Beginning July 1, 2022, the California cannabis cultivation tax no longer applies to cannabis or cannabis products entering the commercial market. Cannabis enters the commercial market when the cannabis or cannabis products pass the required testing and quality assurance review.
Changes to Cultivation Tax Requirements
The following cannabis cultivation tax changes apply beginning July 1, 2022:
- distributors and manufacturers, including microbusinesses authorized to distribute or manufacture cannabis, are no longer required to collect the cultivation tax from cultivators;
- cultivators, including microbusinesses authorized to cultivate, are no longer responsible for paying the cultivation tax to manufacturers or distributors when cultivators sell or transfer cannabis to another licensee;
- the cultivation tax is not due on cannabis or cannabis products entering the commercial market on or after July 1, 2022, even if cannabis was received from a cultivator prior to July 1, 2022; and
- any cultivation tax collected on cannabis that enters the commercial market on or after July 1, 2022, must be returned to the cultivator that originally paid the cultivation tax.
Excess Cultivation Tax That Is Collected
Cultivation tax that cannot be returned to the cultivator who paid it is considered excess cultivation tax collected. In such an instance, manufacturers or cultivators must:
- a manufacturer that has collected the cultivation tax and is not able to return it to the cultivator who paid it, must transfer the excess cultivation tax collected to a distributor to remit to the California Department of Tax and Fee Administration (CDTFA);
- a distributor that has collected the cultivation tax and is not able to return it to the cultivator who paid it, must remit the excess cultivation tax collected to the CDTFA; and
- a distributor should report and pay any excess cultivation tax collected on their next cannabis tax return.
Each licensee in a transaction should keep clear records to document when the cultivation tax was collected or not collected, returned to a cultivator, transferred to a distributor, or when excess cultivation tax was paid to the CDTFA. Please be advised this should not be construed as legal advice. You should consult a tax professional or the State of California if you have any questions or concerns regarding the end of the cannabis cultivation tax in the State of California.
Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense. Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board. Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.
For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC.
Newport Beach and Yorba Linda, California.