Governor Gavin Newsom signed Senate Bill 1059 into law on September 28, 2024, halting the double taxation that has plague the state’s cannabis industry since adult-use legalization.
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On September 28, 2024, Governor Gavin Newsom signed Senate Bill 1059 into law, putting an end to the double taxation that has been burdening California’s cannabis industry since adult-use legalization.
The bill essentially prohibits cities and counties from including the state’s cannabis excise tax when calculating local taxes for licensed cannabis retailers. In other words, local governments can no longer count the state’s 15% excise tax as part of a retailer's "gross receipts" for the purpose of calculating local taxes or fees.
California requires cannabis retailers to collect a 15% excise tax on the gross receipts of each retail sale, which also includes charges like delivery fees and any local taxes. This system has led to some frustrating complications for cannabis businesses.
The Double Taxation Problem
In places like Los Angeles, retailers were being required to include the 15% excise tax they collect from customers as part of their gross receipts when calculating their local cannabis tax. This created a weird loop where retailers ended up paying the state’s 15% excise tax on the city tax they collected, and then had to pay the city 15% on the tax they had already collected for the state. The result? Double taxation.
This situation put cannabis businesses in a tough spot. The state said it should be “first in line” for tax collection, while the cities also claimed that position. Retailers were left in a no-win situation—risking non-compliance and potential penalties from either the state or their local government.
Thankfully, with this new bill, the state has clarified that local governments must take a secondary position to the state excise tax, preventing the double taxation mess.
How Other States Handle It
Most states don’t make businesses pay tax on other taxes. In those states, taxes are calculated based on the base price of the cannabis products and services, like delivery. From there, they add on things like sales tax, excise tax, and municipal tax, but none of those taxes are calculated on top of each other. This keeps everything simpler and fairer—no tax-on-tax.
California’s Ongoing Tax Stacking Issue
Unfortunately, California (and some other states) still engages in a practice called "tax stacking," where retailers are forced to pay tax on top of tax. For instance, California requires retailers to pay the 15% excise tax on the city tax they collect. On top of that, retailers have to calculate sales tax on both the excise tax and the city tax, creating a tax-on-tax-on-tax situation. This has led to an unfair tax burden on cannabis businesses and their customers.
While SB 1059 is a step in the right direction by stopping double taxation, California still has some work to do in eliminating tax stacking entirely. It's a solid start, but there's more to be done to fully ease the tax pressure on the cannabis industry.
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