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AB-1948 Taxation: cannabis.(2019-2020)

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Date Published: 01/17/2020 09:00 PM
AB1948:v99#DOCUMENT


CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Assembly Bill
No. 1948

Introduced by Assembly Members Bonta, Cooley, Jones-Sawyer, and Lackey
(Coauthor: Assembly Member Mark Stone)

January 17, 2020

An act to add Section 26019 to the Business and Professions Code, and to amend Sections 34011 and 34012 of, and to add Section 34017.5 to, the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


AB 1948, as introduced, Bonta. Taxation: cannabis.
The Control, Regulate and Tax Adult Use of Marijuana Act (AUMA), an initiative measure approved as Proposition 64 at the November 8, 2016, statewide general election, and additionally amended by statute, imposes duties on the Bureau of Cannabis Control in the Department of Consumer Affairs, the Department of Food and Agriculture, and the State Department of Public Health with respect to the creation, issuance, denial, suspension and revocation of commercial cannabis licenses, and imposes an excise tax commencing January 1, 2018, on the purchase of cannabis and cannabis products at the rate of 15% of the average market price of any retail sale by a cannabis retailer. Commencing January 1, 2018, AUMA also imposes a cultivation tax upon all cultivators on all harvested cannabis that enters the commercial market, at specified rates per dry-weight ounce of cannabis flowers and leaves. Existing law requires the California Department of Tax and Fee Administration to administer those taxes, and requires the revenues from those taxes to be deposited into the California Cannabis Tax Fund and to be continuously appropriated for specified purposes pursuant to a specified schedule. AUMA requires the Legislative Analyst’s Office to submit a report to the Legislature by January 1, 2020, with recommendations for adjustments to the tax rate to achieve the goals of undercutting illicit market prices and discouraging use by persons younger than 21 years of age while ensuring sufficient revenues are generated for specified programs. AUMA authorizes the Legislature to amend its provisions with a 2/3 vote of both houses to further its purposes and intent.
This bill would reduce that excise tax rate to 11% on and after the operative date of this bill until July 1, 2023, at which time the excise tax rate would revert back to 15%. The bill would suspend the imposition of the cultivation tax on and after the operative date of this bill until July 1, 2023. The bill would require the bureau, the Department of Food and Agriculture, and the California Department of Tax and Fee Administration to provide the Legislature with reports measuring the success of this bill, as specified.
This bill would make specified findings and declare that its provisions further the purposes and intent of the AUMA.
 This bill would take effect immediately as a tax levy, but its operative date would depend on its effective date.
Vote: 2/3   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature finds and declares all of the following:
(a) In 2016, California voters approved Proposition 64, the Control, Regulate and Tax Adult Use of Marijuana Act (AUMA). In its statement of purpose and intent, AUMA calls for regulating marijuana in a way to “prevent illegal production or distribution of marijuana,” “reduce barriers to entry into the legal, regulated market,” and “tax the growth and sale of marijuana in a way that drives out the illicit market for marijuana and discourages use by minors and abuse.”
(b) In 2017, the Legislature and the Governor passed Senate Bill 94 to merge the AUMA regulatory system with the state’s medical marijuana regulatory system known as the Medical Cannabis Regulation and Safety Act. Currently, taxes on legal cannabis products include a sales tax, a 15-percent excise tax, and a cultivation tax of $9.25 per ounce of flowers or $2.75 per ounce of leaves. The cumulative tax rate imposed by existing law is substantial and undermines the legal regulatory system if high taxes cause prices to far exceed those which are found on the illicit market.
(c) It is the intent of the Legislature that this act suspend the cultivation tax and reduce the rate of the excise tax for some of the first few years of that market as marijuana businesses come into that market.
(d) The primary goals of this act are to reduce the size of the state’s illicit cannabis market and to stimulate sales in the licensed, regulated, and taxed cannabis market. By temporarily reducing the tax burden on licensees, the act will encourage customers to continue to purchase cannabis and cannabis products from licensed businesses and will help ensure that the regulated cannabis market survives and thrives.
(e) Success for the act will be measured by the increase in the following metrics in the years after the provisions of this act take effect compared to those metrics in the years 2018, 2019, and 2020 before the act took effect:
(1) The number of businesses that applied for licenses from the Bureau of Cannabis Control and the Department of Food and Agriculture.
(2) The number of businesses that were issued licenses by the Bureau of Cannabis Control and the Department of Food and Agriculture annually.
(3) The total annual and quarterly sales by retailers.
(4) The total annual and quarterly cannabis-specific state tax receipts.
(f) It is the intent of the Legislature that if the revenues collected from the excise tax on cannabis are projected to be insufficient to adequately fund the reasonable regulatory costs described in subdivision (a) of Section 34019 of the Revenue and Taxation Code as well as the program funding allocations described in subdivisions (b) to (d), inclusive, of Section 34019 of the Revenue and Taxation Code, the Legislature will consider enacting subsequent legislation restoring the cultivation tax and the excise tax at the rates that existed before this act.

SEC. 2.

