannabis Tax Law, effective January 1, 2020, the cultivation tax rates reflect an adjustment for inflation. The adjusted rates for each category shown below will be reflected on the monthly and quarterly cannabis tax returns beginning January 1, 2020.

 

CANNABIS CATEGORY

CURRENT RATE

RATE EFFECTIVE 1/1/2020

Flower per dry-weight ounce

$9.25

$9.65

Leaves per dry-weight ounce

$2.75

$2.87

Fresh cannabis plant per ounce

$1.29

$1.35

 

  • On or after January 1, 2020, the rates apply to cannabis that a cultivator sells or transfers to a manufacturer or distributor.
  • Cultivator cannabis sales or transfers made prior to January 1, 2020, will use the current rate listed above.
  • All fresh cannabis plants must be weighed within two hours of harvesting.

If you are a cannabis retailer, you are required to collect the cannabis excise tax from your customers on each retail sale of cannabis or cannabis products starting January 1, 2018, and pay the excise tax to a distributor. Distributors are liable for paying the cannabis taxes to the CDTFA.

Invoice Requirements

Retailers are required to provide purchasers with a receipt or other similar document that includes the following statement – “The cannabis excise taxes are included in the total amount of this invoice.”

Recordkeeping

Every sale or transport of cannabis or cannabis products must be recorded on an invoice or receipt. Cannabis licensees are required to keep invoices for a minimum of seven years.

Distributors (or in some cases manufacturers) are responsible for collecting the cannabis cultivation and excise taxes, and the invoices they provide must include, among other specified requirements, the amount of tax collected.

Retailers, cultivators, and manufacturers must keep these invoices as verification that the appropriate tax was paid.

How This Impacts The Black Market

Many believe that the CDTFA’s decision to increase taxes on compliant cannabis operators while still mandating compliance with State and local regulations will widen the price disparity gap between cannabis products sold in the black market vs. cannabis products sold in the legal market. But with the State stepping up its enforcement efforts to uncover and prosecute illegal cannabis operators, the State is hoping to eliminate this discrepancy by eradicating non-compliant operators.

What Should You Do?

Start your marijuana business on the right track.  Protect yourself and your investment by engaging the cannabis tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles County and other California locations. We can come up with tax solutions and strategies and protect you and your business and to maximize your net profits. Also, if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Why You Don’t Mess With California – A Primer On California Tax Collection Actions

Why You Don’t Mess With California – A Primer On California Tax Collection Actions.

California is unique in the structure of its tax system. Most States operate under a single tax agency. The Federal government uses a single tax agency called the IRS. But California has three tax agencies! They are the Franchise Tax Board (“FTB”), California Department Of Tax And Fee Administration (“CDTFA”) and the Employment Development Department (“EDD”).

What does FTB cover?

The FTB administers the income tax. This tax applies not only to individuals, but also to sole proprietorships, partnerships, estates, and trusts. In addition, the income “passed through” to individuals by Subchapter S corporations and certain other entities is subject to State Personal Income Taxation. The tax is applied to all sources of income unless specifically excluded, including wages and salaries, interest, dividends, business-related income, and capital gains.

What does CDTFA cover?

The CDTFA administers the Sales and Use Tax. The tax in a specific California location has three parts: the state tax rate, the local tax rate and any district tax rate that may be in effect. Sales and Use Tax is the second largest source of tax revenue in California and is assessed at both the state and local levels.

What does EDD cover?

EDD involves payroll taxes which includes all employer paid taxes, State Income Tax Withholding of employees, State Disability Insurance (“SDI”) Taxes and Unemployment Insurance (“UI”) Taxes.

The California Tax Agencies can go way beyond liens and levies to enforce collection and put pressure on taxpayers.

The FTB publishes Top 500 Delinquent Taxpayers (one list for personal and one for corporate) twice a year in April and October. The FTB is required by law to post this information at least twice annually. California Revenue & Taxation Code § 19195. Since the list’s inception in October 2007, FTB has collected more than $1 billion from delinquent taxpayers through the program.

The FTB will notify each taxpayer by certified mail 30 days before they post their information.

  • As cases are resolved, those taxpayers are removed from the list, reducing the total number of listings from the original 500.
  • Your occupational and professional licenses, including your driver’s license may be suspended under Business and Professions Code §494.5.
  • State agencies will not enter into contracts for the acquisition of goods and services with you under Public Contract Code §10295.4.

The CDTFA has a similar list of the state’s top sales and use tax debtors, which is updated quarterly.

