1 / 50

Cannabis: An Introduction to State and Local Tax Compliance Issues November 13, 2017

Cannabis: An Introduction to State and Local Tax Compliance Issues November 13, 2017. Jeffrey A. Titus, Esq. Law Office of Jeffrey A. Titus PO Box 6772 Santa Rosa, CA 95406 jaitken@sonic.net 707 703 5691. OVERVIEW NEW TAXES JANUARY 1, 2018 REGISTRATION REQUIREMENTS RECORD KEEPING

forte
Download Presentation

Cannabis: An Introduction to State and Local Tax Compliance Issues November 13, 2017

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Cannabis: An Introduction to State and Local Tax Compliance IssuesNovember 13, 2017 Jeffrey A. Titus, Esq. Law Office of Jeffrey A. Titus PO Box 6772 Santa Rosa, CA 95406 jaitken@sonic.net 707 703 5691

  2. OVERVIEW • NEW TAXES JANUARY 1, 2018 • REGISTRATION REQUIREMENTS • RECORD KEEPING • RETURNS: TIMING AND PROCEDURES

  3. NEW CALIFORNIA TAXES Proposition 64 imposes two new excise taxes on marijuana. Both excise taxes are imposed on both medical marijuana and recreational marijuana. Both excise taxes become effective on January 1, 2018. • CULTIVATION TAX on cultivators • EXCISE TAX ON SALES by retailer • http://www.cdtfa.ca.gov/industry/cannabis.htm#Overview The excise taxes are administered by the Department of Tax and Fee Administration, CDTFA. (R&TC §34013(a))

  4. CALIFORNIA: WHO MUST REGISTER The following must register with the CDTFA for a cannabis tax permit. Register is online beginning November 20, 2017. http://www.cdtfa.ca.gov/industry/cannabis.htm#Started • DISTRIBUTORS • MICRO BUSINESS If you are a microbusiness and are allowed to distribute cannabis and/or cannabis product, you are required to register with the CDTFA for a cannabis tax permit and must comply with all the same requirements as a distributor.

  5. CALIFORNIA REGISTRATION, CONTINUEDHOW TO REGISTER All cannabis businesses will need to register with the CDTFA for a seller’s permit (SALES TAX), https://services.cdtfa.ca.gov/ereg/index.boe, and a California cannabis tax permit if you are a distributor or micro business. http://www.cdtfa.ca.gov/industry/cannabis.htm#Started

  6. RECORD KEEPING All licensees are required to keep business records. Although the CDTFA only requires maintenance of records for four years, the Medicinal and Adult Use Cannabis Regulation and Safety Act requires records be kept for seven years.

  7. RECORD KEEPING, CONTINUED • Cash register tapes; • Sales journals; • Resale certificates; • Shipping documents; • Purchase invoices; • Bank records; • Purchase orders; • Purchase journals; and • Tax returns.

  8. RECORD KEEPING, CONTINUED • In addition, every sale or transport of cannabis from one licensee to another must be documented on a sales invoice or receipt. The sales invoice or receipt may be maintained electronically. Each sales invoice or receipt must include: • Name and address of seller; • Name and address of purchaser; • Date of sale; • Invoice number; • Kind, quantity, and size of packages of cannabis sold; • The cost to the purchaser; • Location of transport; and • Any other information required by the licensing authority.

  9. CULTIVATION TAX RATE Effective January 1, 2018, there is a cultivation tax on all harvested marijuana that enters the commercial market. (R&TC §34012) The tax is due after the cannabis or cannabis product, except for immature cannabis plants and seeds, have completed and comply with the Medicinal and Adult-Use Cannabis Regulation and Safety Act required quality assurance review and testing. • CANNABIS FLOWERS = $9.25 PER DRY OUNCE • CANNABIS LEAVES = $2.75 PER DRY OUNCE • INFLATION ADJUSTMENT

