Cannabis Business Income Tax
The Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), SB 94, passed on June 27, 2017. It established a comprehensive system to control and regulate the cultivation, distribution, transport, storage, manufacturing, processing, and sale of medicinal and adult-use cannabis, and related products.
The MAUCRSA defines the power and duties of the various state agencies responsible for controlling and regulating the commercial medicinal and adult-use cannabis industry.
As implementation of these new laws progresses, refer back to this webpage for updates on any impacts to income taxation.
Cannabis Tax Law
We provide information on cannabis law in California now and beginning in 2018. You can also review major California cannabis legislation since 1996.
Medical cannabis businesses should operate as a nonprofit cooperative or collective under current law.
The California Department of Justice published guidelines that state businesses may operate as statutory cooperatives (incorporated) or as a collective (either incorporated or unincorporated).
Cannabis businesses are not eligible for California income tax exemption. Although some medical cannabis businesses formally incorporate as nonprofit mutual benefit corporations or nonprofit mutual benefit cooperatives, they do not meet the requirements for income tax exemption described in Internal Revenue Code Section 501(c) or California Revenue and Taxation Code (R&TC) Section 23701.
Incorporated cooperatives, incorporated collectives, and unincorporated collectives must report income by filing an annual tax return. Incorporated entities generally file a Form 100, California Corporation Franchise or Income Tax Return.
Law Beginning 2018
Cannabis businesses who have already received any required licenses or permits from their local jurisdiction may apply for state licenses to operate from various agencies:
|Bureau of Cannabis Control||
Businesses operating under these state licenses can choose any form of valid business structure for their business. They are able to operate on a for-profit or not-for-profit basis. They are not eligible for California income tax exemption, as they do not meet the requirements.
Filing your tax return
Individuals (includes sole proprietors)
California taxes its residents on all income, including income from cannabis related activities. California taxes non-residents on income from California sources.
Individuals operating their cannabis business as a sole proprietorship report their business activities on Federal Schedule C (Form 1040) Profit or Loss from Business.
Find out if you have an income tax return filing requirement: Do I need to file? (Individuals)
All income apportioned to California by business entities is taxable. Cannabis-related activities conducted in California by business entities, including entities organized as nonprofit entities/businesses, are also taxable.
Refer to Businesses - Filing Information to:
- Find out if you have an income tax return filing requirement.
- Obtain form requirements.
Deductions and Credits
- Individuals1: If your cannabis business operates under California's personal income tax law, you may deduct cost of goods sold (COGS). However, you cannot deduct other business expenses, such as rent and wages.
- Corporations and Unincorporated Associations2: If your cannabis business entity operates under California's corporation tax law, you can deduct COGS, and ordinary and necessary business expenses.
- Tax Credits: Cannabis businesses may be eligible to generate tax credits if they meet the specific requirements for the particular credit. The tax credits of a cannabis business that operates as a cooperative or collective generally do not flow through to the members.
It’s very important to keep accurate and complete records. We understand the challenges facing the cannabis industry, but California law requires that you keep sales and purchase records, receipts, and normal books of account to support your income and deductions. Find additional keeping records information.
Paying your Tax
To make a payment, refer to Payment Options.
Generally, we do not accept cash payment for taxes. If paying in cash is necessary to avoid undue hardship, you may receive an exemption.
Sales, Use, and Cannabis Tax Information
For information on sales, use, and cannabis tax, go to the California Department of Tax and Fee Administration.
For questions regarding income taxes related to cannabis businesses, email: FTB Cannabis.
- Includes eligible business entities operating under the California Personal Income Tax Law in Part 10 of the California Revenue and Taxation Code. ↵
- Includes eligible business entities electing to be taxed as a corporation, non-profit organizations, and collectives. These entities/organizations are taxed under the California Corporation Tax Law in Part 11 of the California Revenue and Taxation Code.↵
Help Us Improve Our Website
Don't include social security numbers or other personal/confidential information.
Thank you for your help.
If you need assistance, contact us.
Oops! Something went wrong.
We appreciate your feedback. Please try again later