California City Taxes for Medical and Recreational Marijuana
In November 2016, California passed Proposition 64 which legalized recreational marijuana in the state of California. At the same time, voters voted on a number of city tax ordinances which were designed to apply local city taxes to the cultivation, manufacturing, distribution, and sales of medical and recreational marijuana. With 482 municipalities in California in all, dozens of ballot measures were up for vote in November 2016. For several cities, we have provided summaries of each of the tax laws that have been passed below. While this is only a partial list of the measures that were passed it can help you to get a clearer picture of what taxes you will be required to pay based on where you locate your cannabis business.
The California medical sales tax rate is 7.60%. The majority of these ballot measures do not address the sale of recreational marijuana directly because they left it up to the passage of state laws and/or additional city ordinances to determine whether or not recreational cannabis would be considered legal in their municipalities. With the passage of Proposition 64, in many cases, these city ordinances now also apply to recreational cannabis businesses. For more specific details, please check with each city to determine the exact ordinances that apply to your medical or recreational cannabis business. As President Trump takes office, cannabis companies are likely to continue to face significant legal challenges given that federal policy regarding the sale, distribution, and use of marijuana
has not changed. However, state laws are changing with California’s recent legalization of recreational marijuana during the November 2016 election. To ensure that cannabis companies continue to operate their businesses legally, they’ll need to take some extra steps to ensure compliance over the next president’s term. Here are the steps that cannabis companies can take to improve their compliance under the new administration: 1. Get Audited Financials Statements Hiring an auditor to help your business produce cannabis audited financial statements can provide significant benefits for your business. An audit requires requires understanding and evaluating all significant aspects of an organization and performing detailed procedures, which will uncover valuable insight. This will be discussed privately in the course of the audit. First, it will allow you to identify potential risks and areas for improvement. Auditors may also identify risks of fraud, abuse, or non-compliance with government regulations that were hidden beneath the surface. In addition, auditors serve a greater purpose than just the simple preparation and review of your company’s financial statements. In fact, management and the owners of your company can discuss, in confidence, their business issues and strategies with the auditors. 2. Periodically Check Federal, State, County, and City Requirements In addition to the legalization of recreational marijuana at the state level, California cities have also passed a number of local ordinances that are designed to tax marijuana cultivators, manufacturers, distributors, and retailers. As a result, it is important the periodically check federal, state, county, and city requirements to ensure that your business is always in compliance. 3. Reduce Violations, Penalties and Fines As with any legal procedure, there is always an appeals process. If you feel that a violation, penalty or fine was wrongly assessed, it may be in your best interest to contest it before the statute of limitations for an appeal expires. In some cases, you may even be able to reduce violations, penalties, and fines as a result of making a good faith effort to remain in compliance. This highlights a major reason why you should implementing compliance training in addition to eliminating sources of future violations and fines for your cannabis business. 4. Train Employees on Compliance Requirements Compliance training is the process of educating your employees on how to comply with the legal and tax requirements of doing business. These concerns range from taxes and licensing to inventory and financial data and records and labeling, packaging and product safety. As the cannabis industry matures, it is likely to become one of the most heavily regulated industries in the world. As a result, you need to put compliance programs in place to ensure that every employee at your company is properly trained with regard to compliance concerns that will impact their day-to- day job duties. 5. File Your Taxes Many cannabis businesses are still failing to pay their taxes because of uncertainties about the legality of their businesses under federal law. However, with the legalization of recreational marijuana in the state of California, there is no longer any excuse not the file your taxes. Whether or not you believe that you are responsible for paying your tax liabilities, the tax agencies are likely to audit you and assess back tax amounts, in addition to penalties and interest, which can be significant. Failing to file your taxes may also put your business at risk of being in noncompliance with the licensing and permit provisions that you are required to follow in order to keep your business in operation. Instead of risking incurring thousands and thousands of dollars of tax liability, as well as your operational licenses and permits, start filing your taxes today and get your business up to date. It’s never too late to start filing your taxes and this guide can help you get back on track. |