Christmas in July – California Ends the Cannabis Cultivation Tax!
With Wednesday’s approval of California’s 2022-23 budget, and after Governor Newsom’s signature on the budget last night, California’s cultivation tax was finally eliminated![1]
The governor had taken wording from a recently proposed bill eliminating the cultivation tax, authored by Senator Mike McGuire of Humboldt County, and incorporated it into his proposed budget as a cannabis trailer bill. Approval of two-thirds of the legislature was required to remove the tax, but that was achieved with Wednesday’s vote on the budget, which was approved by 78% of the lawmakers.[2]
Many cannabis industry advocates are celebrating, including Amy O’Gorman Jenkins, a lobbyist with the California Cannabis Industry Association, who said, “The Legislature seems to have grasped a lot of what’s affecting the cannabis industry. More work needs to be done, but I see this as a big win. To critics, I say this is a significant first step.”[3]
The trailer bill has also introduced significant changes to the cannabis excise tax. Starting January 1, 2023, excise taxes will no longer be collected by distributors. Instead, an excise tax of 15% will be collected on all retail sales and then remitted by the retailer to the CDTFA along with their sales taxes. (Excise taxes will be calculated on each sale, after which the sales tax will be calculated on the total of the sale plus excise tax). In addition, starting January 1, 2024, the excise tax will be increased from 15% up to as high as 19% in order to replace the lost cannabis taxes.[4]
It is hoped by many that the excise portion of this bill will be studied further with an eye to removing it before the 19% rate increase comes into effect. Unless that portion is changed, there will still be a Herculean tax burden on the cannabis industry!
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[1] https://www.northbaybusinessjournal.com/article/article/california-ends-cannabis-cultivation-tax-partly-blamed-for-strangling-the/, June 30, 2022, by Susan Wood
[2] https://www.manatt.com/insights/newsletters/california-government-update/2022-2023-state-budget-update
