California Medical Marijuana Taxes
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Being part of the medical marijuana industry in California can be exciting. You are part of a venture that is on the cutting edge of science and will continue to grow. You can rest well at night knowing your products are used to help individuals suffering from a variety of medical conditions, some of which cause chronic pain.
However, your job is not always easy. As a medical marijuana business owner, you have to cut through a lot of red tape to bring safe and affordable products to your customers. In addition to a number of regulatory requirements, you have to be prepared to pay California medical marijuana taxes. This area of the law can be especially tricky as the state and local communities are still figuring out how your products will be taxed and how much.
To ensure you remain compliant with all federal, state, and local tax regulations, contact an experienced San Diego medical marijuana lawyer from McElfresh Law with questions about California medical marijuana taxes. Call us today at (858) 756-7107.
Free consultation for criminal defense cases only. Cannabis business consultation requires a fee.
Federal Taxes for Medical Marijuana Businesses
Federal taxes apply to all businesses within the marijuana industry. If you own a medical marijuana operation in California, whether as a grower, processor, or dispensary, you must properly file your business’s tax return with the Internal Revenue Service (IRS) and pay taxes related to the business and its employees. In most ways your federal taxes are the same as if you owned any other type of venture. You must pay your income tax and employment taxes like Social Security, Medicare, and unemployment withholdings.
However, because the purpose of your business is unlawful under federal law, you are not entitled to certain exemptions and deductions. For instance, you cannot deduct your ordinary and necessary business expenses. Be sure to speak with an experienced tax professional before filing your taxes.
California Medical Marijuana Taxes
Most California taxes apply to medical marijuana businesses like they would any other business, though they may not apply similarly to dispensaries, growers, and other types of ventures. If you are a business owner, you should work closely with an experienced marijuana tax professional to ensure you file and pay all of your relevant taxes – and take advantage of exemptions when they apply. Unlike with the IRS, properly formed corporations, limited liability companies, and cooperatives are entitled to their normal deductions in California.
For California Dispensaries
If you own a medical marijuana dispensary, then you need to know about:
- Sales or Use Tax on Your Business Purchases – When you purchase supplies, materials, equipment, and other items necessary to run your business, you will be subjected to sales or use tax. Normally, the sales tax is due at the time you purchase the item and the seller will collect it. However, if you provide the seller with a valid resale certificate, then the sales tax will apply to the item when you sell it in your store. This is most common when dispensaries purchase marijuana products from growers and processors and then provide them with resale certificates. However, if you do not provide the resale certificate, used the item yourself, or purchased the item online and were not subject to sales tax, then you will owe use tax based on the item’s purchase price. You may need to list these on your California tax return.
- Sales Tax for Dispensaries’ Sales – In general, any marijuana product sold to a consumer must be taxed, unless there is an exemption. You are responsible for paying the sales tax on all sales of taxable items and have the option to collect sales tax reimbursement from your customers. You can include the sales tax in the price of your items, which must be clearly posted in your store if you do, or the sales tax will be additional, based on the item’s price. Whether you collect this tax from your customers or not, you will owe it to the state.
- Medical Marijuana Sales Tax Exemption – Certain sales of medical marijuana are exempt from sales and use taxes. For purchasers with their Medical Marijuana Identification Card (MMIC) and valid government issued identification, there are no sales or use taxes on medical cannabis, medical cannabis concentrate, edible medical cannabis products, or topical cannabis. As a business owner selling these products to medical marijuana patients, you should not collect sales tax reimbursement. You should also claim a deduction on your sales and use tax return for the qualifying sales. To ensure you are entitled to this exemption come tax time, you must keep meticulous records regarding your sales and be firm in reviewing patients’ MMICs and IDs.
- Excise Tax on Marijuana Purchases – Beginning Jan. 1, 2018, all recreational and medical marijuana and related products will be subject to a 15 percent excise tax. Unlike with the state’s sales tax, medical marijuana is not exempt. While medical marijuana will get a bit of a sales tax break compared to recreational marijuana, you and your customers will still be responsible for this excise tax beginning in 2018.
For California Growers and Processors
If you grow marijuana or manufacture medical marijuana products, then you are subject to many of the same taxes, with a few key differences.
- Tax for Growers and Processors’ Sales – If you grow or process marijuana, then you are subject to sales tax when you sell your products to dispensaries. If you are given a timely and valid resale certificate, then you are not responsible for the tax. However, if you are not provided a certificate, you must report the sale and pay.
- Equipment and Machinery Partial Sales Tax Exemption – California provides a partial sales and use tax exemption for farm equipment and machinery, which can include planting equipment, grow lights, greenhouses, hydroponic equipment, irrigation equipment, drying racks and trays, solar equipment, diesel fuels for farming activities, and more. When you buy an eligible item and fulfill all of the requirements of the law, you must give an exemption certificate to the supplier.
- Marijuana Cultivation Tax – Beginning Jan. 1, 2018, there will be a tax on cultivators of marijuana. It will be $9.25 per dry-weight ounce of marijuana flowers and $2.75 per dry-weight ounce of marijuana leaves.
Local Tax Liability
If you are in the medical marijuana industry in California, bear in mind that you will need to ensure you keep up with local taxes and fees as well as your state and federal liability. So far, dozens of counties and cities throughout the state have voted to impose separate taxes and fees on recreational and medical marijuana sold within their borders, and more are likely to do the same. California law gives communities broad powers to regulate their local marijuana industries, including imposing licensing requirements, taxes, and fees.
If you are setting up shop, be sure to speak with an experienced and local marijuana attorney. You need to be sure your business is properly formed and licensed by the state and community, you maintain the legally required records, and that you pay your local, state, and federal taxes.
How a San Diego Medical Marijuana Lawyer Can Help
There is little reason to put your heart and soul into building a medical marijuana business only to get in legal trouble for tax evasion. By working with San Diego medical marijuana lawyer Jessica McElfresh, you have someone on your side who has the knowledge and experience you need to comply with all California and local tax laws.
To learn more about how she can help you and your business, call today at (858) 756-7107.
This website is intended for informational purposes only. Use of this website does not create an attorney-client relationship. Free consultation for criminal defense cases only. Cannabis business consultation requires a fee.