Registration & Licenses.
If you are a cannabis retailer, the California Department Of Tax And Fee Administration (“CDTFA”) requires that you:
- Register with the CDTFA for a seller’s permit.
- Charge and collect sales tax on your taxable retail sales of cannabis and/or cannabis products, and other products.
- Electronically file your sales and use tax returns and pay the sales and/or use tax to the CDTFA.
- Charge and collect the cannabis excise tax from your customers who purchase cannabis and/or cannabis products.
- Pay the cannabis excise tax that is due to your distributor. DO NOT remit cannabis excise tax on your sales and use tax return.
- Provide your customer with an invoice, receipt, or other document which includes the statement: “The cannabis excise taxes are included in the total amount of this invoice.” (Your customers are liable for the cannabis excise tax until it has been paid to the state or you provide them with such an invoice or receipt.)
In addition, you must also:
- Obtain a cannabis retail license issued by the Bureau of Cannabis Control within the Department of Consumer Affairs.
- Register with your city and/or county government to obtain a local license and meet all requirements to secure and maintain that license.
Cannabis Excise Tax
Effective January 1, 2018, a 15% excise tax is imposed upon retail purchasers of all cannabis and cannabis products, including medicinal cannabis and distributors are required to calculate and collect the amount of excise tax due on the cannabis or cannabis products they supply to you. The 15% excise tax is calculated based on the average market price from the retail sale. As a retailer, you are required to pay the cannabis excise tax to your distributor and collect the cannabis excise tax from your customers. No cannabis and/or cannabis products may be sold unless the cannabis excise tax is paid by the purchasers (consumers) at the time of sale. CBD products that contain cannabis are subject to the cannabis excise tax. CBD products which are derived from industrial hemp plants and do not contain cannabis are not subject to the cannabis excise tax, even if the CBD product contains trace amounts of Tetrahydrocannabinol (THC)
Sales Tax
Your sales of cannabis and cannabis products are generally subject to sales tax, unless your customer provides you with a valid Medical Marijuana Identification Card indicating they are a qualified patient or the primary caregiver for a qualified patient, along with a valid government-issued identification card. A retailer has the option to collect sales tax reimbursement from its customers but it is not mandatory that you do so. Regardless of whether you collected sales tax reimbursement from your customers, you as the retailer are liable for the sales tax on taxable sales, and you must report and pay the tax to the CDTFA on your sales and use tax return.
Cannabis Excise Tax Collection
The cannabis excise tax is imposed on the purchaser of cannabis and/or cannabis products. As a retailer, you are required to collect the cannabis excise tax from your customers and pay the tax to your distributor. Cannabis and/or cannabis products may not be sold unless the cannabis excise tax is paid by the purchaser at the time of sale. Beginning January 1, 2018, distributors who supply you with cannabis or cannabis products are required to calculate and collect the 15 percent cannabis excise tax from you. When you sell those items at retail you are required to collect the cannabis excise tax from your customer. If you had cannabis or cannabis products in your inventory on January 1, 2018, you are required to collect the 15% cannabis excise tax from your customer when you sell those items on or after January 1, 2018, and then pay that amount to a licensed distributor with whom you have established a business relationship.
Giving Free Samples and Discounted Sales.
As a cannabis retailer, you are prohibited from giving away any amount of cannabis or cannabis products unless authorized to do so by the Bureau of Cannabis Control (BCC), the agency that administer the cannabis licensing and activities for retailers. There may be times when you run a promotion which discounts the selling price of a cannabis or cannabis product, including, but not limited to, deep discounts or two for the price of one discounts. The cannabis excise tax and sales and use tax still apply to sales of discounted cannabis or cannabis product.
Collectives/Cooperatives
The Cannabis Tax Law provides that any person required to be licensed as a cannabis retailer, cultivator, distributor, and/or manufacturer collect the excise tax or cultivation tax, and for a person required to be licensed as a distributor, to obtain a permit and pay the taxes to the CDTFA. Existing collectives and cooperatives are not required to be licensed until January 9, 2019, and may continue to operate if the legal requirements for operating a cannabis collective or cooperative are observed. Collectives and cooperatives may not be responsible for collecting and paying the cannabis excise tax or cultivation tax; however, collectives and cooperatives selling cannabis or cannabis products at retail must pay sales tax.
Special Events.
The Bureau of Cannabis Control (BCC) provides that only licensed retailers or microbusinesses authorized to sell cannabis to retail customers may sell cannabis or cannabis products at a special event. The cannabis excise tax and generally the sales and use tax apply to any retail sales of cannabis or cannabis product.
Purchases Not For Resale
When you purchase a product that will be resold, you can purchase it without paying sales or use tax by providing the seller a valid and timely resale certificate. Sales tax will apply when you sell the product at retail. However, when you purchase a product for resale without paying sales tax but, instead of selling it, you consume or use the product, then you owe the use tax based upon the amount of the purchase price.
Local Government Cannabis Business Taxes
Some cities have enacted measures requiring that cannabis businesses located in their jurisdictions pay a cannabis business tax. If you add a separate amount to your customers’ invoices or receipts to cover your cannabis business tax, sales tax applies to the business tax amount.
Having access to a Board Certified Tax Attorney-CPA with specialized knowledge in the cannabis industry and more than 30 years of experience in advising businesses in tax compliance and planning, accounting systems and cash management can help you meet your challenges to minimize your taxes and conduct business in a manner that avoids prosecution by the Federal authorities and meets State & Local laws and regulations to ensure your cannabis business remains operational. Don’t delay call us today!