The CDFTA will revoke your seller’s permit. If your seller’s permit is revoked, you cannot sell your goods. Also, as a corporate director, officer, member, manager, or other person having control or supervision of the filing of returns or payments of taxes, you may become personally liable for any unpaid sales and use taxes, interest, and penalties. Such personal liability for any unpaid taxes and interest and penalties on those taxes is triggered upon termination, dissolution, or abandonment of a corporate business or limited liability company, any officer, member, manager, or other person having control or supervision of, or who is charged with the responsibility for the filing of returns or the payment of tax, or who is under a duty to act for the corporation or limited liability company in complying with any requirement of this part. Section 6829 of the Revenue and Taxation Code.

The IRS has the Trust Fund Recovery Penalty (also known as the 100-percent penalty). The EDD has something similar referred to as “CUIC 1735”. But CUIC goes way beyond the IRS’ version. Not only does the EDD assert a full 100-percent exposure of the employees tax withholdings AND the employer’s share of payroll taxes to targeted responsible individuals but also a 10% nonabatable assessment penalty (it should be noted that the IRS version is limited only to the employee’s share of FICA and withheld federal income taxes, roughly 60% of the corporate employer’s overall liability). The two key elements of CUIC 1735 are responsibility and willfulness. The EDD must have both elements before they can make the 100% assessment stick. Any officer, major stockholder, or other person in charge of the affairs of the business can be held responsible. Before the assessment can become final, the targeted responsible person must be given notice, an opportunity for an administrative hearing, and an appeal. If the targeted individual loses his or her administrative hearing and appeal, and does not pay within 10 days after assessment, her or she will be penalized a further 10% pursuant to CUIC 1135.

Don’t Take The Chance And Lose Everything You Have Worked For.

Protect yourself. Federal and State Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also, if you are involved in cannabis, check out what our cannabis tax attorney can do for you. Additionally, if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Temporary Cannabis Tax Reduction Bill California cannabis

California Cannabis Tax Relief Coming? Check Out Assembly Bill 286 – the Temporary Cannabis Tax Reduction Bill.

A bill was just re-introduced in the California legislature that would give legal cannabis businesses a tax break to help them thrive and level the playing field with cannabis businesses that continue to operate in the grey and black markets.

Assembly Bill 286 Was First Introduced February 16, 2018

The proposed legislation, which is sponsored by state Treasurer Fiona Ma, follows California’s tax revenue for the cannabis industry coming in $101 million below projections in the first six months of 2018.

This bill which has been kicked around Sacramento for almost a year would wind up reducing the state’s excise tax from 15% to 11% for a period of three years and remove the cultivation tax on growers until 2022. The full text of the Temporary Cannabis Tax Reduction Bill can be viewed here.

Even though 31 states have legalized cannabis for medical or adult use, banks and financial institutions are hesitant to provide services to cannabis businesses because federal law still classifies cannabis as an illegal Schedule 1 drug under the Controlled Substances Act.

Higher Federal Taxes Still Remain

While the developments listed above are favorable for California cannabis business, it still remains to be seen when favorable changes will be made to the Internal Revenue Code which treats businesses in the marijuana industry differently resulting in such business paying at least 3-times as much in taxes as ordinary businesses.

Generally, businesses can deduct ordinary and necessary business expenses under I.R.C. §162. This includes wages, rent, supplies, etc. However, in 1982 Congress added I.R.C. §280E. Under §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is prohibited by Federal law. Marijuana, including medical marijuana, is a controlled substance. What this means is that dispensaries and other businesses trafficking in marijuana have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses.

Federal Reporting Of Cash Payments Still Remain

The Bank Secrecy Act of 1970 (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA requires any business receiving one or more related cash payments totaling more than $10,000 to file IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

The minimum penalty for failing to file EACH Form 8300 is $25,000 if the failure is due to an intentional or willful disregard of the cash reporting requirements. Penalties may also be imposed for causing, or attempting to cause, a trade or business to fail to file a required report; for causing, or attempting to cause, a trade or business to file a required report containing a material omission or misstatement of fact; or for structuring, or attempting to structure, transactions to avoid the reporting requirements. These violations may also be subject to criminal prosecution which, upon conviction, may result in imprisonment of up to 5 years or fines of up to $250,000 for individuals and $500,000 for corporations or both.

Marijuana-related businesses operate in an environment of cash transactions as many banks remain reluctant to do business with many in the marijuana industry. Like any cash-based business the IRS scrutinizes the amount of gross receipts to report and it is harder to prove to the IRS expenses paid in cash. So it is of most importance that the proper facilities and procedures be set up to maintain an adequate system of books and records.

How Do You Know Which Cannabis Tax Attorney Is Best For You?

Given that cannabis is still illegal under existing Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government.  While cannabis is legal in California, that is not enough to protect you.  It’s coming down that the biggest risk is TAXES.  Be proactive and engage an experienced Cannabis Tax Attorney in your area. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits.

