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Vape, Pot Tax Overhaul in California Governor’s Budget Plan

Jan. 10, 2020, 8:15 PM

California would impose a new tax on vaping products and overhaul how it taxes recreational pot under Democratic Gov. Gavin Newsom’s proposed state budget.

The vape tax would be $2 for every 40 milligrams of nicotine in the products, with revenue going to a new fund for administration and enforcement of vaping rules and to fund health care workforce programs. It would take effect Jan. 1, 2021 and generate about $32 million.

“This tax is long overdue,” Newsom said at news conference.

Newsom would consolidate regulatory oversight of recreational marijuana from three agencies to a single Department of Cannabis Control. He also wants to shift collection of tax on marijuana products later in the process to simplify it.

He said he expects marijuana taxes to generate $550 million in the 2020-21 fiscal year, up from $479 million in the current year.

The governor said he isn’t including $1.7 billion in federal funding through a state tax on managed care organizations. He signed A.B. 115 last fall to renew the tax, but is waiting for approval from the Centers for Medicare & Medicaid Services to approve the tax.

“We will follow through aggressively,” on seeking federal approval for the tax, Newsom said at his annual budget briefing.

If the federal approval comes, Newsom said, he would use some of the revenue to extend for 18 months a sales tax exemption on menstrual products and diapers that is set to expire at the end of 2021.

Newsom also would exempt new businesses from an $800 annual minimum franchise tax if they are limited liability companies, limited partnerships, or limited liability partnerships. The exemption would put the entities on the same footing as corporations, which already have a one-year exemption from the tax.

Newsom also has set aside $21.6 million in his proposed budget to implement and enforce A.B. 5, the state’s controversial employee classification law on contract work that took effect at the beginning of the year.

That would include $780,000 for the California Department of Justice to enforce the law, which codified a new standard for employers to classify their workers as employees or independent contractors.

The Department of Industrial Relations would receive $17.5 million to deal with the increased workload tied to the use of the workers’ compensation program and investigate workplace violations.

The Employment Development Department would get $3.4 million to train staff on applying a new test to determine employment status. Newsom added that his administration would create a website to help answer questions on A.B. 5.

The items are part of a proposed overall state budget of $222 billion, which lawmakers must enact by the July 1start of the new fiscal year.

To contact the reporters on this story: Laura Mahoney in Sacramento, Calif. at lmahoney@bloomberglaw.com; Tiffany Stecker in Washington at tstecker@bloombergenvironment.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Kathy Larsen at klarsen@bloombergtax.com

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