Applicable Tax and License Requirements for California Medical Marijuana Dispensaries
California dispensaries must meet a variety of tax and licensing requirements in order to legally operate in California. The key to compliance is making sure your cannabusiness obtains proper medical marijuana licenses. There are several applicable taxes and licensing requirements for dispensaries in California.
California Medical Marijuana Regulation and Safety Act (MMRSA)
All dispensaries, in California, dispensaries are regulated by the California Medical Marijuana Regulation and Safety Act (MMRSA), which is made up of three laws, Assembly Bill 266, Assembly Bill 243, and Senate Bill 643. AB 266 allows for businesses to obtain operational medical marijuana licenses from California and legalizes all commercial cannabis activities by licensed California dispensaries. This gives local jurisdictions the power to tax and assess fees against California dispensaries. SB 642 sets licensing standards for physicians who recommend medical marijuana to patients and AB 243 regulates cannabis growers.
Under the State Revenue and Taxation Code the state of California disallows the deduction of all business expenses for medical marijuana dispensaries that are not being taxed as a corporation. However, if the dispensary is structured in order to be taxed as a corporation, the deduction of all necessary and ordinary business expenses are permitted, as long as the dispensary maintains the proper records to support such deductions.
The state of California requires all dispensaries, including mobile dispensaries, to apply for a seller's permit with the Board of Equalization (BOE). There is no fee to apply for a seller's permit and it can be done via the BOE's Online Registration.
California sales tax is applied to all retail sales of medical cannabis products and accessories. Dispensaries in the state of California are required to pay sales tax on a quarterly prepay, quarterly, monthly, fiscal yearly, or yearly basis based on the dispensary's reported sales or anticipated taxable sales at the time of registration for a Seller's Permit with the BOE. The statewide sales tax rate is 7.5% plus local taxes.
California dispensaries should pay close attention to the laws regarding the taxation of medical marijuana because changes can be made as the industries grow. As of January 1, 2018 new cannabis taxes came into effect:
Dispensaries must obtain a resale certificate to present to the supplier at the time of purchase, in order to alleviate having to pay taxes on purchases of medical marijuana and marijuana-related products. Resale certificates are available at California office supply and stationery stores. To ensure that the form is a Board-approved retail certificate make sure the certificate includes all the necessary information. One resale certificate is to be kept on-file per vendor and the same certificate can be used each time a purchase is made from that specific vendor.
You are required to report wages, pay Income tax, Social security and Medicare taxes to the Employment Development Department (EDD) on a quarterly basis, if your dispensary has employees. More information on cannabis industry payroll tax reporting can be found here.
Dispensaries in California are required by law to maintain specific records so that the CDTFA can verify the accuracy of filed sales and use tax returns. These records are to be maintained for at least 4 years, unless the Board gives written authorization for earlier destruction. These records should include sales and purchases, resale certificates, bank statements, tax returns and shipping documents.
Depending on the other products and services that your business provides, there may also be other state taxes that apply to your business, including property tax and special taxes. Feel free to contact our office today with any questions you may have at 925-257-2430.