  10. CULITVATION TAX EXAMPLE #1 A cultivator sells five pounds of dried cannabis flowers and three pounds of dried cannabis leaves. To calculate the cultivation tax, the weight must be converted from pounds to ounces. There are 16 ounces in a pound. • 5 x 16 = 80 ounces of dried cannabis flowers • 3 x 16 = 48 ounces of dried cannabis leaves • The cultivation tax rates of $9.25 per dry-weight ounce of cannabis flowers and $2.75 per dry-weight ounce of cannabis leaves can be applied to the number of ounces in each category. • Tax on flowers (80 x $9.25) $740 • Tax on leaves (48 x $2.75) $132 • Total cultivation tax due: $872

  11. MANUFACTURERS AND THE CULTIVATION TAX A cannabis manufacturer is a person who produces or prepares cannabis or cannabis products at a fixed location, that packages or repackages cannabis or cannabis products, or labels or relabels its container. A microbusiness licensed to act as a manufacturer must comply with all of the same requirements as a manufacturer. If you are a cannabis manufacturer, the CDTFA requires that you: • Register with the CDTFA for a seller's permit. • Collect the cannabis cultivation tax from cultivators from which you receive unprocessed cannabis and provide the cultivator with a receipt. • Pay the cultivation tax collected from cultivators to your distributor. • Electronically file your sales and use tax returns and pay any sales and/or use tax owed to the CDTFA. Even if you do not make taxable sales of cannabis, you are still required to file a return indicating your total sales with your claimed nontaxable or exempt sales during that particular reporting period.

  12. MANUFACTURERS AND THE CULTIVATION TAX, continued • As a cannabis manufacturer, you are required to collect the cannabis cultivation tax from cultivators when the unprocessed cannabis is first sold or transferred to you. You must then pay the cultivation tax collected to your distributor when the cannabis products are sold or transferred to the distributor for quality assurance, inspection, and testing. • You must provide an invoice, receipt, or other similar document to the cultivator that identifies: • The licensee receiving the product. • The cultivator from which the product originates, including the associated unique identifier. • The amount of cannabis cultivation tax.

  13. WHEN TO FILE AND PAY CULTIVATION TAX • Sales & Use Tax Return: Find your filing due dates, quarterly, monthly or annually. http://www.cdtfa.ca.gov/taxes-and-fees/sales-use-tax-returns-filing-dates.htm File sales tax return online: https://services.cdtfa.ca.gov/boe/boe_login.jsp • Cannabis Tax Return As a distributor of cannabis and cannabis products, you are required to electronically file your cannabis tax return with the CDTFA. The cannabis tax return is due on the last day of the month following the reporting period. The cannabis tax account is separate from other accounts you may have with the CDTFA.

  14. 15% EXCISE TAX ON SALES • Effective January 1, 2018, a marijuana excise tax is imposed upon purchasers of marijuana or marijuana products sold in California at the rate of 15%. (R&TC §34011). • Distributors collect the cannabis excise tax from cannabis retailers they supply (sell and/or transport) with cannabis and/or cannabis products. Distributors electronically file both your sales and use tax and cannabis tax returns and pay the amounts due to the CDTFA. • The excise tax is in addition to the sales and use tax imposed by state and local governments. • Gross receipts from the sale of marijuana or marijuana products for purposes of assessing the sales and use tax includes the 15% excise tax. (R&TC §34011(e)) This in effect imposes not only a 15% excise tax, but also a 15% surcharge on sales taxes. • Distributor must collect the cannabis excise tax from the retailer on or before 90 days after you sell or transfer the cannabis or cannabis product to the retailer in an arm's length transaction. • In a nonarm's length transaction, distributor must collect the cannabis excise tax from the retailer on or before 90 days after the sale or transfer of cannabis or cannabis product to the retailer, or at the time of the retail sale by the cannabis retailer, whichever is earlier.

