Cannabis Business Tax

Frequently Asked Questions

Why is there a tax on cannabis businesses?

California voters approved Proposition 64, making adult-use cannabis (non-medical or “recreational”) cannabis use legal as of January 1, 2018. In order to mitigate the potential impacts of legalized cannabis use in the unincorporated areas of San Luis Obispo County, County voters passed Measure B-18, which created a Cannabis Business Tax (CBT) in the unincorporated areas of San Luis Obispo County. The CBT began July 1, 2018 at 4% of gross receipts and will automatically increase by 2% a year beginning July 1, 2020 to a maximum of 10%. The County Board of Supervisors may act to delay or reduce the tax rate increase each July.

Where is the cannabis tax in effect?

The Cannabis Business Tax is in effect in the unincorporated areas (outside of city limits) of San Luis Obispo County. The seven incorporated cities within the County may have their own taxes and rules about cannabis businesses. If you live or do business in one of the cities, please check with the city government for more information. However, even if your business is based in one of the incorporated cities (or outside of San Luis Obispo County), deliveries made in the unincorporated areas of the County are subject to the 4% tax.

Who pays the cannabis tax?

All Cannabis Related Businesses (CRB) are subject to the tax, except for “Testing” businesses.  If you are a nursery, cultivator, distributor, manufacturer, retailer, microbusiness or other CRB you are required to pay a 4% tax on gross receipts.

How is the tax collected?

The Auditor-Controller-Treasurer-Tax Collector (ACTTC) is responsible for collecting taxes in San Luis Obispo County. The ACTTC will issue reporting forms to all licensed cannabis businesses operating within the unincorporated areas of the County. 

When is the cannabis tax due?

The cannabis business tax is collected on a monthly basis and must be remitted to the ACTTC on or before the last day of the month following the collection period. For example, cannabis business taxes collected in August must be reported and remitted to the ACTTC on or before September 30th.

What part of a cannabis business is taxable?

The Cannabis Business Tax is based on gross receipts. Therefore, all revenue received by cannabis related businesses for cannabis-related sales or services are subject to the 4% CBT less any allowable exemptions or deductions.

What counts as "Gross Receipts"?

As approved by the voters, the CBT is based on gross receipts, which means all revenue, less any allowable exemptions or deductions. Unlike “net receipts” or “net income”, expenses and costs are not deducted from the taxable amount. Sales taxes and revenue already taxed in other local jurisdictions (cities and counties) may be deducted.

If you believe that any other exemptions or deductions apply, please contact the Tax Collector.

Cultivation businesses who also engage in other types of cannabis businesses (e.g. distributors, manufacturers, or delivery services) will need to report transfers of product from the cultivation business to the other business types and assign a Calculated Receipts value based on the current wholesale price. For more information, see the section on Vertically Integrated Transactions by Cultivators, below.

What happens if cannabis tax payments are late?

If reporting and remittance is not received by the last day of the following month, the tax due is subject to a 25% penalty. If late more than one month, an additional 25% penalty is due (For a maximum penalty of 50%). Additionally, late CBT payments are subject to a 1.5% interest assessment for every month they are late.  Please do not be late -- we do not want to collect penalties and interest.

What are vertically integrated transactions?

Many CRBs engage in more than one type of business (also known as “vertical integration”). For example, a local business may be engaged in cultivation, manufacturing, distribution, and delivery. Each of these business activities requires its own County Business License and must report the 4% CBT. Under current ACTTC policies, vertically integrated transactions where the cultivation business transfers cannabis to another type of business with the same owners must report these transactions on the ACTTC form for cultivators alongside their Gross Receipt transactions with third parties. Please note, ACTTC policies are subject to change and reporting requirements for vertically integrated transactions may be established in the future for other CRBs besides cultivators as additional track and trace information becomes available to the California Cannabis Authority. 

Example: Assume a cultivator has gross receipts of $15,000 for sales of cannabis to third-party businesses. Assume this cultivator also transfers 500 pounds of Outdoor-grown cannabis, 200 pounds of Indoor-grown cannabis, and 25 pounds of “trim” cannabis to a manufacturer under the same ownership (a “vertically integrated transaction”). The Tax Collector will supply the current wholesale price from the California Cannabis Authority or other third-party source. The reporting form should be completed as follows:

Example Cannabis Tax Reporting

Note: do not include actual receipts from internal transactions in Gross Receipts (Line 1), unless they are greater than the Calculated Receipts (Lines 2), in which case those transactions should not be included as part of the Calculated Receipts (Line 2).

 

Please contact the Tax Collector’s office if you have questions about completing your CBT Return form.