 Section 26019 is added to the Business and Professions Code, to read:

26019.
 (a) To measure the success of the act adding this section, the licensing authorities shall report to the Legislature by August 1, 2023:
(1) The following metrics for the years 2018 to 2023, inclusive:
(A) The number of businesses that applied for licenses from the bureau and the Department of Food and Agriculture annually.
(B) The number of businesses that were issued licenses by the bureau and the Department of Food and Agriculture annually.
(2) A comparison of the metrics listed in paragraph (1) as follows:
(A) The number of businesses that applied for licenses from the bureau and the Department of Food and Agriculture in the years 2018, 2019, and 2020 against those applied for in the years 2021 and 2022.
(B) The number of businesses that were issued licenses by the bureau and the Department of Food and Agriculture in the years 2018, 2019, and 2020 against those issued in the years 2021 and 2022.
(b) The report to the Legislature required by subdivision (a) shall be submitted in compliance with Section 9795 of the Government Code.

SEC. 3.

 Section 34011 of the Revenue and Taxation Code is amended to read:

34011.
 (a) (1) Effective January 1, 2018, On and after the operative date of the act amending this section, and before July 1, 2023, a cannabis excise tax shall be imposed upon purchasers of cannabis or cannabis products sold in this state at the rate of 15 11 percent of the average market price of any retail sale by a cannabis retailer. retailer, and at a rate of 15 percent on and after July 1, 2023. A purchaser’s liability for the cannabis excise tax is not extinguished until the cannabis excise tax has been paid to this state except that an invoice, receipt, or other document from a cannabis retailer given to the purchaser pursuant to this subdivision is sufficient to relieve the purchaser from further liability for the tax to which the invoice, receipt, or other document refers.
(2) Each cannabis retailer shall provide a purchaser with an invoice, receipt, or other document that includes a statement that reads: “The cannabis excise taxes are included in the total amount of this invoice.”
(3) The department may prescribe other means to display the cannabis excise tax on an invoice, receipt, or other document from a cannabis retailer given to the purchaser.
(b) (1) A distributor in an arm’s length transaction shall collect the cannabis excise tax from the cannabis retailer on or before 90 days after the sale or transfer of cannabis or cannabis product to the cannabis retailer. A distributor in a nonarm’s length transaction shall collect the cannabis excise tax from the cannabis retailer on or before 90 days after the sale or transfer of cannabis or cannabis product to the cannabis retailer, or at the time of retail sale by the cannabis retailer, whichever is earlier. A distributor shall report and remit the cannabis excise tax to the department pursuant to Section 34015. A cannabis retailer shall be responsible for collecting the cannabis excise tax from the purchaser and remitting the cannabis excise tax to the distributor in accordance with rules and procedures established under law and any regulations adopted by the department.
(2) A distributor shall provide an invoice, receipt, or other similar document to the cannabis retailer that identifies the licensee receiving the product, the distributor from which the product originates, including the associated unique identifier, the amount of cannabis excise tax, and any other information deemed necessary by the department. The department may authorize other forms of documentation under this paragraph.
(c) The excise tax imposed by this section shall be in addition to the sales and use tax imposed by the state and local governments.
(d) Gross receipts from the sale of cannabis or cannabis products for purposes of assessing the sales and use taxes tax under Part 1 (commencing with Section 6001) shall include the tax levied pursuant to this section.
(e) Cannabis or cannabis products shall not be sold to a purchaser unless the excise tax required by law has been paid by the purchaser at the time of sale.
(f) The sales and use taxes imposed by Part 1 (commencing with Section 6001) shall not apply to retail sales of medicinal cannabis, medicinal cannabis concentrate, edible medicinal cannabis products, or topical cannabis as those terms are defined in Division 10 (commencing with Section 26000) of the Business and Professions Code when a qualified patient or primary caregiver for a qualified patient provides their card issued under Section 11362.71 of the Health and Safety Code and a valid government-issued identification card.
(g) Nothing in this section shall be construed to impose an excise tax upon medicinal cannabis, or medicinal cannabis product, donated for no consideration to a medicinal cannabis patient pursuant to Section 26071 of the Business and Professions Code.

SEC. 4.

 Section 34012 of the Revenue and Taxation Code is amended to read:

34012.
 (a) Effective January 1, 2018, (1)  On and after January 1, 2018, and before the operative date of the act amending this section, and on and after July 1, 2023, there is hereby imposed a cultivation tax on all harvested cannabis that enters the commercial market upon all cultivators. The tax shall be due after the cannabis is harvested and enters the commercial market. The amounts specified in paragraph (2) shall be adjusted by the department for inflation as specified in subdivision (k), including during the period on and after January 1, 2020, and before July 1, 2023.

(1)

(2) (A) The tax for cannabis flowers shall be nine dollars and twenty-five cents ($9.25) per dry-weight ounce.

