At California Cannabis CPA, we often receive numerous questions regarding applicable laws and taxes for Dispensaries. California dispensaries are required to meet a variety of tax and licensing requirements in order to operate legally in the state of California. Below is a list of several applicable taxes and licensing requirements for dispensaries in California.
California Medical Marijuana Regulation and Safety Act (MMRSA)
In California, all dispensaries are regulated by the California Medical Marijuana Regulation and Safety Act (MMRSA), which is made up of three laws, Assembly Bill 266, Assembly Bill 243, and Senate Bill 643. AB 266 allows for businesses to obtain operational medical marijuana licenses from the state of California. It also legalizes all commercial cannabis activities by licensed California dispensaries. It gives local jurisdictions the power to tax and assess fees against California dispensaries. AB 243 regulates cannabis growers and SB 642 sets licensing standards for physicians who recommend medical marijuana to patients.
Tax Treatment
The state of California disallows the deduction of all business expenses for medical marijuana dispensaries that are not being taxed as a corporation under the State Revenue and Taxation Code. However, if the dispensary is structured in order to be taxed as a corporation, the deduction of all necessary and ordinary businesses expenses is permitted, as long as the dispensary maintains the proper records to support such deductions.
Seller’s Permit
The state of California requires all dispensaries, including mobile dispensaries, to apply for a seller’s permit with the Board of Equalization (BOE). There is no fee to apply for a seller’s permit and it can be done via the BOE’s Online Registration.
Sales Tax
All retail sales of medical cannabis products and accessories are subject to California sales tax. California dispensaries are required to pay sales tax on a quarterly prepay, quarterly, monthly, fiscal yearly, or yearly basis based on the dispensary’s reported sales or anticipated taxable sales at the time of registration for a Seller’s Permit with the BOE. The statewide sales tax rate is 7.5%.
However, California dispensaries should also pay close attention to the laws regarding the taxation of medical marijuana as changes are expected soon. The California Senate is currently considering SB 987, a new bill introduced in February 2016, which would impose a 15% tax on the sale of medical marijuana to patients.
Resale Certificates
To mitigate having to pay taxes on purchases of medical marijuana and marijuana-related products, dispensaries must obtain a resale certificate to present to the supplier at the time of purchase. These resale certificates are available at California office supply and stationery stores and should include the necessary information to ensure that the form is a Board-approved retail certificate. One resale certificate should be kept on-file per vendor and the same resale certificate can be used each time a purchase is made from that specific vendor.
Payroll Tax
If your dispensary has employees, you will also be required to report wages and pay Income tax, Social security and Medicare taxes to the Employment Development Department (EDD) on a quarterly basis. The full requirements for reporting and depositing payroll taxes in California can be found here.
Record Keeping
California dispensaries are required by law to maintain specific records so that the Board of Equalization can verify the accuracy of filed sales and use tax returns. These records must be maintained for at least 4 years. These records include sales and purchase records, bank statements, resale certificates, shipping documents, and tax returns. A comprehensive list of the books and records that are required to be maintained can be found here.
Depending on the other products and services that your business provides, there may also be other state taxes that apply to your business, including property tax and special taxes. Contact the appropriate offices to learn more.
