Focus on Washington D.C.
We were in the intermountain west last month, but let’s now
take a journey to our nation’s capital. Founded after the American Revolution
as the seat of government of the newly independent county, Washington D.C. was
named after George Washington, the first president of the United States and a
founding father of our nation. As the seat of the United States federal
government and several international organizations, Washington is an important
world political capital. The city, located on the Potomac River, bordering
Maryland and Virginia, is one of the most visited cities in the world, with
more than 20 million tourists annually.
How Is The Golden State's Cannabis State Tax Revenue Used?
Four years ago, California legalized recreational marijuana use and began collecting state tax on cannabis transactions. As we’ve previously explained, the Golden State laid out the following requirements for taxing marijuana:
- Standard state sales and use tax
- A 15 percent excise tax on retail purchasers of cannabis and cannabis products
- A tax on all harvested cannabis that enters the commercial market with rates ranging from $1.29 to $9.25 per ounce (depending if the harvest is flowers, leaves or a fresh plant)
- Local business taxes in some cities, sometimes as high as 15 percent
How Is California Using The Revenue Generated From This State Tax?
Leafly reports $635 million paid to California in state and local cannabis tax revenue in 2019: about $538 million to the state and $100 million to local sales tax coffers. Most of the funds went towards:
- Youth anti-drug programs (60 percent)
- The environment (20 percent)
- Public safety grants (20 percent)
Within these categories, programs receiving the revenue include (from most to least amount of funds received):
- Low-income children in child care
- Police and fire departments in cities with dispensaries
- Combatting illegal grows/encouraging wild land restoration
- At-risk youth
- Community reinvestment grants for social workers
- Safer roads
- Licensing and regulation for the cannabis industry
- Cannabis science and policy research
- Parks, etc.
What’s On The Horizon For California’s Cannabis State Taxes?
Despite the state’s ability to increase the revenue to these types of programs, annual cannabis sales are much lower than anticipated. Some believe it’s due to the complicated taxes and others cite California’s stringent regulations.
In an effort to increase the revenue from the state tax, Governor Newsom announced multiple provisions in the Golden State’s annual budget that would simplify the industry’s tax structure:
- Combine the current three licensing entities (the Bureau of Cannabis Control, the Department of Public Health, and the Department of Food and Agriculture) into one agency: the Department of Cannabis Control
- Shift the state tax collection responsibility to different parties along the supply chain; this would reduce how often the California Department of Tax and Fee Administration would need to adjust the markup rate (it’s currently every six months)
- Instead of the final distributor collecting and remitting the cultivation excise tax, the first distributor would be responsible for the state tax
- Make the retail excise tax the retailer’s responsibility rather than the distributor
- Lowering existing state taxes to encourage residents to purchase recreational cannabis legally
It will be interesting to see if Newsom’s proposals are passed and, if so, how they affect revenue collected from the cannabis industry’s state taxes.
Contact Us To Learn More!
Do want to learn more about the cannabis industry and how it may affect your business? Contact us today to find out how we might be able to help with this or any other multi-state tax issues your company may be facing.
Love Is In The Air: How Does Sales Tax Apply To Valentine's Day?
Do you have a romantic date planned for Valentine’s Day? As February 14 approaches, we thought it would be fun to take a look at a subject we love: how sales tax applies to different situations!
There’s a good chance your night will include thoughtful gifts, a delectable meal (with champagne or wine of course!) and romantic background music. Keep reading to discover how sales tax would apply to each part of the evening.
Focus on Montana
This month, let’s take a journey out west to the state of
Montana. It is the 43rd most populous and the 4th most
extensive in land area of the 50 states. It is the largest landlocked U.S.
State. It is slightly larger than Japan. It is the 4th largest state
in the United States after Alaska, Texas and California.
The state has several nicknames, although none of them are
official. They include “Big Sky Country” and the “Treasure State.” The state’s
slogans include “Land of the Shining Mountains” and “The Last Best Place.”
The western half of Montana contains numerous mountain
ranges. Smaller island ranges are found throughout the state. In all, 77 named
ranges are part of the Rocky Mountains. The eastern half of Montana is
characterized by western prairie terrain and badlands.
3 Important Sales Tax Predictions To Watch For In 2020
The world of sales tax has changed a lot in the past year. Following the Supreme Court’s Wayfair decision, 2019 was the year most states began requiring businesses to collect and remit sales tax, and then began making marketplace facilitators (such as Amazon or eBay) responsible for collecting and remitting the taxes on sales that came through their marketplaces.
