On June 30, 2022, Governor Gavin Newsom signed California Assembly Bill 195 into law, a bill specific to the cannabis industry. One of the goals of this bill was to bring tax relief to a class of businesses notoriously challenged by heavy taxes. To this end, the Franchise Tax Board is offering two tax credits: The High-Road Cannabis Tax Credit (HRCTC) and the Cannabis Equity Tax Credit (CETC). In this post, we’ll examine the HRCTC, which is open to all cannabis businesses.
2024 California Cannabis Business Tax Credit Update:
According to the Franchise Tax Board website, the full $20 million has been allocated for 2023. Because of the significant size of the credit offered to qualified cannabis businesses, it’s important to place a reminder on your calendar to register for the 2024 cannabis business tax credit. The link will be located: here, and will be available starting July 1, 2024.
It’s important to note that, even if you did register for 2023, this is a yearly process, and you will have register again for 2024. Please continue to review this article to see if your business qualifies for this sizable credit.
Qualifying for the High-Road Cannabis Tax Credit
The HRCTC is available for tax years beginning January 1, 2023 through December 31, 2027. Taxpayers conducting a qualified cannabis business may receive a tax credit of 25% of their qualified expenditures in the taxable year, up to a maximum of $250,000 of credit per year. The total cumulative amount available from the state for the HRCTC is $20 million.
This is a non-refundable tax credit, which means that the credit can’t be used to increase your tax refund or to create a tax refund when you wouldn’t have already had one. In other words, your savings cannot exceed the amount of tax you owe.
Full-Time Workforce: Cannabis Business Tax Credit Wage Qualifications
The FTB defines a qualified taxpayer as being a retailer or micro-business that provides full-time employees with all of the following: wages, group health insurance, and retirement or pension benefits. Also, employees must be salaried or work at least 35 hours per week and must be paid no less than 150% but no more than 350% of the state minimum wage, which as of this writing stands at $15.50 per hour. This means that employees must be paid at least $23.25 per hour, but not more than $54.25 per hour. For the purposes of this calculation, wages may include amounts paid by the employer for group health insurance, childcare benefits, and employer contributions to retirement or pension plans.
Cannabis Business Tax Credit for Safety Expenditure
In addition to the above-listed wages and wage-related expenditures, the HRCTC also authorizes the 25% credit on payments for safety-related equipment, training and services, and labor-management training programs. The FTB states that qualified taxpayers must request a tentative credit reservation for each taxable year during the month of July of the taxable year (or within 30 days of the start of their taxable year if it begins after July). The HRCTC credit reservation must be submitted yearly and online — the link is no longer available for 2023, but will be accessible for 2024 starting July 1, 2024 at the following web page.
Most cannabis businesses should be able to qualify for the HRCTC. It will be important to do the math to see which of your employees’ payroll and related expenses will fall within the CDTFA’s $23.25-$54.25 qualifying range. A spreadsheet will probably be needed!