  15. 15% EXCISE TAX ON SALES (CONTINUED) • Rather than calculating the excise tax on gross receipts, the tax will be calculated based on an average market price base that will be set by the CDTFA every six months. • The average market price is the average retail price determined by the wholesale cost of the cannabis or cannabis products sold or transferred to a cannabis retailer, plus a markup, as determined by the department. • Average market price markup: http://www.boe.ca.gov/sptaxprog/tax_rates_stfd.htm

  16. EXAMPLE AVERAGE MARKET PRICEARM’S-LENGTH TRANSACTION A distributor sells one pound of cannabis flowers for $1,200 (which reflects the fair market price in the open market) to a retailer and charge a $300 transportation fee. The wholesale cost paid by the retailer to you is $1,500 ($1,200 + $300). To determine the average market price, take the wholesale cost and add the mark-up. This example assumes a 60 percent mark-up on cannabis flowers. • Wholesale cost of cannabis flowers $1,500 • Mark-up ($1,500 x 60%) $900 • Average market price $2,400 The cannabis excise tax due from the retailer to the distributor on this transaction is $360 (15% x $2,400).

  17. AVERAGE MARKET PRICEEXAMPLE #2, NONARM’S LENGTH A microbusiness (which is licensed to be a cultivator, distributor, manufacturer, and retailer) grows one pound of cannabis flowers and sells the flowers at retail to their customer for $2,500. The average market price is determined by the type of transaction (either arm's length or nonarm's length) that occurred when the seller (cultivator, manufacturer or distributor) sold the product to the retailer. • Since a microbusiness is both the cultivator and the retailer, there is no sale between two parties that reflects the fair market price in the open market. As such, this is a nonarm's length transaction and the average market price is the $2,500 representing the retailer's gross receipts from the retail sale of the cannabis flowers. • The microbusiness is responsible for reporting and paying the cannabis excise tax of $375 ($2,500 x 15%) to the CDTFA on their cannabis tax return.

  18. EXAMPLE #3, RETAILER ARM’S-LENGTH The retailer purchased five pounds of cannabis flowers for $7,500 in an arm's length transaction. The average market price in the case of an arm's length transaction is the wholesale cost of the cannabis plus a mark-up. This example assumes a 60 percent mark-up. • Wholesale cost of flowers $7,500 • Mark-up for flowers ($7,500 x 60%) $4,500 • Average market price of flowers $12,000 • Total cannabis excise tax due ($12,480 x 15%) $1,872 • The distributor is responsible for reporting and paying the $1,872 cannabis excise tax to the CDTFA on his/her cannabis tax return. The distributor is not responsible for verifying the retail selling price of the cannabis. The cannabis excise tax is based on the average market price. In an arm's length transaction, the average market price is not based on the retailer's gross receipts from the retail sale.

  19. EXAMPLE #4, NONARM’S-LENGTH The retailer, which is part of a microbusiness, sells four pounds of cannabis flowers for $9,600 to their customers (the consumer). This is considered a nonarm's length transaction because the microbusiness is both the distributor and the retailer. The average market price in the case of a nonarm's length transaction is the cannabis retailer's gross receipts from the retail sale. • Gross receipts from sale of flowers $9,600 • Total average market price $9,600 • Total cannabis excise tax due ($9,600 x 15%) $1,440 • The microbusiness is responsible for reporting and paying the $1,440 cannabis excise tax to the CDTFA on their cannabis tax return.

  20. TAX RETURNS, COLLECTION AND PAYMENT • The cultivation and excise taxes (Cannabis Tax Return) are due and payable quarterly on or before the last day of the month following the quarter. (R&TC §34015(a)). • In addition, the CDTFA may require every person engaged in the cultivation, distribution, or retail sales of marijuana or marijuana products to file, on or before the 25th day of each month, areport using electronic media respecting the person’s inventory, purchases, and sales during the preceding month and any other information the department may require. (R&TC §34015(b))

  21. INSPECTIONS • In addition, the CDTFA may perform unannounced inspections. (R&TC §34016) Inspections will be performed in a reasonable manner and at reasonable times taking into consideration the normal business hours of the place to be inspected. Inspections may be at any place at which marijuana or marijuana products are sold, cultivated, or stored.