(2)

(B) The tax for cannabis leaves shall be set at two dollars and seventy-five cents ($2.75) per dry-weight ounce.
(b) The department may adjust the tax rate for cannabis leaves annually to reflect fluctuations in the relative price of cannabis flowers to cannabis leaves.
(c) The department may from time to time establish other categories of harvested cannabis, categories for unprocessed or frozen cannabis or immature plants, or cannabis that is shipped directly to manufacturers. These categories shall be taxed at their relative value compared with cannabis flowers.
(d) The department may prescribe by regulation a method and manner for payment of the cultivation tax that utilizes tax stamps or state-issued product bags that indicate that all required tax has been paid on the product to which the tax stamp is affixed or in which the cannabis is packaged.
(e) The tax stamps and product bags shall be of the designs, specifications, and denominations as may be prescribed by the department and may be purchased by any licensee under Division 10 (commencing with Section 26000) of the Business and Professions Code.
(f) Subsequent to the establishment of a tax stamp program, the department may by regulation provide that cannabis shall not be removed from a licensed cultivation facility or transported on a public highway unless in a state-issued product bag bearing a tax stamp in the proper denomination.
(g) The tax stamps and product bags shall be capable of being read by a scanning or similar device and must be traceable utilizing the track and trace system pursuant to Section 26068 of the Business and Professions Code.
(h) Cultivators shall be responsible for payment of the tax pursuant to regulations adopted by the department. A cultivator’s liability for the tax is not extinguished until the tax has been paid to this state except that an invoice, receipt, or other document from a distributor or manufacturer given to the cultivator pursuant to paragraph (3) is sufficient to relieve the cultivator from further liability for the tax to which the invoice, receipt, or other document refers. Cannabis shall not be sold unless the tax has been paid as provided in this part.
(1) A distributor shall collect the cultivation tax from a cultivator on all harvested cannabis that enters the commercial market. This paragraph shall not apply where a cultivator is not required to send, and does not send, the harvested cannabis to a distributor.
(2) (A) A manufacturer shall collect the cultivation tax from a cultivator on the first sale or transfer of unprocessed cannabis by a cultivator to a manufacturer. The manufacturer shall remit the cultivation tax collected on the cannabis product sold or transferred to a distributor for quality assurance, inspection, and testing, as described in Section 26110 of the Business and Professions Code. This paragraph shall not apply where a distributor collects the cultivation tax from a cultivator pursuant to paragraph (1).
(B) Notwithstanding subparagraph (A), the department may prescribe a substitute method and manner for collection and remittance of the cultivation tax under this paragraph, including a method and manner for collection of the cultivation tax by a distributor.
(3) A distributor or manufacturer shall provide to the cultivator, and a distributor that collects the cultivation tax from a manufacturer pursuant to paragraph (2) shall provide to the manufacturer, an invoice, receipt, or other similar document that identifies the licensee receiving the product, the cultivator from which the product originates, including the associated unique identifier, the amount of cultivation tax, and any other information deemed necessary by the department. The department may authorize other forms of documentation under this paragraph.
(4) The department may adopt regulations prescribing procedures for the refund of cultivation tax collected on cannabis or a cannabis product that fails quality assurance, inspection, and testing as described in Section 26110 of the Business and Professions Code.
(i) All cannabis removed from a cultivator’s premises, except for plant waste or medicinal cannabis or medicinal cannabis products designated for donation, shall be presumed to be sold and thereby taxable under this section.
(j) The tax imposed by this section shall be imposed on all cannabis cultivated in the state pursuant to rules and regulations promulgated by the department, but shall not apply to cannabis cultivated for personal use under Section 11362.1 of the Health and Safety Code or cultivated by a qualified patient or primary caregiver in accordance with the Compassionate Use Act of 1996 (Proposition 215), found in Section 11362.5 of the Health and Safety Code.
(k) Beginning January 1, 2020, the rates set forth in subdivisions (a), (b), and (c) shall be adjusted by the department annually thereafter for inflation.
(l) The Department of Food and Agriculture is not responsible for enforcing any provisions of the cultivation tax.

SEC. 5.

 Section 34017.5 is added to the Revenue and Taxation Code, to read:

34017.5.
 (a) To measure the success of the act adding this section, the department shall report to the Legislature by August 1, 2022, the following:
(1) The annual amount of total sales of cannabis and cannabis products by licensed retailers for the 2017–18, 2018–19, 2019–20, 2020–21, and 2021–22 fiscal years.
(2) The quarterly amount of total sales of cannabis and cannabis products by licensed retailers for the 2017–18, 2018–19, 2019–20, 2020–21, and 2021–22 fiscal years.
(3) The annual amount of state tax revenue from the cannabis cultivation and excise taxes for the 2017–18, 2018–19, 2019–20, 2020–21, and 2021–22 fiscal years.
(4) The quarterly amounts of state tax revenue from the cannabis cultivation and excise taxes for the 2017–18, 2018–19, 2019–20, 2020–21, and 2021–22 fiscal years.
(5) The comparative growth rates of sales and revenue from before and after the effective date of the act adding this section.
(b) The report to the Legislature required by subdivision (a) shall be submitted in compliance with Section 9795 of the Government Code.

SEC. 6.

 The Legislature finds and declares that this act furthers the purposes and intent of the Control, Regulate and Tax Adult Use of Marijuana Act.

SEC. 7.

  This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect. However, the provisions of this act shall become operative on the first day of the first calendar quarter commencing more than 30 days after the effective date of this act.