What changes can we expect to see this year? Keep reading for three predictions we believe are just around the corner.
Guest Blog- International VAT/GST Rules on Tech Transactions
Special thanks to Richard Barrett for today's blog contribution! Clients often ask us if we also do VAT/GST consulting, and we tell them that the 50 U.S. states are plenty for us to handle. But we are happy to refer Richard and the Vatglobal team to our clients with international transactions.
Smartphone apps, music streaming services, e-books, anti-virus software. You would be hard pressed to find too many people who had not made a purchase of one of these items recently, or indeed anything which was delivered to them digitally, and often at the press of a button.
8 New State Tax Laws You Should Know About For 2020
In the state tax world, the beginning of the year means new legislation goes into effect. Are you curious about which laws changed at the beginning of the month? Keep reading for eight states with new and updated sales tax laws you won’t want to miss.
Georgia: 529 Plan State Tax Update
For Georgia residents using a 529 Plan to save for college expenses, state tax deductions will double to be:
- $4,000 per child for single taxpayers
- $8,000 per year for those filing jointly with a spouse
This deduction will be available beginning with the 2020 tax year.
Focus on Alabama
Last month, we were in the cold climate of Alaska. This
month we travel to the humid subtropical climate of Alabama, located in the
southeastern region of the united states. It is the 30th largest by
area and the 24th most populous of the 50 states. With a total of
1,500 miles of inland waterways, Alabama has the most of any state.
About 3/5 of the land area is a gentle plain with a general
descent towards the Mississippi River and Gulf of Mexico. The north Alabama
region is mostly mountainous, with the Tennessee River cutting a large valley
and creating numerous creeks, streams, rivers, and lakes. The state ranges from
sea level at Mobile Bay to over 1,800 feet in the Appalachian Mountains in the
northeast. The highest point is Mount Cheaha, at 2,423 feet.
How To Navigate The California Manufacturing Partial Sales and Use Tax Exemption
[Originally published December 31, 2019. Updated April 2025]
The California Manufacturing Partial Sales and Use Tax Exemption, which went into effect July 1, 2014, allows certain manufacturers and biotech companies to exempt a portion of sales and use tax on purchases of qualified equipment used in manufacturing and R&D (research and development). While it’s been around for a few years, it’s still a viable benefit for companies purchasing equipment.
Exemptions can get a little messy. Miles Consulting can help you navigate this particular one. Here’s what you can learn:
Article Index
- How To Take Advantage of the Exemption
• Overview of the exemption criteria
• Business types and qualifying NAICS codes
• Definition of “qualified tangible personal property”
• Requirements for proper use of the property - Benefits
• Financial impact of the exemption
• Immediate recognition of savings
• Update on recent legislative efforts and proposed changes - Documentation Requirements
• Importance of contemporaneous documentation
• Key areas of documentation (qualification, usage, financial implications)
• Risks of non-compliance and financial statement impacts - Opportunities for Refunds
• What to do if full sales tax was paid
• Refund process through the state or vendors
• Understanding the statute of limitations - How Miles Consulting Group Can Help
• Our approach to maximizing the exemption
• Third-party documentation and audit preparation
• Support for refund claims and financial compliance
Update: Originally set to expire on June 30, 2022, the exemption has been extended to remain in effect until June 30, 2030.
Would you like more information? Let’s talk. Reach out to us at info@milesconsultinggroup.com.
1. How To Take Advantage Of The California Manufacturing Partial Sales and Use Tax Exemption
Qualifications
To qualify, you need to meet the following criteria:
- Be engaged in certain types of business primarily engaged (50 percent or more of the time) in those lines of business described in the NAICS Codes for:
- Manufacturing (311100–339999)
- R&D in biotechnology (541711)
- R&D in the physical, engineering and life sciences (541712)
- Generation and production, or storage and distribution of electric power (22111–221118, 221122)
(Note: Effective January 1, 2018, the definition of “qualified person” was expanded to include businesses in electric power generation and distribution.) (CDTFA)
- Purchase “qualified tangible personal property.” This includes:
- Machinery and equipment
- Equipment or devices used or required to operate, control, regulate, or maintain the machinery
- Tangible personal property used in pollution control that meets established governmental standards
- Special purpose buildings and foundations used as an integral part of the manufacturing, processing, refining, fabricating or recycling process, or that constitute a research or storage facility used during those processes
- Special purpose buildings and foundations used as an integral part of the generation or production or storage and distribution of electric power
(Now specifically included under the exemption, as clarified by the CDTFA)
- Use that qualified tangible personal property in a qualified manner at least 50 percent of the time. Qualified manners include:
- Any stage of the manufacturing, processing, refining, fabricating or recycling process
- R&D
- To maintain, repair, measure or test any qualified tangible personal property described by the above
- The generation or production, or storage and distribution of electric power
- A contractor purchasing that property for use in the performance of a construction contract for a qualified person
2. Benefits
Benefits of this sales and use tax exemption include:
- Approximately 4 percent savings of the purchase price of qualified property.