  22. Sales and Use Tax • Effective November 9, 2016, certain sales of medical marijuana are exempt from sales and use tax.The sales and use tax exemption only applies to the retail sales of medical cannabis, medicalcannabis concentrate, edible medical cannabis products, or topical cannabis as those terms aredefined in the Business and Professions Code §19300.5. To obtain the exemption, qualified patientsor their primary caregiver must provide their valid Medical Marijuana Identification Card issued bythe California Department of Public Health and a valid government-issued identification card at thetime of purchase. • Retailers should not collect sales tax on the qualifying exempt sales of medical marijuana.Medical marijuana retailers will claim the exemption on their sales and use tax return and mustretain supporting documentation to substantiate exempt transactions. Recreational marijuana saleswill also be subject to sales and use tax. • Delivery charges are generally taxable when dispensaries make deliveries with their ownvehicles. However, delivery–related charges may be nontaxable, or partially taxable, when you shipusing a common or contract carrier. • Electronically file your sales and use tax returns and pay any sales and/or use tax owed to the CDTFA. Even if you do not make taxable sales of cannabis, you are still required to file a return indicating your total sales with your claimed nontaxable or exempt sales during that particular reporting period. • Find your filing due dates, quarterly, monthly or annually: http://www.cdtfa.ca.gov/taxes-and-fees/sales-use-tax-returns-filing-dates.htm • .

  23. CALIFORNIA SALES TAX • Generally, sales by a cultivator are not subject to sales tax. However, it is important that the cultivator obtain timely valid resale certificates. • Generally, sales by a distributor are not subject to sales tax. However, it is important that the distributor obtain timely valid resale certificates. Even if all sales are not subject to sales tax, a distributor is still required to file sales tax returns. Indicate on the return that no taxable sales were made if that is the case. When you sell your product to a customer, such as a distributor or retailer, and the customer provides you with a valid and timely resale certificate, the sale is not subject to sales tax. • Generally, sales by a manufacturer are not subject to sales tax. It is important that you obtain timely valid resale certificates to support your sales for resale. If no timely valid resale certificate is provided, it will be presumed that sales tax also applies to the sale and you must report and pay the sales tax to the CDTFA. Even if all your sales are not subject to sales tax and you collect the proper resale certificates, you are still required to file a return and report your activities to the CDTFA. Simply indicate on the return that you made no taxable sales if this is the case. • Generally, sales by a retailer are subject to sales tax. However, sales of medical marijuana are exempt if a valid ID.

  24. Sales and Use Tax - Partial Exceptions • Equipment and machinery • Farm and garden supplies • Seeds • Fertilizers • Plants and clones • Farm equipment and machinery • Buildings for raising plants • Diesel fuel • Exemption for liquefied petroleum gas (LPG) used in farming activities • Partial exemption certificates

  25. PAYMENT METHODS • Taxpayers can make their payments by one of several methods: • Online by debiting the taxpayer’s bank account; • Credit card using Discover, MasterCard, Visa or American Express. Electronic funds transfer (EFT). • Cash paymentsMarijuana business owners may pay their tax liability to the BOE in cash. By obtaining a seller’s permit from the BOE and submitting a written request, BOE district offices will work with individual cannabis operators to establish a recurring schedule for payment.

  26. SONOMA COUNTY CANNABIS TAX COUNTY TAX ORDINANCE • Http://sonomacounty.ca.gov/Cannabis/Taxes/ • http://sonomacounty.ca.gov/Cannabis/Legislative-Updates/County-Ordinances/ • http://sonomacounty.ca.gov/Cannabis/Taxes/All-Cannabis-Tax-Rates/ • http://sonomacounty.ca.gov/Cannabis/Taxes/Tax-Return-Forms/

  27. SONOMA COUNTY ORDINANCE NO. 6188 A. Tax on Commercial Cannabis Cultivation Every person who is engaged in commercial cannabis cultivation in the unincorporated area of the County shall pay an annual commercial cannabis business tax either: (1) at a rate of up to $10.00 per square foot of outdoor cultivation area, $38.00 per square foot of indoor cultivation area, and $22.00 per square foot of mixed-light cultivation area, or (2) at a rate of up to ten percent of gross receipts per fiscal year.