Why Taxpayers Involved In Offshore Accounts, Crypto Currency Or Cannabis Should Be Filing An Extension For Their 2017 Income Tax Returns

California Sets Online Sales Tax Enforcement Date

California Sets Online Sales Tax Enforcement Date

On June 21, 2018 the U.S. Supreme Court handed down its anticipated decision in South Dakota v. Wayfair, No. 17-494. The case challenges South Dakota’s application of its sales tax to internet retailers who sell into South Dakota but have no property or employees in the state. At issue is the case Quill Corp. v. North Dakota from 1992, which set the property or employees standard for sales taxes using the Court’s (debated) dormant commerce clause power to restrict state taxation of interstate commerce.

The Court laid out why South Dakota’s law is no burden to interstate commerce but made clear that more complex or overreaching laws would be. This was not too surprising, as during oral argument the justices expressed such frustration with the issue that it’s easy to see why they wouldn’t want this to be just the first of many cases. Better to articulate the rule well here.

Justice Kennedy’s opinion states:

That said, South Dakota’s tax system includes several features that appear designed to prevent discrimination against or undue burdens upon interstate commerce. First, the Act applies a safe harbor to those who transact only limited business in South Dakota. Second, the Act ensures that no obligation to remit the sales tax may be applied retroactively. S. B. 106, §5. Third, South Dakota is one of more than 20 States that have adopted the Streamlined Sales and Use Tax Agreement. This system standardizes taxes to reduce administrative and compliance costs: It requires a single, state-level tax administration, uniform definitions of products and services, simplified tax rate structures, and other uniform rules. It also provides sellers access to sales tax administration software paid for by the State. Sellers who choose to use such software are immune from audit liability. See App. 26–27. Any remaining claims regarding the application of the Commerce Clause in the absence of Quill and Bellas Hess may be addressed in the first instance on remand.”

State Taxation

Thirty-one states currently have laws taxing internet sales. Traditionally, sales tax nexus in the United States was based on physical presence. To increase sales tax collections despite this physical presence restriction, many states broadened their definitions of physical presence to include click-through, or affiliate, nexus. An out-of-state business establishes click-through nexus in a state when an in-state business receives a commission for referring a certain amount of sales to the out-of-state seller, as through a website link (“clicking through”). New York was the first state to create a click-through nexus law, in 2008. Since then, approximately 20 states have adopted click-through nexus including California.

In an announcement made by the California Department of Finance Tax Administration (CDTFA) on December 11, 2018, the agency has decided to require remote sellers to collect sales tax beginning April 1, 2019. CDTFA has stated that they will set the thresholds at $100,000 or 200 transactions in prior (or current) calendar year. In addition, CDTFA will require remote sellers to pay district sales tax in any district where they meet the threshold. The State of California has approximately 290 districts and 234 separate geographic areas which in and out of state businesses will have to track their sales. The announcement does not increase or create any tax but does require more out-of-state retailers to collect and remit taxes just as brick-and-mortar retailers have done for decades.

The new use tax collection requirement is not retroactive and applies only to sales made on and after April 1, 2019. Retailers who are already required to be registered to collect California use tax prior to April 1, 2019 will see no change in their registration obligations.  Retailers with a physical presence in California are still generally required to be registered with the CDTFA. Although the new requirement to collect California use tax applies only to sales on and after April 1, 2019, retailers may choose to register and collect the tax prior to April 1, 2019. Retailers can register on the CDTFA website at www.cdtfa.ca.gov.

What Should You Do?

With States getting more aggressive in enforcing sales tax laws and having the tools to identify non-compliant taxpayers, it is important that taxpayers come into compliance to avoid penalties. Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Los Angeles Metropolitan Area (including Long Beach and Ontario) and elsewhere in California help ensure that you are in compliance with federal tax laws. Also, if you are involved in cannabis, check out how our cannabis tax attorneys can help you.

April 30th Deadline Looming For Cannabis Businesses Operating Under Temporary Licenses

April 30th Deadline Looming For Cannabis Businesses Operating Under Temporary Licenses

The California Bureau Of Cannabis Control (the “BCC”) announced that temporary licenses for retailers, distributors, microbusinesses, testing laboratories and cannabis event organizers that were issued with an effective date of January 1, 2018 will expire on April 30, 2018.

Extension Available

Temporary licenses may be extended for 90-day periods if the licensee submits a complete annual license application before the expiration date.

To submit a completed annual license application, you must submit documents as requested for each component of the application. After the BCC receives your completed application, the BCC may extend your temporary license. The BCC will then perform a substantive review of the documents provided as part of the application to determine if all requirements are met. If the BCC determines that the documentation is insufficient, you will be notified by the BCC.

No extensions will be granted to temporary licensees who do not submit an annual license application prior to the expiration date on their license. If the temporary license expires, the business will be required to cease operations until an annual license has been issued, as operating a commercial cannabis business without an active state license is a violation of the law.