- Because it’s a sales and use tax exemption, the benefit is recognized immediately upon purchase.
3. Documentation
Proper documentation is incredibly important when taking advantage of the California Manufacturing Partial Sales and Use Tax Exemption. If you plan to take advantage of the exemption, documentation is key!
Although it may seem straightforward at first, sustaining the benefit is more complicated than simply issuing an exemption certificate. If you take advantage of this sales and use tax exemption, it’s important to remember:
- Qualified purchasers must be ready to document various levels of qualification and maintain supporting data. For example, review various company cost centers to see if any will qualify as an “establishment” for manufacturing or R&D purposes. Also, be ready to document usage in California for the required time period.
- The exemption is taken today, but the audit will come later. Unlike fine wine, financial data doesn’t get better with age. In the tax world, we often use the phrase “contemporaneous documentation.” In other words, pull together the documentation today because the people responsible may not be there in the future, the asset may have moved or the tracking software may have changed. If you’ve ever worked on a project where you are digging through old file boxes, you know what I mean.
- There may be financial statement impact if documentation is not adequate to support a qualified taxpayer, use of property or type of property, among others. Consider this – your company places into service $10 million of qualified property, and thus claims a partial exemption of approximately $400,000. On your financial statements, you’ve capitalized a smaller amount of assets, and you are recording a lower amount of annual depreciation expense based upon the lesser overall cost reported. Now, imagine that your exemption is audited three years from now and disallowed (in total, or partially) because you don’t have supporting documentation. You have misstated your financial statements. And no financial auditor is going to be happy about that.
4. Opportunities for Refunds
In the event your business finds itself in a position where it paid the full sales tax rate on equipment that is eligible for the partial exemption, all is not lost. Refunds can be obtained directly from California or through your vendors; the period available for refund will depend upon your or your vendors’ statute of limitation. Generally, the statute of limitation is three years, but could be extended depending upon your facts and circumstances.
5. We Can Help With The California Manufacturing Partial Sales and Use Tax Exemption
Although more than a dozen pages of detailed regulations can be daunting, Miles Consulting Group can help you take maximum advantage of this valuable tax exemption!
- We’ll review all company operations to determine all business units that may qualify for the exemption to make sure you maximize your benefit.
- We’ll document each aspect of the process and test a sample of qualified assets like an auditor would (or will!). Our “deliverable” includes documentation of all these items in a convenient place in case of future audit.
- We’ll provide peace of mind! Similar to other documented tax “studies” (e.g. R&D, nexus, etc.), your financial auditor will take comfort in the advance documentation and support so that the 4 percent benefit is supportable. Most companies don’t consider doing their own R&D study – auditors like the third-party aspect of a detailed review, complete with memo, samples, etc. Similarly, this exemption should be independently reviewed and documented.
- We’ll prepare, document and file refund claims with California or your vendors as well.
While the foundational aspects of the exemption remain relevant, subsequent legislative changes have expanded its scope and duration. Therefore, to ensure compliance and maximize potential benefits, it’s advisable to consult the latest guidelines from the California Department of Tax and Fee Administration (CDTFA) or seek advice from tax professionals.
For the most current information, refer to the CDTFA’s official page on the Manufacturing and Research & Development Equipment Exemption.
Book a consultation, drop us a line, or send us an email at info@milesconsultinggroup.com.
What You Need To Know About The Wayfair Decision And How It Affected Sales Tax
Here we are, about 18 months after one of the biggest jolts to the sales tax landscape. On June 21, 2018, state sales tax completely changed when the U.S. Supreme Court established precedent for economic nexus through South Dakota v. Wayfair, Inc.
In the highly anticipated ruling, the Court ruled 5-4 in favor of overturning its 1992 Quill decision, which required sellers to have substantial physical presence before a state could enforce the sales tax collection responsibilities.
Writing for the Court’s majority, Justice Anthony Kennedy indicated, “The Court concludes that the physical presence rule of Quill is unsound and incorrect. The Court’s decisions in Quill Corp v. North Dakota, 504 U.S. 298 (1992) and National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753 (1967), should be, and now are, overruled.”
