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AB-2792 Cannabis: excise tax: cultivation tax. (2021-2022)

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Date Published: 04/18/2022 09:00 PM
AB2792:v98#DOCUMENT

Amended  IN  Assembly  April 18, 2022

CALIFORNIA LEGISLATURE— 2021–2022 REGULAR SESSION

Assembly Bill
No. 2792

Introduced by Assembly Members Blanca Rubio and Cristina Garcia

February 18, 2022

An act to amend Sections 34010, 34011, 34012, 34012.5, and 34015 of the Revenue and Taxation Code, relating to taxation, and declaring the urgency thereof, to take effect immediately.


LEGISLATIVE COUNSEL'S DIGEST


AB 2792, as amended, Blanca Rubio. Cannabis: excise tax: cultivation tax.
(1) 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, 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 imposes an excise tax on upon purchasers of cannabis or cannabis products sold in this state at the rate of 15% of the average market price of any retail sale by a cannabis retailer. Existing law defines average market price in an arm’s length transaction to mean the average retail price determined by the wholesale cost of the cannabis or cannabis products sold or transferred to a cannabis retailer, plus a mark up, markup, as determined by the California Department of Tax and Fee Administration on a biannual basis in 6-month intervals. Existing law prohibited the department from increasing the mark-up markup amount during the period beginning on and after September 18, 2020, and before July 1, 2021.
AUMA imposes a separate cultivation tax on harvested cannabis that enters the commercial market, as specified. Existing law, beginning January 1, 2020, requires the California Department of Tax and Fee Administration to adjust the cultivation tax rate for inflation each calendar year, except for the 2021 calendar year, in which existing law prohibited the department from adjusting for inflation unless the adjustment was for an inflation rate less than zero.
MAUCRSA, for purposes of the California Cannabis Equity Act, requires the Department of Cannabis Control to develop and implement a program to provide waivers and deferrals for application fees, licensing fees, and renewal fees required by MAUCRSA, as specified.
This bill, from July 1, 2022, to July 1, 2025, inclusive, would prohibit the department from including any mark-up markup amount in the average market price in an arm’s length transaction for purposes of the cannabis excise tax, and would reduce the rate of the cannabis excise tax imposed on purchasers in a nonarm’s length transaction to 8%. The bill, from July 1, 2022, to July 1, 2025, inclusive, would suspend the imposition of the excise tax upon purchasers of cannabis or cannabis products sold in this state by licensees eligible for a fee waiver or deferral pursuant to the program established by the Department of Cannabis Control under the California Cannabis Equity Act. The bill would also suspend the imposition of the cultivation tax from July 1, 2022, to July 1, 2025, inclusive, and would discontinue the requirement that the department adjust the cultivation tax rate for inflation during the suspension.
(2) AUMA requires the cannabis retailer to collect the cannabis excise tax from the purchaser and to remit that tax to a distributor. Existing law requires the distributor to 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, as specified, and requires the distributor to collect the cultivation tax from a cultivator on all harvested cannabis that enters the commercial market, except as specified. Existing law requires the distributor to remit the cannabis excise tax and the cultivation tax to the department quarterly on or before the last day of the month following each quarterly period of 3 months. Existing law requires revenues from the excise and cultivation taxes to be deposited into the California Cannabis Tax Fund, which is continuously appropriated for specified purposes.
This bill would instead require the distributor to collect the cannabis excise tax from the cannabis retailer on or before 90 days after the cannabis or cannabis product was sold or transferred by the cannabis retailer to the purchaser. The bill would require the distributor to remit the cannabis excise taxes and cultivation taxes to the department quarterly on or before the last day of the month following the quarterly period in which the distributor collected the tax.
This bill would additionally state that any tax owed by a cultivator or cannabis retailer that has not been collected by a distributor is deemed a debt owed to the State of California by the cultivator or cannabis retailer.
(3) AUMA authorizes legislative amendment of its provisions with a 2/3 vote of both houses, without submission to the voters, to further its purposes and intent.
This bill would declare that its provisions further the purposes and intent of AUMA.
(4) This bill would declare that it is to take effect immediately as an urgency statute.
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 34010 of the Revenue and Taxation Code is amended to read:

