One of the goals of California Assembly Bill 195, signed into law by Governor Gavin Newsom on June 30, 2022, was to bring tax relief to the cannabis industry, a class of businesses notoriously challenged by heavy taxes. To this end, the Franchise Tax Board is currently offering two tax credits. In addition to the High-Road Cannabis Tax Credit, reviewed previously, the Franchise Tax Board is making available the Cannabis Equity Tax Credit (CETC). The CETC is specific to those businesses with equity status.
The Cannabis Equity Tax Credit Qualifications
To qualify for the CETC, which provides a yearly tax credit of $10,000, a cannabis business must have been approved for the Equity Fee Waiver program administered by the Department of Cannabis Control. The Franchise Tax Board notes that it will be relying on the DCC to provide it with a list of these approved businesses.
Ownership Criteria for the Cannabis Equity Credit Qualifications
It’s important to note that it is not too late to request a license fee waiver from the Department of Cannabis Control. Individuals who meet the equity criteria must own 50% or more of the business, and the business must have gross revenue of $5 million or less per year.
Essentially, in order to qualify as an equity business, owners must either have had a cannabis conviction or arrest, or have household income of less than or equal to 60% of the median income of the area where they live, or have lived for at least five years between 1980 and 2016 in an area disproportionately impacted by past criminal justice policies implementing cannabis prohibition. More details are available on the DCC’s website at: https://cannabis.ca.gov/wp-content/uploads/sites/2/2022/12/Guidance_Equity_Fee_Relief_Program.pdf.
How Long Will The Cannabis Equity Tax Credit Run?
If your business is an equity qualifier, the $10,000 yearly credit will begin January 1, 2023 and run through December 31, 2027. The CETC is filed on the business’s regular return in 2024 for the year 2023.
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.
While not all cannabis businesses will be able to qualify for the CETC tax credit, for those that do, the $10,000 credit will be a welcome step in the right direction of much-deserved tax reduction.