Beware Of New Invoicing Rules And Taxes Starting In 2018 For California Cannabis Businesses

The California Department of Tax and Fee Administration (CDTFA) which oversees the reporting and collection of taxes for the California cannabis industry under Emergency Regulation 3700 is proposing a new category and tax rate for the cannabis cultivation tax which will take effect January 1, 2018, along with the other existing cultivation tax rates.

Cannabis Cultivation Tax

The new category and tax rate for the cannabis cultivation tax as approved by California voters on November 8, 2016 (Proposition 64), established a cultivation tax based on the dry-weight ounce of cannabis flowers and leaves. The CDTFA has proposed a new cannabis cultivation tax category for fresh cannabis plants at a rate of $1.29 per ounce.

The cultivation tax rates are:

  • $9.25 per dry-weight ounce of cannabis flowers,
  • $2.75 per dry-weight ounce of cannabis leaves, and
  • $1.29 per ounce of fresh cannabis plant.

All fresh cannabis plants must be weighed within two hours of harvesting.

The excise tax applies to all retail sales of cannabis and cannabis products starting January 1, 2018 including sales of cannabis and cannabis products retailers may have purchased prior to January 1, 2018.

If you are a cannabis retailer, you are required to collect the cannabis excise tax from your customers on each retail sale of cannabis or cannabis products starting January 1, 2018, and pay the excise tax to a distributor. Distributors are liable for paying the cannabis taxes to the CDTFA.

Invoice Requirements

Retailers are required to provide purchasers with a receipt or other similar document that includes the following statement – “The cannabis excise taxes are included in the total amount of this invoice.”

Recordkeeping

Every sale or transport of cannabis or cannabis products must be recorded on an invoice or receipt. Cannabis licensees are required to keep invoices for a minimum of seven years.

Distributors (or in some cases manufacturers) are responsible for collecting the cannabis cultivation and excise taxes, and the invoices they provide must include, among other specified requirements, the amount of tax collected.

Retailers, cultivators, and manufacturers must keep these invoices as verification that the appropriate tax was paid.

What Should You Do?

Start your marijuana business on the right track.  Be proactive and implement the proper cash management and accounting systems now.  Marijuana businesses who hire an experienced attorney-CPA should benefit in paying the least amount of tax under the tax code and if audited, the least audit adjustments and avoiding costly litigation. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, Walnut Creek and other California locations maximize your net profits and get you the best possible result.

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