Cannabis Business Readiness Guide: 5. Tax Requirements
Businesses engaged in the cultivation or manufacturing of cannabis/cannabis products within the unincorporated areas of Sonoma County are required to pay county taxes.
Cannabis businesses are also likely to be subject to both federal and state taxes. Entrepreneurs are strongly advised to consult with a tax professional as they consider business activity, organizational structure and location. For reference, federal and state taxing agencies are described below.
The California State Board of Equalization (BOE)
If you own a business in California that sells medical cannabis and cannabis-related products, you must register with the California Board of Equalization for a seller's permit and regularly file sales and use tax returns. The BOE provides guidance to help you understand tax obligations specific to the cannabis industry. In addition BOE staff is available to meet with you at your business location to provide a personal consultation to help you correctly report and pay your sales and use taxes.
Internal Revenue Service
All for-profit ventures are subject to federal income taxes. Under Internal Revenue Code (IRC) Section 280E, the IRS does not allow businesses involved in “trafficking of controlled substances” to deduct ordinary and necessary business expenses, but does require the payment of federal income taxes. For more information please see memo 201504011 issued by the IRS Chief Counsel on 1/23/2015.
County Business Property Tax
- Business property and some personal property is taxable.
- Machinery, equipment, tools, furniture, fixtures, and leasehold improvements held or used in connection with a trade or business are taxable.
- Supplies on hand, demonstration equipment, and construction in-progress are also assessable.
- All costs before trade-in should be reported whether capitalized, expensed, or fully depreciated.
- Inventory held for sale, application software and licensed vehicles are not taxable.
Unlike real property in California, business property and taxable personal property are appraised annually at full market value. Several types of property statements are used to assist the Assessor to determine the taxable value of business and personal property.
- You can download any of these forms and learn more by visiting the Sonoma County Assessor Office: Business and Personal Property Assessment
County Business Taxes
Measure A, the Sonoma County Cannabis Business Tax, passed on March 7, 2017, requires all businesses engaged in the commercial cannabis industry within the unincorporated areas of Sonoma County to pay taxes. Commercial cannabis taxes are calculated and paid each year based on quarterly periods:
- 1st Quarter: July 1 through September 30
- 2nd Quarter: October 1 through December 31
- 3rd Quarter: January 1 through March 31
- 4th Quarter: April 1 through June 30
Our goal is to make this transition as smooth as possible. To that end, this site will provide information relating to how the tax will be applied and how parties interested in operating a cannabis business can pay their taxes. Information covered will include: tax rates, tax forms and due dates, FAQs, and the ability to schedule an appointment with the Tax Collector’s office to pay taxes.
- Read next: 6. Employer Responsibilities