The High-Road Cannabis Tax Credit (HRCTC)
A Tax Credit for Cannabis Businesses
What is the HRCTC?
The High-Road Cannabis Tax Credit (HRCTC) is a nonrefundable California tax credit that can be captured by eligible cannabis businesses from January 1, 2023, to December 31, 2027. The credit is worth 25% of qualified expenditures during each tax year, with a maximum credit limit of $250,000 per year.
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To claim the HRCTC, qualified taxpayers are required to reserve the credit tentatively with the relevant authorities, beginning July 1, 2023. The credit can then be claimed when filing the tax return. It is important to note that the cumulative amount allocated for the HRCTC is $20 million and it is allowable on a first come, first served basis.
Each full-time employee can create
a tax credit between $10,000 and $25,000 for the business.
The cumulative amount allocated for the HRCTC is $20 million and it is allowable on a first come, first served basis.
Who Qualifies?
In order to qualify for the High-Road Cannabis Tax Credit (HRCTC), a taxpayer must operate a commercial cannabis business in California, paid W2 employees during the tax year, and hold either a Type-10 (retailer) or a Type-12 (micro-business) license in accordance with Division 10 of the Business and Professions Code.
What are qualified expenditures?
Qualified expenditures are used to calculate the HRCTC and refer to the amounts that are paid or incurred by a qualified business and include the following:
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Wages paid to full-time employees of the business.
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Note: Not all employees are required to meet these criteria, but it is necessary for their wages to be considered qualified expenditures.
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Full-time employees must either receive wages for services not less than an average of 35 hours per week or be salaried employees compensated for full-time employment.
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Full-time employees must be paid no less than 150% and no more than 350% of the state minimum wage.
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Qualified wages may include amounts paid by the employer for group health insurance, childcare benefits, employer contributions to employer-provided retirement benefits, or employer contributions to pension benefits.
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Wages paid to employees earning more than 350% of the state minimum wage do not qualify as expenditures.
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Safety-related equipment, training, and services.
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This includes equipment primarily used by employees of the cannabis licensee to ensure personal and occupational safety or the safety of customers.
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Training for non-management employees on workplace hazards, such as safety audits, security guards, security cameras, and fire risk mitigation.
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Workforce development and safety training for employees.
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This category encompasses various initiatives, including but not limited to:
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Joint labor-management training programs.
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Membership in a joint apprenticeship training committee registered by the Division of Apprentice Standards.
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Participation in a state-recognized high-road training partnership, as defined in Section 14005 of the Unemployment Insurance Code.
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How can I apply for the High-Road Cannabis Tax Credit?
The California Franchise Tax Board will begin accepting tentative tax credit applications on July 1, 2023. Contact Tax Credit Collective for assistance with determining eligibility, calculating the credit, filing and defending your claim under any potential examination.
Calculating the High-Road Cannabis Tax Credit can be time-consuming and labor-intensive. Substantiating this credit involves reviewing payroll and financial records and having knowledge and understanding of applicable tax laws.
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With Tax Credit Collective, however, you can benefit from our 20 years of tax credits experience, our proven track record, and the peace of mind of having a licensed tax attorney to provide audit defense, allowing you to confidently claim the HRCTC.
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Contact us at 214.414.9881 to discover how your cannabis dispensary business can maximize this tax credit!