New HRCTC Tax Credit for Cannabis Businesses Explained
Understanding California’s High-Road Cannabis Tax Credit
To reward licensed cannabis retailers for providing good jobs, and to help level the playing field with illicit sellers, the California state legislature created the High-Road Cannabis Tax Credit (HRCTC) as part of Assembly Bill 195, a broad cannabis tax relief bill.
The HRCTC tax credit incentivizes storefront cannabis retailers to offer full-time employment opportunities with competitive benefits. By encouraging the creation of better jobs at legitimate cannabis businesses, the HRCTC helps create opportunities within communities home to these stores. This much-needed tax relief is also intended to help the licensed cannabis industry better compete with unlicensed sellers, which should encourage consumers to buy from legally-compliant retailers.
Eligible cannabis businesses in California can receive up to $250,000 per year from tax year 2023 through 2027, thanks to the High-Road Cannabis Tax Credit.
Purpose of HRCTC Tax Credits for the Cannabis Industry
The High-Road Cannabis Tax Credit (HRCTC) is an income tax incentive for licensed California cannabis retailers and micro-businesses that provide full-time employment in their communities.
Starting in 2023, qualifying businesses can receive a cannabis income tax credit of up to 25% of eligible employee costs—typically between $10,000 and $25,000 per employee—for a maximum total of $250,000 per taxable year through 2027.
What Expenses Qualify for the HRCTC?
Qualified expenditures for the HRCTC include wages, benefits, safety-related equipment and training, and workforce development services for full-time employees. Those employees must earn between 150% ($23.25) and 350% ($54.25) of the California state minimum wage ($15.50). Benefits can be included in the wage cost to help the employee meet that floor of 150% minimum wage, but they are not includible in the 350% ceiling calculation.
Eligible benefit costs include amounts paid for group health insurance, childcare, retirement, and pensions.
Costs for safety-related equipment and training include equipment used primarily for employee or customer safety, workplace hazard training for non-management employees, and other safety training programs.
How Much Money Can You Get Back from the HRCTC?
The High-Road Cannabis Tax Credit is designed to cover 25% of the qualified expenditures listed above, up to a maximum total of $250,000 per eligible business per taxable year.
Businesses that must be included in a combined report under R&TC Section 25101, or businesses that are authorized to be included in a combined report under R&TC Section 25101.15, the aggregate credit claimed by all included taxpayers is limited to $250,000 per year.
While businesses are encouraged to spend their credits by the end of the year in which they’re received, unused credits can be carried over for eight taxable years after the credit was generated.
HRCTC Benefits at a Glance
- Keep more of your profits by reducing your state tax liability
- Get rewarded for providing excellent employment opportunities in your community
- Carry forward unused cannabis credits for up to eight years
- Renew your HRCTC credit every year through at least 2027
Is Your Business Eligible for the HRCTC?
To qualify for the High-Road Cannabis Tax Credit, you must operate a retail cannabis business in California with at least one current Type-10 (retailer) or Type-12 (micro-business) license, pursuant to Division 10 of the Business and Professions Code.
You must also have full-time employees who work an average of 35 hours per week or earn an annual salary and receive employer-provided group health insurance and retirement or pension benefits.
HRCTC Qualifications at a Glance
- Possess a Type-10 or Type-12 California license
- Hire full-time employees (35+ hours per week or annual salary)
- Provide group health insurance and retirement/pension benefits
Discover if your California cannabis business may be eligible for the HRCTC by following the link below and answering a few questions in the right-hand column of the page.
Can Cannabis Delivery Services Qualify for HRCTC?
To qualify for HRCTC, cannabis retailers must have a storefront location. Delivery-only cannabis companies are not eligible for the tax credit, but brick-and-mortar retailers who also operate delivery services can qualify.
How Does the HRCTC Application Process Work?
To receive a High-Road Cannabis Tax Credit, the first thing you have to do is make a Tentative Credit Reservation (TCR) through the State of California Franchise Tax Board. The TCR must be submitted online, and you will receive an immediate confirmation.
The HRCTC reservation system will be available for the 2023 taxable year between July 1, 2023, and December 31, 2023. During that timeframe, a link to the system will be available on the Franchise Tax Board’s HRCTC webpage.
|Taxable year beginning||When you must request a reservation|
|January through July||July 1-31 of the taxable year|
|August through December||Within 30 days of the start of the taxable year|
Can You Get Help with Your HRCTC Application?
Claiming your HRCTC can be complicated, but Omega can provide you with the framework you need to obtain cannabis tax credits in California. Our tax credit experts work closely with your team to aid your business to qualify and obtain a cannabis tax credit.
Omega can assist with the application and commensurate year-end compliance to substantiate your cannabis tax credit for the State of California Franchise Tax Board.
Once you have completed the requisite compliance, your business can claim the California income tax credit as a direct offset to the liability of the corporation or business owners depending on your corporate structure.
Get the Maximum Cannabis Tax Credit for Your Business
At Omega Accounting Solutions, our knowledgeable team has several decades of combined experience negotiating with the State of California on tax credit programs for small and medium-sized businesses that are similar to the High-Road Cannabis Tax Credit.
We are the leading experts in tax credit processing and adhere strictly to federal and state regulations. Best of all, for a small upfront fee, we simplify the process so you can get the money you deserve. Contact us today for help obtaining the tax credits you’ve earned!