  28. SONOMA COUNTY SQUARE FOOTAGE DEFINED “Square foot” or “square footage” means the maximum amount of cannabis cultivation area for commercial cannabis cultivation authorized by a County permit issued to a person engaging in commercial cannabis business, or by a state license in the absence of a County permit or license, not deducting for unutilized square footage, and shall be the basis for the tax base for cultivation.

  29. SONOMA COUNTY LOSS ADJUSTMENT • Loss Determination Adjustment must be approved by the Department of Agriculture. • In the event you have not received a valid approval, pay the full amount. Any Department of Agriculture approved adjustments will be refunded by the Tax Collector. • Gross Receipts are for the period (quarter/month) you are paying.

  30. SONOMA COUNTY TAX RATEShttp://sonomacounty.ca.gov/Cannabis/Taxes/All-Cannabis-Tax-Rates/

  31. RATES, CONTINUED SONOMA COUNTY OUTDOOR CULTIVATION

  32. SONOMA COUNTY RATES, CONTINUEDINDOOR CULTIVATION

  33. SONOMA COUNTY RATES, CONTINUEDMIXED LIGHT CULTIVATION

  34. SONOMA COUNTY TAX RETURNhttp://sonomacounty.ca.gov/Cannabis/Taxes/Tax-Return-Forms/ Date Paid is the date the Tax Collector received the payment. • If paying by cash, it is the date money is physically received by the Tax Collector. • If paying by mail, use the due date. • Please allow plenty of time for the post office to deliver. Depending on how the U.S. Postal Service routes your mail it can take more than 5 business days for them to deliver your payment to our office. • In the event payment is received at the Tax Collector’s office after the due date, penalties and interest will be assessed. • Pay this amount: “Total Tax, Penalties & Interest Due”.

  35. SONOMA COUNTY REPORTING AND PAYMENT • Fiscal year basis • Paid quarterly • For outdoor commercial cannabis cultivation, the taxes owed for the first quarter of each fiscal year shall be zero. • Zero balance due requires a return • If the Board has specified that the square footage basis shall apply, the square footage tax due shall be paid based on the square footage of cultivation authorized by the County permit. The tax statement may include a request for adjustment of the tax due to square footage or crop loss.

  36. TIMELY RETURN AND PAYMENT Whenever any payment, statement, report, request or other communication is due, it must be received by the Treasurer-Tax Collector on or before the final due date. A postmark will not be accepted as timely remittance. If the due date falls on Saturday, Sunday or a holiday, the due date shall be the next regular business day on which the County is open to the public.

  37. SONOMA COUNTY PAYMENT IN CASH • Bring exact change. • The Tax Collector is required to retain any counterfeit currency. • Counterfeit currency will not be applied to your tax bill. • Bills will be tracked by the Tax Collector, and if they are deemed authentic by our bank, the corresponding amount will be refunded to you. All other bills are confiscated by the bank and destroyed. The Tax Collector does not receive credit for them. • Bring additional currency to cover any unanticipated short fall.

  38. SANTA ROSA CITY • SANTA ROSA IMPOSES A CANNABIS BUSINESS TAX (EXCISE TAX) FOR THE PRIVILEGE OF DOING BUSINESS IN SANTA ROSA. • SANTA ROSA CITY TAX ORDINANCE: https://srcity.org/DocumentCenter/View/14264 • SANTA ROSA CANNABIS WEBSITE: https://srcity.org/2511/Cannabis-Business-Tax

  39. SANTA ROSA ORDINANCE A. SRCC 6-10.050 Tax on Commercial Cannabis Cultivation There is hereby imposed on every person engaged in commercial cannabis cultivation in the City, an annual tax at a rate established by resolution of the City Council which rate shall not exceed either $25 per square foot of cannabis cultivation area or eight percent (8%) of annual gross receipts. The tax imposed under this Subsection (A)(1) shall be due and payable in installments as provided in Section 6-10.070 of this Chapter. The tax imposed under this Subsection (A)(1) shall not be implemented unless and until the City Council acts by resolution to do so.

