San Francisco Tax Preparation / CPA: CA – California provides cannabis tax rates and registration information
The California Department of Tax and Fee Administration (CDTFA) reminds taxpayers that beginning January 1, 2018, harvested cannabis is subject to a cultivation tax and both cannabis and cannabis products are subject to a cannabis excise tax.
Cultivation Tax Rates
Cultivation tax rates are:
$9.25 per dry-weight ounce of cannabis flowers; and
$2.75 per dry-weight ounce of cannabis leaves.
The cultivation tax applies to all harvested cannabis that enters the commercial market. Cultivators must pay the cultivation tax to:
the distributor; or
to the manufacturer if the first transfer or sale of unprocessed cannabis is to a manufacturer.
Manufacturers who collect the cultivation tax are required to pay the tax to the distributor, and the distributor reports and pays the cultivation tax to the CDTFA.
Cannabis Excise Tax Rate
The cannabis excise tax is imposed on purchasers of all cannabis and cannabis products at a rate of 15% of the average market price when purchased at retail. Retailers must collect the cannabis excise tax from purchasers at the time of the retail sale and pay the tax to the distributor. The distributor reports and pays the cannabis excise tax to the CDTFA.
Average Market Price
When the sale to the retailer is an “arm’s length transaction,” meaning the consideration received reflects the fair market value between two parties under no requirement to participate in the transaction, the “average market price” is:
the wholesale cost of the cannabis or cannabis products sold or transferred to the retailer; plus
a mark-up predetermined by the CDTFA.
The wholesale cost is the amount paid by the retailer for the cannabis or cannabis products, including transportation charges, and any discounts or trade allowances added back. In an arm’s length transaction, the excise tax is not based on the retailer’s gross receipts. When the sale or transaction is not at arm’s length, the average market price is the cannabis retailer’s gross receipts from the retail sale of the cannabis or cannabis products.
Mark-Up Rate on Wholesale Cost
The current mark-up rate as set by the CDTFA is 60% for all cannabis and cannabis products. The CDTFA is required to determine the mark-up rate every six months.
Reporting and Remitting Cultivation and Cannabis Excise Tax
Distributors must register with the CDTFA for a cannabis tax permit to report and pay the cultivation tax and cannabis excise tax to the CDTFA. A microbusiness licensee is licensed to act as a distributor, among other things, and must comply with all the same requirements as a distributor.
Application of Sales and Use Tax
Sales and use tax applies to retail sales of cannabis and cannabis products, but does not apply to sales of medicinal cannabis and cannabis products where a purchaser provides his/her Medical Marijuana Identification Card issued by the California Department of Public Health and a valid government identification card.
Gross receipts from the sale of cannabis and cannabis products for purposes of sales and use tax include the excise tax.
Cannabis retailers, cultivators, manufacturers, and distributors making sales must register with the CDTFA for a seller’s permit to report and pay any sales and use tax due to the CDTFA. If a cannabis business already has a seller’s permit that was issued by the California Board of Equalization (BOE), it is not necessary to re-register for a seller’s permit with the CDTFA. It is important that a cannabis business timely obtain a valid resale certificate that is accepted in good faith from the purchaser if the business makes sales for resale.
Registration of Cannabis Business
Beginning November 20, 2017, a cannabis business can register for all the proper tax permits on the CDTFA website at: https://www.cdtfa.ca.gov. From the CDTFA homepage, taxpayers should click on the “Register” link and follow the prompt. When registering business activity, a cannabis business should select box number 3, cannabis business activities. Special Notice L-519, California Department of Tax and Fee Administration, November 2017