High Road Cannabis Tax Credit Gone After Only 1 Year: All $20 Million Fully Subscribed
California’s cannabis industry faces a significant setback with the High Road Cannabis Tax Credit (HRCTC) reaching its limit far earlier than the intended end date. The rapid allocation underscores the critical demand among cannabis retailers and micro-businesses for financial relief through tax credits, highlighting the state’s complex regulatory and tax landscape for the cannabis sector. As businesses grapple with the early exhaustion, the industry calls for legislative action to provide additional funding or alternatives to support the sustainable growth of cannabis enterprises in California.
Many of California’s cannabis retailers are expressing surprise and disappointment upon learning the Franchise Tax Board website is no longer taking reservations for the High Road Cannabis Tax Credit. The $20 million which state legislators authorized for the period January 1, 2023 – December 31, 2027 have already been fully claimed.
The HRCTC, offered to retailers and micro-businesses, allows approved businesses a credit of 25% of their employee-related expenses, including wages, group health insurance, and retirement or pension benefits, with certain caveats. Expenses must be for employees that are salaried or work at least 35 hours per week and who are paid no less than 150% but no more than 350% of the state minimum wage.
California Cannabis Businesses Reserve All High Road Cannabis Tax Credit Funds in First Year
The maximum allowable credit per business is $250,000 per year, and qualified cannabis companies were instructed to reserve their 2023 credit starting July 2023. However, response to the opportunity has been so overwhelming that the HRCTC, which was described as being available through 2027, was fully allocated its first year.
Navigating California’s Tax Framework: HRCTC Closure is Another Tax Strain on Cannabis Companies
One woman, a client who owns a large Southern California dispensary and delivery service, expressed frustration after finding out the credits would no longer be available. “Unbelievable! Yet unsurprising. These tax credits have been keeping my business afloat. Now the HRCTC is gone. It’s another example of the state’s poorly conceived cannabis legislation and tax policies. The HRCTC is just another instance of salt being rubbed in our wounds.”
“The High Road Cannabis Tax Credit is a red herring,” commented 420 CPA’s Rachel Wright. “The state’s just trying to appease business owners as they take billions from them in taxes.”
Understanding the High Road Cannabis Tax Credit Carryover & Legislative Outlook
Those businesses fortunate enough to reserve their portion of the $20 million last July may carry forward any unused credit over 8 taxable years starting in 2024. Tax preparers must provide their cannabis client’s TCR confirmation number when they file their return and claim the credit. Also, preparers must make sure to reduce any deduction or credit otherwise allowed for qualified expenditures by the amount of HRCTC credit allowed.
Although it is likely that businesses have reserved more credits than they’re entitled to once they file their 2023 tax return, any unused credits will not be released by the state for future years. The cannabis industry must look to their state representatives for any significant future relief.
420 CPA reached out to the FTB’s cannabis division about the possibility of unused credits and was given this response: “Yes, that has been discussed extensively. Unfortunately, due to limitations to our current system, no new or additional reservation can be given out. The only option is for the legislature to give additional funding.”
These are difficult times for cannabis companies with massive changes in the industry and the tax landscape. 420CPA understands what you’re going through, and we stand ready to assist with both tax and accounting services and fractional financial management consulting. Contact us and let’s start a conversation!
