Board of Equalization (BOE) Chairman Jerome E. Horton announced that as of September 1 BOE representatives will visit local medical cannabis dispensaries in the 3rd Equalization District to verify that they are registered with the BOE and if not, provide them with information on how to comply with state tax laws. The 3rd Equalization District includes Los Angeles and Ventura counties, and a portion of San Bernardino County.
“We are reaching out to the industry to teach dispensary operators how to comply with existing laws,” said Chairman Horton.
This announcement comes just after Chairman Horton’s Cannabis Enforcement and Educational Telephone Town Hall event on August 18, 2015, to teach sellers how to comply with current laws related to medical cannabis. More than 300 people registered and participated anonymously.
The town hall featured tax and business experts from the BOE, the Internal Revenue Service (IRS), the Franchise Tax Board (FTB), the Los Angeles County Assessor’s Office, and the Los Angeles Police Department.
This meeting dispelled many of the myths that contribute to the lack of compliance with existing laws.
Myth #1: Cannabis home delivery services do not have to charge taxes on the delivery charges. Reality: Twenty-four hour marijuana delivery services, much like those for pizza, will deliver medical cannabis to your home. However, Chairman Horton warns that sales of medical cannabis are subject to tax in California, and delivery charges that are part of these sales may also be subject to tax.
Myth #2: Cannabis nonprofits are exempt from state and federal income taxes and local sales and use taxes. Reality: Nonprofit cannabis collectives and consortiums, organized and operated for charitable purposes in California, cannot meet the IRS “charitable” nonprofit definition necessary to receive federal income tax status under IRC 501(c) (3) status or state income tax exemption because cannabis is considered an illegal Schedule I drug under federal law. Further, under current law the BOE is authorized to issue property tax Welfare Exemption certificates only to organizations that are “irrevocably dedicated to religious, charitable, scientific, or hospital purposes,” and have IRS 501(c) (3) status or FTB exemption status.
Myth #3: Nonprofit cannabis collectives and consortiums are not required to pay payroll taxes. Reality: Nonprofit cannabis, collectives and consortiums, organized and operated for charitable purposes in California, are subject to Unemployment Insurance (UI), Employment Training Tax (ETT), State Disability Insurance (SDI) and Personal Income Tax (PIT) withholding.
Myth #4: Cannabis food products are exempt from tax. Reality: Sales of cannabis food products are subject to tax under the California Sales and Use tax law even though sales of food products are generally exempt. Under California law, while retail sales of candy, cookies, and brownies are typically not taxable, once these products are mixed with medical cannabis, their sale becomes taxable. You must pay sales tax to the BOE based on the amount you charge the buyer and the tax rate in effect where the sale occurs.
Myth #5: The Board of Equalization will not accept cash payment for tax liabilities. Reality: The BOE has a long-standing policy of accepting cash from businesses that do not have access to bank accounts.
Chairman Horton will host a free Medical Cannabis Business Seminar on September 9, 2015, from 1 p.m. to 3 p.m. It will explain how to complete the registration with various government agencies. In addition, an online medical cannabis compliance tutorial series will be available on Chairman Horton’s website by September 26, 2015. To obtain more information on medical cannabis and the free seminar go to Chairman Horton’s Web page, register online or call 1-888-847-9652.