  40. SANTA ROSA ORDINANCE, CONTINUED B. Tax on Cannabis Manufacturers, Distributors, and Dispensaries There is hereby imposed on every person engaged in a cannabis business in the City as a manufacturer, distributor or a dispensary an annual tax at a rate established by resolution of the City Council which rate shall not exceed eight percent (8%) of annual gross receipts. The tax imposed under this Subsection (B)(1) shall be due and payable in installments as provided in Section 6-10.070 of this Chapter. The tax imposed under this Subsection (B)(1) shall not be implemented unless and until the City Council acts by resolution to do so.

  41. SANTA ROSA CANNABIS BUSINESS TAX RATES

  42. SR CITY, CONTINUED • Distributors and dispensary are required to register, but are not subject to cannabis tax until 2019. However, they are required to pay the annual city Business Tax imposed on all non-cannabis businesses. • Cultivation and/or manufacturing Cannabis businesses that have City Business Tax Certificate should close that account if 100% of their business is cannabis and obtain the cannabis tax certificate.

  43. SANTA ROSA SCHEDULE • Tax Schedule 2017 3rd Quarter:  July 1 - September 30    (Tax due October 31, 2017)  2017 4th Quarter:  October 1 - December 31  (Tax Due January 31, 2018) 2018 1st Quarter: January 1 - March 31 (Tax Due April 30, 2018) 2018 2nd Quarter: April 1 - June 30 (Tax Due July 31, 2018)

  44. SANTA ROSA CITY CANNABIS REGISTRATION • 6-10.060. Registration of Cannabis Business. All cannabis businesses shall be required to annually register as follows: •  All persons engaging in a cannabis business, whether an existing, newly-established or acquired business, shall register with the Collector within thirty (30) days of commencing operation or by July 31, 2017, whichever is later, and shall annually renew such registration by January 1.

  45. SANTA ROSA REGISTRATION, CONTINUED In registering, such persons shall furnish to the Collector a sworn statement, upon a form provided by the Collector, setting forth the following information: The name of the business The names and addresses of each owner The exact nature or kind of business; The place where such business is to be carried on; and Any further information which the Collector may require. $100 REGISTRATION FEE

  46. SANTA ROSA TAX, PAYMENT AND RETURN • 6-10.070. Reporting and Remittance of Tax. The cannabis industry tax imposed by this Chapter shall be due and payable as follows: • Each person subject to tax under this chapter, except a cannabis cultivation tax based on a square footage, shall, on or before the last day of the month following the close of each calendar quarter, prepare and submit a tax return and remit to the Collector the tax due for that quarter. At the time the return is filed, the full amount of the tax due for the prior quarter shall be remitted to the Collector. At any time, a business may apply in writing to the Collector to have these tax returns and payments made less frequently or on a different schedule. Any determination resulting from this application will be at the sole discretion of the Collector and shall be provided in writing.

  47. PAYMENT AND RETURN, CONTINUED • The tax return may include a request for adjustment of the tax due to crop loss or periods without cultivation, along with evidence substantiating the crop loss or fallow periods. If the cultivation begins significantly after January 1 or terminates significantly before December 31 of the calendar year, a request to prorate the tax may be submitted with evidence supporting the timing of the cultivation. The decision to prorate or adjust the tax will be made at the sole discretion of the Collector. • At any time, a business may apply in writing to the Collector to have these tax returns and payments made less frequently or on a different schedule. Any determination resulting from this application will be at the sole discretion of the Collector and shall be provided in writing.

  48. SANTA ROSA, CONTINUED PAYMENT 6-10.080. Payments and Communications – Timely Remittance. Whenever any payment, return, report, request or other communication is due under this Chapter, it must be received by the Collector on or before the due date. A postmark will not be accepted as timely remittance. If the due date falls on Saturday, Sunday or a City holiday, the due date shall be the next regular business day on which the City is open to the public. PAYMENT BY APPOINTMENT

  49. QUESTIONS?

More Related