When launching or growing a cannabis business, you must understand your taxes, deductions, and its unique legal landscape. Cannabis businesses have different rules, restrictions, and taxation than other businesses and what may be legal locally isn’t always the case federally. Before you take the next steps in your business, get on top of your Cannabis tax planning in California for a more profitable and financially sound business.
Cannabis Retailer Excise Tax
Even if you run a small cannabis business or side hustle, you’ll still need a Cannabis Retailer Excise Tax (CRE) permit. Starting January 1, 2023, cannabis retailers must pay a cannabis excise tax of 15% to the California Department of Tax and Free Administration (CDTFA). The 15% is applied to gross receipts of any cannabis or related products. Starting in 2023, you can register your information through CDTFA’s online services. You can also speak to our Cananbis tax consultants to understand how to handle your retailer excise tax.
Cultivation Tax
As of July 2022, cannabis businesses no longer pay cultivation taxes to harvested cannabis when it enters the commercial marketplace. This news is essential for distributors and manufacturers, who no longer need to collect cultivation taxes from their cultivators. However, cultivators who transferred their harvested cannabis to another license also don’t need to pay their manufacturers or distributors for the cultivation takes.
If you already collected the cultivation tax on harvest cannabis that hit the market on or after July 1, 2022, you must return it to the person who originally paid for that tax. In some cases, the tax cannot be returned, and the manufacturer pays the excess cultivating tax to the distributor, and the distributor pays it to the CDTFA as collected tax.
Cannabis Excise Tax Mark-up Rates
CDTFA calculates a new markup rate for cannabis and related products every six months. Once set, distributors must use the rate to determine the average market price of cannabis or products sold or transferred to a cannabis retailer “in an arm’s length transaction.” In layperson’s terms, arm’s length means two or more unrelated and unaffiliated parties agree to do business together. They’re acting independently and within their own self-interest. A cannabis tax consultant can help make sense of the latest markup rate or decrease to maximize your earnings.
California Cannabis Tax Payment Plans
Cannabis taxation is exceptionally high, and it’s not unheard of for entrepreneurs to just not pay their taxes in some kind of protest or lack of knowing what else to do. This strategy won’t work and will only serve to pile on penalties and fines. Instead, you should regularly check your CDTFA online taxpayer portals to see if any notices or information about payment plans are coming through. You can also call to inquire if you can get on a payment plan to get on top of your taxes.
In most cases, you should be able to secure a plan for up to a year, but anything after that requires financial information to ensure you do not have assets. Documentation usually includes profit and loss statements, account receivable information, customer base, merchant accounts, depreciation schedule, and anything related to finances and your taxes.
Work with Cannabis Tax Consultants
Cannabis tax laws and regulations change, and what you need to do locally may differ from what is at the federal level. It’s crucial to approach Cannabis tax planning in California proactively. If you are starting a CBD oil business or have already established a business and need help navigating the sometimes murky financial waters of your industry, contact us today. We can help with your brick-and-mortar location or your online location, or both. However you sell your products, your greatest asset is a knowledgeable, professional accountant. Reach out to us today to schedule your free consultation and discuss cannabis tax planning in California.