34010.
 For purposes of this part:
(a) “Arm’s length transaction” shall mean a sale entered into in good faith and for valuable consideration that reflects the fair market value in the open market between two informed and willing parties, neither under any compulsion to participate in the transaction.
(b) “Average market price” shall mean both of the following:
(1) (A) In an arm’s length transaction, the average retail price determined by the wholesale cost of the cannabis or cannabis products sold or transferred to a cannabis retailer, plus a mark-up, markup, as determined by the department on a biannual basis in six-month intervals.
(B) Notwithstanding subparagraph (A), the department shall not increase the mark-up markup amount during the period beginning on and after September 18, 2020, and before July 1, 2021.
(C) Notwithstanding subparagraph (A), during the period beginning on and after July 1, 2022, and before July 1, 2025, the average market price in an arm’s length transaction shall not include any mark-up markup amount.
(2) In a nonarm’s length transaction, the cannabis retailer’s gross receipts from the retail sale of the cannabis or cannabis products.
(c) “Department” means the California Department of Tax and Fee Administration or its successor agency.
(d) “Tax Fund” means the California Cannabis Tax Fund created by Section 34018.
(e) “Cannabis” has the same meaning as set forth in Section 11018 of the Health and Safety Code and shall also mean medicinal cannabis.
(f) “Cannabis products” has the same meaning as set forth in Section 11018.1 of the Health and Safety Code and shall also mean medicinal concentrates and medicinal cannabis products.
(g) “Cannabis flowers” means the dried flowers of the cannabis plant as defined by the board.
(h) “Cannabis leaves” means all parts of the cannabis plant other than cannabis flowers that are sold or consumed.
(i) “Cannabis retailer” means a person required to be licensed as a retailer, non-storefront nonstorefront retailer, microbusiness, or nonprofit pursuant to Division 10 (commencing with Section 26000) of the Business and Professions Code.
(j) “Cultivator” means all persons required to be licensed to cultivate cannabis pursuant to Division 10 (commencing with Section 26000) of the Business and Professions Code.
(k) “Distributor” means a person required to be licensed as a distributor pursuant to Division 10 (commencing with Section 26000) of the Business and Professions Code.
(l) “Enters the commercial market” means cannabis or cannabis products, except for immature cannabis plants and seeds, that complete and comply with a quality assurance review and testing, as described in Section 26110 of the Business and Professions Code.
(m) “Gross receipts” has the same meaning as set forth in Section 6012.
(n) “Microbusiness” has the same meaning as set forth in paragraph (3) of subdivision (a) of Section 26070 of the Business and Professions Code.
(o) “Nonprofit” has the same meaning as set forth in Section 26070.5 of the Business and Professions Code.
(p) “Person” has the same meaning as set forth in Section 6005.
(q) “Retail sale” has the same meaning as set forth in Section 6007.
(r) “Sale” and “purchase” mean any change of title or possession, exchange, or barter, conditional or otherwise, in any manner or by any means whatsoever, for consideration.
(s) “Transfer” means to grant, convey, hand over, assign, sell, exchange, or barter, in any manner or by any means, with or without consideration.
(t) “Unprocessed cannabis” includes cannabis flowers, cannabis leaves, or other categories of harvested cannabis, categories for unprocessed or frozen cannabis or immature plants, or cannabis that is shipped directly to manufacturers.
(u) “Manufacturer” means a person required to be licensed as a manufacturer pursuant to Division 10 (commencing with Section 26000) of the Business and Professions Code.
(v) “Medicinal cannabis patient” shall mean a qualified patient, as defined in Section 11362.7 of the Health and Safety Code, who possesses a physician’s recommendation that complies with Article 25 (commencing with Section 2525) of Chapter 5 of Division 2 of the Business and Professions Code, or a qualified patient or primary caregiver for a qualified patient issued a valid identification card pursuant to Section 11362.71 of the Health and Safety Code.
(w) “Designated for donation” shall mean medicinal cannabis donated by a cultivator to a cannabis retailer for subsequent donation to a medicinal cannabis patient pursuant to Section 26071 of the Business and Professions Code.

SEC. 2.

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

34011.
 (a) (1) Effective January 1, 2018, until July 1, 2022, a cannabis excise tax shall be imposed upon purchasers of cannabis or cannabis products sold in this state at the rate of 15 percent of the average market price of any retail sale by a cannabis retailer.
(A) Effective July 1, 2022, until July 1, 2025, a cannabis excise tax shall be imposed upon purchasers of cannabis or cannabis products sold in this state as follows:
(i) In an arm’s length transaction, at a rate of 15 percent of the average market price of any retail sale by a cannabis retailer.
(ii) In a nonarm’s length transaction, at a rate of 8 percent of the average market price of any retail sale by a cannabis retailer.
(iii) Notwithstanding clause (i) and (ii), the cannabis excise tax imposed in this subparagraph upon purchasers of cannabis or cannabis products sold in this state by a licensee who received a fee waiver or deferral pursuant to the program established by the Department of Cannabis Control under to Section 26249 of the Business and Professions Code, shall be zero dollars ($0).
(B) Effective July 1, 2025, a cannabis excise tax shall be imposed upon purchasers of cannabis or cannabis products sold in this state at the rate of 15 percent of the average market price of any retail sale by a cannabis retailer.
(2) 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.
(3) 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.”
(4) 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 or a nonarm’s length transaction shall collect the cannabis excise tax from the cannabis retailer on or before 90 days after the cannabis or cannabis product was sold or transferred by the cannabis retailer to the purchaser. 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 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.
(h) (1) Nothing in this section shall be construed to impose an excise tax upon cannabis or cannabis products designated as a trade sample pursuant to Section 26153.1 of the Business and Professions Code.
(2) A person licensed under Division 10 (commencing with Section 26000) of the Business and Professions Code that sells cannabis or cannabis products designated as a trade sample pursuant to Section 26153.1 of the Business and Professions Code shall be liable for the excise tax imposed by this section as if the person were a cannabis retailer at the time of sale.

