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SB-475 Cannabis: trade samples: cultivation tax: exemption.(2019-2020)

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Date Published: 04/04/2019 09:00 PM
SB475:v97#DOCUMENT

Amended  IN  Senate  April 04, 2019
Amended  IN  Senate  March 26, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Senate Bill No. 475


Introduced by Senator Skinner

February 21, 2019


An act to add Section 26153.1 to the Business and Professions Code, and to amend Section 34012 of, and to add Sections 6366.7 and 34012.2 to, the Revenue and Taxation Code, relating to cannabis.


LEGISLATIVE COUNSEL'S DIGEST


SB 475, as amended, Skinner. Cannabis: trade samples: cultivation tax: exemption.
The Control, Regulate and Tax Adult Use of Marijuana Act of 2016 (AUMA), an initiative measure approved as Proposition 64 at the November 8, 2016, statewide general election, authorizes a person who obtains a state license under AUMA to engage in commercial adult-use cannabis activity pursuant to that license and applicable local ordinances. AUMA authorizes the Legislature to amend the act to further the purposes and intent of the act with a 2/32/3 vote of the membership of both houses of the Legislature, except as provided. The Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), among other things, consolidates the licensure and regulation of commercial medicinal and adult-use cannabis activities. MAUCRSA gives the Bureau of Cannabis Control in the Department of Consumer Affairs the power, duty, purpose, responsibility, and jurisdiction to regulate commercial cannabis activity in the state as provided by the act. AUMA also prohibits a licensee from giving away any amount of cannabis or cannabis product as part of a business promotion or other commercial activity.
This bill, on and after January 1, 2020, bill would allow a licensee to designate cannabis or a cannabis product as a trade sample at any time while the cannabis or cannabis product is in the possession of the licensee and would impose specific requirements on the licensee making the designation. This The bill would prohibit the sale or donation of cannabis or a cannabis product that is designated a trade sample, but would allow those trade samples to be given for no consideration to an employee of the licensee that designated the trade sample or to another licensee. The bill would require a trade sample to be given only for specified purposes. The bill would require trade samples given to another licensee to be recorded in the track and trace system and would require a licensee to maintain records of cannabis trade samples given to employees. The bill would prohibit an employee of a licensee from possessing or transporting trade samples in excess of specified amounts. The bill would allow the bureau to establish by regulation a limit on the quantity of cannabis and cannabis goods designated by a licensee as a trade sample, as specified.
MAUCRSA provides that cannabis batches are subject to quality assurance and testing prior to sale at a retailer, microbusiness, or specified nonprofit, except as provided.
This bill would require cannabis or cannabis products designated as a trade sample that are intended to be given to retailer licensees to be subject to quality assurance and testing.
AUMA, and as further amended by statute, imposes a cultivation tax on all harvested cannabis that enters the commercial market upon all cultivators and requires a distributor or a manufacturer to collect that tax from a cultivator, as specified. Existing law requires the California Department of Tax and Fee Administration to administer that tax.
This bill, on and after January 1, 2020, would exempt from the cultivation tax the cultivation of all harvested cannabis that has been, or will be, designated a trade sample and all harvested cannabis that is used to manufacture a cannabis product that is designated a trade sample. This bill would require the department to adopt regulations prescribing the procedures for how the exemption will be implemented, including, but not limited to, procedures for the refund or credit of any cultivation tax paid or collected before the cannabis is designated as a trade sample or is used to manufacture cannabis product that is designated as a trade sample.
Existing state sales and use tax laws impose a tax on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state of, or on the storage, use, or other consumption in this state of, tangible personal property purchased from a retailer for storage, use, or other consumption in this state. The Sales and Use Tax Law provides various exemptions from those taxes.
This bill would provide an exemption from those taxes for the sale of, or the storage, use, or consumption of, cannabis or a cannabis product that will be, or has been, designated a trade sample by a licensee under MAUCRSA, as specified.
The Bradley-Burns Uniform Local Sales and Use Tax Law authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law, and existing laws authorize districts, as specified, to impose transactions and use taxes in accordance with the Transactions and Use Tax Law, which generally conforms to the Sales and Use Tax Law. Amendments to the Sales and Use Tax Law are automatically incorporated into the local tax laws.
Existing law requires the state to reimburse counties and cities for revenue losses caused by the enactment of sales and use tax exemptions.
This bill would provide that, notwithstanding Section 2230 of the Revenue and Taxation Code, no appropriation is made and the state shall not reimburse any local agencies for sales and use tax revenues lost by them pursuant to this bill.
Vote: 2/3   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