Live Scan Requirement

One of the requirements for the annual license application is that Live Scan fingerprinting be completed for each person who qualifies as an “owner” of the business. The ‘Request for Live Scan’ form will be sent to the applicant via email or mail once the annual application has been submitted to the BCC. The Live Scan form can be taken to any Live Scan operator to have your fingerprints submitted to Department of Justice. The below link provides a list of locations for Live Scan fingerprinting services available to the public: https://oag.ca.gov/fingerprints/locations

Accessing The Annual License Application

The annual license application is available through an online system accessible on the BCC’s website http://online.bcc.ca.gov

Each temporary application that was issued must have a separate annual application submitted to the BCC.

What Should You Do?

It is enough that cannabis businesses have to deal with the uncertainty of the Federal government in enforcing the Federal law that makes it a crime to possess and sell cannabis. Make sure that your cannabis business is in compliance with California Cannabis Licenses And Taxes by engaging the tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Inland Empire (Ontario) and other California locations. We can come up with solutions and strategies to these challenges and protect you and your business to maximize your net profits.

How California Cannabis Retailers Compute And Pay Taxes For Cannabis Acquired Before January 1, 2018 That Is Being Sold Now

New cannabis taxes have been in effect in California starting January 1, 2018. Beginning January 1, 2018, licensed distributors who supply you with cannabis or cannabis products are required to calculate and collect the 15% cannabis excise tax from you. When you sell those items at retail you are required to collect the cannabis excise tax from your customer. But what are your excise tax obligations for cannabis acquired before January 1, 2018 and sold after December 31, 2017?

The administration and enforcement of the cannabis taxes is under the authority of California Department Of Tax And Fee Administration (“CDTFA”).

For sales of cannabis from your inventory acquired prior to January 1, 2018… you are required to collect the 15% cannabis excise tax from your customer when you sell those items and then pay that amount to a licensed distributor with whom you have established a business relationship.

To collect the excise tax from your customers, apply the 15% excise tax to the “average market price”.

The average market price can be calculated as either:

  1. Your gross receipts, which is the retail selling price to your customer, or
  2. Your wholesale cost plus a markup determined by CDTFA.

The examples below illustrate the two methods to calculate the average market price and apply the 15% excise tax on your sale to your customer. Both examples assume that your retail selling price to your customer is $100 and the sales tax rate is 8% (your actual sales tax rate may be different):

Option #1 Based on your gross receipts.

Retail selling price

$100.00

15% excise tax ($100 x 15%)

$15.00

Total gross receipts ($100 + $15)

$115.00

8% sales tax ($115 x 8%)

$9.20

Total amount due ($115 + $9.20)

$124.20

You must pay the $15.00 excise tax collected from your customer to a licensed distributor with whom you have a business relationship. The sales tax is due on your total gross receipts, which includes the excise tax. You must report and pay the $9.20 in sales tax on the quarterly sales and use tax return you file with the CDTFA.

Option # 2 Based on your wholesale cost plus a markup predetermined by the CDTFA.

The markup rate percentage is currently set at 60% and is not meant to be used to determine the markup on your product that you sell to your customers. This markup rate is determined by the CDTFA every six months.

Your wholesale cost

$75.00

60% current markup ($75 x 60%)

$45.00

Average market price ($75 + $45)

$120.00

15% Excise tax due ($120 x 15%)

$18.00

You must pay the $18.00 excise tax collected from your customer to a licensed distributor with whom you have a business relationship.

The sales tax is a separate computation as follows:

Retail selling price, including excise tax ($100 + $18)

$118.00

8% sales tax ($118 x 8%)

$9.44

Total amount due

$127.44

The sales tax is due on your total gross receipts, which includes the excise tax. You must report and pay the $9.44 in sales tax on your quarterly sales and use tax return you file with the CDTFA.

Required Statement To Include When Invoicing Your Customers.

When invoicing your customer, you are required to add the following statement on the invoice or receipt to your customer: “The excise taxes are included in the total amount of this invoice”.

Payment Of The Excise Tax Must Be To A Licensed Cannabis Distributor.

Regardless of which option you choose, you must pay the excise tax you collect to a licensed cannabis distributor by the 15th day of the month following the calendar month you collected the excise tax from your customer. Make sure you receive a receipt from the licensed distributor showing the amount of excise tax you collected and paid to the licensed distributor.

What Should You Do?

It is enough that cannabis businesses have to deal with the uncertainty of the Federal government in enforcing the Federal law that makes it a crime to possess and sell cannabis. Make sure that your cannabis business is in compliance with California Cannabis Taxes by engaging the tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Inland Empire (Ontario) and other California locations. We can come up with solutions and strategies to these challenges and protect you and your business to maximize your net profits.