Puff, puff....Pass... The California Department of Tax and Fee Administration (CDTFA) adopted proposed regulation 3700, “Cannabis Excise and Cultivation Taxes” as recommended by staff.
CDTFA staff recommends the Department approve and authorize publication of the proposed emergency Regulation 3700, Cannabis Excise and Cultivation Taxes, as set forth in Exhibit 2, to:
- Define key terms including cannabis flowers, cannabis leaves, cultivator, distributor, fresh cannabis plant, manufacturer, ounce, plant waste, and wholesale cost;
- Explain when the cultivation tax should be collected when the testing requirement is waived pursuant to BPC section 26070(l);
- Specify the cultivation tax rates per ounce and clarify that the rates apply at a proportionate rate for any other quantity;
- Establish a new category and rate for fresh cannabis plant with respect to the cultivation tax because fresh or wet products do not fall within the statutory categories (cannabis flowers and leaves) that are taxed on a dry-weight basis;
- Clarify that the presumption that all cannabis removed from the cultivator’s premises, except for plant waste, is sold and thereby taxable pursuant to section 34012 of the Revenue and Taxation Code is rebuttable;
- Provide examples of reasons for which cannabis may be removed from a cultivator’s premises and not subject to the cultivation tax on that removal including, but are not limited to, fire, flood, pest control, storage (prior to testing), and testing;
- Specify that a distributor shall report and remit the cannabis excise tax due with the quarterly return for the period in which the distributor sells or transfers the cannabis or cannabis products to a cannabis retailer;
- Clarify that the penalty imposed under RTC section 34013(e) is mandatory and applies when the cannabis excise or cultivation tax is not paid timely;
- Specify that the amount of the penalty imposed under RTC section 34013(e) is 50 percent of the amount of the unpaid cannabis excise or cultivation tax; and
- Explain that a person seeking relief from the late payment penalty must file with the Department a statement under penalty of perjury setting forth the facts upon which the claim for relief is based.
Staff further recommends that the proposed regulation be promulgated as an emergency regulation pursuant to Government Code section 11346.1. to ensure that essential guidance is available to the cannabis industry when the CTL becomes operative on January 1, 2018.
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