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What cannabis taxes do business owners need to know about?

On: February 7, 2020

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When it comes to starting a cannabis business, knowing about all the cannabis taxes should be one of your first steps. California has some pretty major taxes that can take a chunk out of your payday, but nonetheless, are necessary to keep your business running. While knowing what state taxes you are going to have to pay is a must, making sure that you know the federal laws and keep tabs on the ever-changing California laws will also go a long way. What cannabis taxes do I need to know? At the state level, there are a couple of extra cannabis business taxes that you will need to pay attention to. The cannabis sales tax is attached to the legal distribution of cannabis products and comes in at a couple of different points along the buying and selling chain. It comes in two different categories for cultivators and distributors. For cultivators, this tax is based on the amount of cannabis that is grown to be sold and based on weight. Currently, the rate is $9.25 per ounce of marijuana flowers, $2.75 per ounce of leaves, and $1.29 per ounce of fresh cannabis plant, which is unprocessed marijuana that is weighed within two hours of harvesting. For distributors or retailers, the cannabis sales tax also comes from the excise tax, which is a tax imposed on a specific item, in this case, cannabis. Customers would see on their receipt their local base tax (which is the state tax of 7.25 percent plus local rates), a 15 percent excise tax (on the average item), and a varying cannabis business tax which can be anywhere from 5 to 15 percent. This tax is paid by the retailer to the distributor. The excise tax is found in the total retail purchase and is required to be put on the invoice or receipt. It is one of the cannabis taxes that must be paid by all groups. What about cannabis taxes at the federal level? Cannabis is still a schedule 1 drug in the eyes of the federal government, which means that it is illegal at the federal level. However, the reason it is able to be sold in states is due to a section of the law known as  Section 280E of the Internal Revenue Code that bans all deductions and tax credits for the illegal trafficking of drugs. This section allows certain aspects to be regulated by the federal government despite its illegal status. While the cost of goods may be reported, the section mandates the cannabis taxes are not deductible by the same standards as other businesses due to the product being sold. So, some of the benefits business owners can get are not available to cannabis businesses. This may be a bummer, but with the future of cannabis changing daily, it is not known for how long you may have to jump through these hoops, after all, the industry is still only less than a decade old. And always make sure to call Leading Tax Group and don’t attempt to do it yourself.
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