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


SECTION 1.

 Section 26153.1 is added to the Business and Professions Code, to read:

26153.1.
 (a) On and after January 1, 2020, a A licensee may designate cannabis or a cannabis product as a trade sample at any time while the cannabis or cannabis product is in the possession of the licensee.
(b) Upon the designation of the cannabis or cannabis product as a trade sample, the licensee shall do both of the following:
(1) Record the associated quantity, product type, and unique identifiers of the cannabis or cannabis product into the track and trace program established pursuant to Section 26067.
(2) Label the cannabis or cannabis product with the following: “TRADE SAMPLE. NOT FOR RESALE OR DONATION.”
(c) Cannabis or cannabis products designated as a trade sample may be transported between licensees by an employee of a licensee.
(d) (1) Cannabis or cannabis products designated as a trade sample shall not be sold or donated by any licensee or any other person. licensee.
(2) Notwithstanding Section 26153, cannabis or cannabis products designated as a trade sample may be given for no compensation to an employee of the licensee that designated the trade sample or to another licensee, subject to all the following requirements:
(A) A trade sample shall only be given for the purposes of conducting research and development, education, or targeted advertising to licensees about new or existing cannabis or cannabis products.

(A)

(B) Cannabis or cannabis products designated as a trade sample given to another licensee shall be recorded in the track and trace system pursuant to Section 26067.

(B)

(C) A licensee shall maintain records of cannabis or cannabis products designated as a trade sample that are given to employees.

(C)

(D) An employee of the licensee shall not possess or transport trade samples in amounts exceeding the following:
(i) Twenty-eight and one-half grams of cannabis not in the form of concentrated nonconcentrated cannabis.
(ii) Eight grams of cannabis in the form of concentrated cannabis, including as concentrated cannabis contained in cannabis products.
(iii) Six living immature cannabis plants.
(3) Cannabis or cannabis products may be consumed by the licensee or an employee of the licensee.
(4) Cannabis or cannabis products shall not be given to a retail customer.
(e) (1) The bureau may establish by regulation a limit on the quantity of cannabis and cannabis goods designated by a licensee as trade samples.
(2) The bureau shall not establish a limit pursuant to this subdivision that is less than 2 percent of each batch.
(f) Cannabis or cannabis products designated as a trade sample that are intended to be given to retailer licensees shall be subject to quality assurance and testing pursuant to Section 26110.

SEC. 2.

 Section 6366.7 is added to the Revenue and Taxation Code, to read:

6366.7.
 (a) On and after January 1, 2020, there are exempted from the taxes imposed by this part, the gross receipts from the sale in this state of, and the storage, use, or other consumption in this state of, cannabis or a cannabis product that will be or has been designated a trade sample by a cannabis licensee pursuant to Section 26153.1 of the Business and Professions Code.
(b) The exemption specified in subdivision (a) shall apply to a sale in this state of cannabis or a cannabis product by a cannabis licensee to a designating cannabis licensee only if either of the following occur:
(1) The cannabis licensee has received a resale certificate from the designating cannabis licensee and the designating cannabis licensee that provided the resale certificate later withdraws that cannabis or cannabis product described in the resale certificate from its inventory to designate the cannabis or cannabis product as a trade sample pursuant to Section 26153.1 of the Business and Professions Code.
(2) The designating cannabis licensee certifies in writing, in such a form as the department may prescribe, to the cannabis licensee that sells cannabis or a cannabis product to the designating cannabis licensee that the cannabis or cannabis product will be designated a trade sample pursuant to Section 26153.1 of the Business and Professions Code. The certification in writing shall relieve the cannabis licensee that sells the cannabis or cannabis product of liability for sales tax only if it is taken in good faith.
(c) (1) The exemption specified in subdivision (a) shall apply to the storage, use, or other consumption in this state of a cannabis trade sample only if the designating cannabis licensee withdraws cannabis or cannabis product from its inventory to designate the cannabis or cannabis product as a trade sample pursuant to Section 26153.1 of the Business and Professions Code.
(2) If a designating cannabis licensee uses the cannabis trade sample in a manner not consistent with Section 26153.1 of the Business and Professions Code, the designating cannabis licensee shall be liable for the payment of use tax.
(3) If the cannabis or cannabis product is sold after it has been designated a cannabis trade sample, the exemption provided in subdivision (a) shall not apply.
(d) For purposes of this section, all of the following terms shall apply:
(1) “Cannabis” and “cannabis product” shall have the same meaning as those terms are defined in Section 26001 of the Business and Professions Code.
(2) “Cannabis licensee” means a person licensed pursuant to Division 10 (commencing with Section 26000) of the Business and Professions Code.
(3) “Cannabis trade sample” means cannabis or a cannabis product that has been designated a trade sample by a cannabis licensee pursuant to Section 26153.1 of the Business and Professions Code.
(4) “Designating cannabis licensee” means a cannabis licensee that has designated cannabis or a cannabis product as a trade sample pursuant to Section 26153.1 of the Business and Professions Code.

SEC. 3.

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

34012.
 (a) Effective January 1, 2018, 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.
(1) The tax for cannabis flowers shall be nine dollars and twenty-five cents ($9.25) per dry-weight ounce.
(2) 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, shall be presumed to be sold and thereby taxable under this section, except as otherwise exempt pursuant to Section 34012.2.
(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 (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. 4.

 Section 34012.2 is added to the Revenue and Taxation Code, to read:

34012.2.
 (a) On and after January 1, 2020, there is exempt from the cultivation tax imposed pursuant to Section 34012, the cultivation of all harvested cannabis that will be, or has been, designated a trade sample pursuant to Section 26153.1 of the Business and Professions Code and all harvested cannabis that is used to manufacture a cannabis product that is designated a trade sample pursuant to Section 26153.1 of the Business and Professions Code.
(b) The department shall adopt regulations prescribing the procedures for how the exemption provided in subdivision (a) shall be implemented, including, but not limited to, the following:
(1) Procedures for providing certifications that relieve a cultivator, distributor, or manufacturer from liability for the cultivation tax pursuant to the exemption in subdivision (a).
(2) Procedures for the refund or credit of any cultivation tax paid or collected before the cannabis is designated as a trade sample or is used to manufacture a cannabis product that is designated as a trade sample.
(c) A person licensed under Division 10 (commencing with Section 26000) of the Business and Professions Code that sells cannabis exempt from the cultivation tax pursuant to subdivision (a) or sells any cannabis product that is manufactured with cannabis exempt from the cultivation tax pursuant to subdivision (a), shall be liable for the cultivation tax imposed by Section 34012 as if the person were a cultivator of the cannabis at the time of sale.
(d) A person licensed under Division 10 (commencing with Section 26000) of the Business and Professions Code shall keep records of any cannabis or cannabis product designated as a trade sample that was exempt from the cultivation tax pursuant to subdivision (a).

SEC. 5.

 Notwithstanding Section 2230 of the Revenue and Taxation Code, no appropriation is made by this act and the state shall not reimburse any local agency for any sales and use tax revenues lost by it under this act.