On June 30, 2022 California enacted Assembly Bill 195 (AB 195) that paved the way for two additional tax credit opportunities for Commercial Cannabis Companies operating in California.
High-Road Cannabis Tax Credit
For each taxable year beginning on or after January 1, 2023 until December 31, 2027 a High-Road Cannabis Tax Credit (HRCTC) credit will be allowed against California corporate franchise and income taxes or personal income taxes.
A taxpayer qualifies for this credit if they are a commercial cannabis company, possessing a Type-10 (retailer) or a Type-12 (micro business) license, that has qualified expenditures and provides their employees with:
- employment compensation,
- employer provided group health insurance, and
- employer provided retirement or pension benefits. (Note, the Franchise Tax Board has confirmed that participation in the CalSavers program does not meet the qualification of providing retirement or pension benefits for purposes of the HRCTC. Please contact us for retirement plan providers who work with clients in the cannabis industry).
Qualified expenditures are:
- wages paid for full time employees,
- safety related equipment, training and services, and
- workforce development for employees.
Tentative Credit Reservation
Taxpayer’s must make a tentative credit reservation with the California Franchise Tax Board for each taxable year to claim the HRCTC when filing their income tax return.
The tentative credit reservation must be submitted online, the system will be available for the 2023 tax year from July 1, 2023 through December 31, 2023. The link to the system will become available on July 1, 2023.
The Taxpayer must request a reservation between July 1 – July 31, 2023 for taxable years beginning January through July 2023. For taxpayers with a taxable year start date of August through December, the reservation request must be made within 30 days of the start of the taxable year if beginning August 2023 – December 2023.
Credit Amount and Details
The credit is equal to 25% of the total amount of the qualified taxpayer’s expenditures in the taxable year, up to $250,000.
The taxpayer may carry forward any excess credit over the amount of tax due for up to eight years.
Any deduction or credit otherwise allowed for any qualified expenditure must be reduced by the amount of the HRCTC.
Cannabis Equity Licensee Credit
For each taxable year beginning January 1, 2023 through December 31, 2027 a Cannabis Equity Tax Credit (CETC) tax credit will be allowed of $10,000.
A taxpayer qualifies for this credit if they are an equity licensee that has received approval for the fee waiver and deferral program administered by the California Department of Cannabis Control.
Credit Amount and Details
The credit is equal to $10,000.
The taxpayer may carry forward any excess credit over the amount of tax due for up to eight years.
Dana R. Borys, An Accountancy Corporation is a boutique tax consulting, compliance, and representation firm working with start-up/emerging growth companies in the cannabis industry. Building connections beyond the code