SEC. 3.

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

34012.
 (a) (1) Except as provided in paragraph (2), 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.
(A) The tax for cannabis flowers shall be nine dollars and twenty-five cents ($9.25) per dry-weight ounce.
(B) The tax for cannabis leaves shall be set at two dollars and seventy-five cents ($2.75) per dry-weight ounce.
(2) Effective July 1, 2022, until July 1, 2025, the cannabis cultivation tax imposed in paragraph (1) shall be zero dollars ($0).
(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 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, 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 (Proposition 215), found in Section 11362.5 of the Health and Safety Code.
(k) (1) For the 2020 calendar year, the rates set forth in subdivisions (a), (b), and (c) shall be adjusted by the department for inflation.
(2) For the 2021 calendar year, the rates shall be those imposed for the 2020 calendar year in paragraph (1) and shall not be adjusted for inflation unless the adjustment is for an inflation rate that is less than zero.
(3) For the 2022 calendar year, until July 1, 2022, the rates shall be those imposed for the 2021 calendar year in paragraph (2) and shall be adjusted by the department for inflation.
(4) Beginning July 1, 2025, the rates imposed for the previous calendar year shall be adjusted by the department annually for inflation.
(l) The Department of Cannabis Control is not responsible for enforcing any provisions of the cultivation tax.

SEC. 4.

 Section 34012.5 of the Revenue and Taxation Code is amended to read:

34012.5.
 (a) The cultivation tax and cannabis excise tax required to be collected by the distributor, or required to be collected by the manufacturer pursuant to paragraph (2) of subdivision (h) of Section 34012, and any amount unreturned to the cultivator or cannabis retailer that is not tax but was collected from the cultivator or cannabis retailer under the representation by the distributor or the manufacturer that it was tax constitute debts owed by the distributor or the manufacturer to this state.
(b) A distributor or manufacturer that has collected any amount of tax in excess of the amount of tax imposed by this part and actually due from a cultivator or cannabis retailer, may refund such amount to the cultivator or cannabis retailer, even though such tax amount has already been paid over to the department and no corresponding credit or refund has yet been secured. The distributor or manufacturer may claim credit for that overpayment against the amount of tax imposed by this part that is due upon any other quarterly return, providing that credit is claimed in a return dated no later than three years from the date of overpayment.
(c) Any tax owed by a cultivator or cannabis retailer that has not been collected by a distributor shall be deemed a debt owed to the State of California by the cultivator or cannabis retailer.

(c)

(d) Any tax collected from a cultivator or cannabis retailer that has not been remitted to the department shall be deemed a debt owed to the State of California by the person required to collect and remit the tax.

SEC. 4.SEC. 5.

 Section 34015 of the Revenue and Taxation Code is amended to read:

34015.
 (a) Unless otherwise prescribed by the department pursuant to subdivision (c), the excise tax and cultivation tax imposed by this part is due and payable to the department quarterly on or before the last day of the month following the quarterly period in which the distributor collected the tax. On or before the last day of the month following each quarterly period, a return for the preceding quarterly period shall be filed with the department by each distributor using electronic media. Returns shall be authenticated in a form or pursuant to methods as may be prescribed by the department. If the cultivation tax is paid by stamp pursuant to subdivision (d) of Section 34012, the department may by regulation determine when and how the tax shall be paid.
(b) The department may require every person engaged in the cultivation, distribution, manufacturing, or retail sale of cannabis or cannabis products, or any other person required to be licensed pursuant to Division 10 (commencing with Section 26000) of the Business and Professions Code to file, on or before the 25th day of each month, a report using electronic media respecting the person’s inventory, purchases, and sales during the preceding month and any other information as the department may require to carry out the purposes of this part. Reports shall be authenticated in a form or pursuant to methods as may be prescribed by the department.
(c) The department may adopt regulations prescribing the due date for returns and remittances of excise tax collected by a distributor in an arm’s length transaction pursuant to subdivision (b) of Section 34011.
(d) The department may make examinations of the books and records of any person licensed, or required to be licensed, pursuant to Division 10 (commencing with Section 26000) of the Business and Professions Code, as it may deem necessary in carrying out this part.

SEC. 5.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. 6.SEC. 7.

 This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the California Constitution and shall go into immediate effect. The facts constituting the necessity are:
In order to ensure, as soon as possible, that the cannabis industry, especially local equity licensees, can continue to grow and expand the legal, regulated cannabis industry, it is necessary that this act go into immediate effect.