Jin Kim

California cannabis businesses face many tax challenges. From the infamous IRC 280E (which effectively denies business tax deductions) to the Office of Chief Counsel’s position on COGS for cannabis businesses, marijuana entrepreneurs operate in a hostile Federal tax environment. While California has legalized recreational marijuana and fostered a thriving cannabis industry, it has also imposed burdensome tax regulations that heavily tax cannabis dispensaries. This article will detail common cannabis taxation issues and tax resolution options with the IRS, CDTFA, and other California tax agencies.

Many California businesses are vulnerable to sales tax audits conducted by the CDTFA, but marijuana dispensaries are particularly vulnerable due to the frequency of return filings and cannabis-specific taxes imposed by the State of California that are collected via the CDTFA.