California to give tax credits for marijuana business expenses

By JOSH FRIEDMAN

Beginning next year, the state of California will allow cannabis business owners to receive tax credits for company expenses.

Federal law prohibits tax deductions for marijuana business expenses because cannabis sales remain illegal federally. Many states are now responding by indicating they will allow deductions for cannabis expenses that are not deductible under federal law.

At the end of June, Gov. Gavin Newsom signed into law AB 195, a broad cannabis tax relief bill. As part of the new law, California will allow two new tax credits for cannabis businesses for the tax years 2023 through 2027.

One of the credits is for “high-road” employers who meet certain employment requirements.

The other credit is for cannabis “equity” licensees. Business owners will be able to claim the credits against corporate franchise and income taxes or personal income taxes.

To qualify as a high-road cannabis employer, business owners must provide full-time employees salaries, group health insurance and retirement or pension benefits. Expenses that qualify for the high-road employer credit are: employment expenditures for full-time employees who are paid between 150 percent and 350 percent of the minimum wage; workforce development for employees; and safety-related equipment, training and services.

The high-road credit amounts to 25 percent of the qualified expenditure in the tax year up to $250,000. Taxpayers can carry forward the credit for up to eight years if it exceeds the amount of tax due for the year. The total amount of high-road credits given to all taxpayers for all tax years of the program may not exceed $20 million.

Marijuana business owners harmed by cannabis criminalization can qualify for a licensee fee waiver under the state’s cannabis equity program. Those business owners will also be able to claim a cannabis equity licensee tax credit of $10,000.