Nesteggg Accounting

Changes to Cannabis Excise and Cultivation Taxes Regulation

Special Notice

The California Department of Tax and Fee Administration (CDTFA) recently adopted Regulation 3700, Cannabis Excise and Cultivation Taxes, which addresses and clarifies the Cannabis Tax Law regarding the administration of the cannabis excise and cultivation taxes. The effective date of the regulation is September 4, 2019, unless otherwise specified in the regulation.

New wholesale cost definition

Effective January 1, 2020, the wholesale cost definition will mean the amount paid by the cannabis retailer for cannabis or cannabis products, including transportation charges. The wholesale cost plus a mark-up rate determined by the CDTFA is used to determine the average market price of the cannabis or cannabis products sold in an arm’s length transaction. The 15 percent cannabis excise tax applies to the average market price of cannabis or cannabis products sold in a retail sale. Prior to January 1, 2020, the wholesale cost is the amount paid by the retailer, including transportation charges and adding back any discounts or trade allowances.

Cannabis or cannabis products sold with cannabis accessories

Generally, the 15 percent cannabis excise tax does not apply to accessories. However, when a distributor does not separately state the sales price of the cannabis or cannabis products sold or transferred with cannabis accessories (for example, vape cartridges) to a cannabis retailer, the cost of the accessory is included in the calculation of the average market price when determining the cannabis excise tax due.

Other miscellaneous changes

•             Adds the definition of the California Cannabis Track-and-Trace system.

•             Clarifies the definition of cannabis accessories, cannabis flowers, and fresh cannabis plant.

•             Adds the cultivation tax invoicing requirements and clarifies the invoicing requirements when there are multiple licensees in a transaction.

o             The distributor that conducts the final quality assurance review on the cannabis or cannabis products is responsible for reporting and paying the cultivation tax to the CDTFA.

•             Clarifies information cannabis retailers must include on their receipts to purchasers.

•             Clarifies how a cannabis retailer or a distributor shall handle any excess cannabis excise tax collected from a purchaser.

•             Clarifies when the cannabis excise tax shall be collected when there are multiple distributors involved in a transaction.

The distributor that supplies a retailer with cannabis or cannabis products is responsible for reporting and paying the cannabis excise tax to the CDTFA.

Please see the current text of Regulation 3700, Cannabis Excise and Cultivation Taxes.

For More Information

This special notice is intended to give you an overview of some of the requirements for the cannabis industry. We encourage you to read our online Tax Guide for Cannabis Businesses. You may also call our Customer Service Center at 1 800 400 7115 (CRS:711). Customer service representatives are available Monday through Friday from 8:00 a.m. to 5:00 p.m. (Pacific time), except state holidays. When calling, select the option for Special Taxes and Fees.

WILL CALIFORNIA LOWER THE CANNABIS TAX RATES?

WILL CALIFORNIA LOWER THE CANNABIS TAX RATES?

Legalization has been a bumpy road for California cannabis operators, and since January 1, owners are learning that it also comes at a price. The state’s steep taxes on cannabis businesses – with effective tax rates as high as 57% for some cannabis activities – have many operators bracing, and calling for a reduction in these so-called sin taxes. Consumers are also encountering price increases — prices are up about 15% compared to last year.

Cannabis operators are pushing lawmakers to scale back these taxes and prevent business owners from being tempted to remain in the black market because of the high costs of legalization. In response to advocacy efforts from the cannabis industry, California lawmakers proposed a bill this month that would drastically reduce excise and cultivation taxes on legal cannabis for a period of three years. As one of the bill’s authors, Rob Bonta, is quoted in the LA Times, lowering taxes on legal cannabis operators would be a way of “keeping customers at licensed stores and helping ensure the regulated market survives and thrives.”

In particular, the bill, AB 3157, would temporarily remove the state tax on cannabis cultivation, which is currently set at $9.25/oz for flowers and $2.75/oz for leaves. Additionally, it would lower the excise tax on cannabis purchases from 15 to 11 percent. Both of these changes would be welcome steps for the legal cannabis industry: the excise tax is one of the more confusing and onerous burdens on legal cannabis operators, so having it lessened would be particularly well-received. However, even after these changes, California’s effective tax rate would still be comparable to Colorado’s during its early legalization struggles. Therefore, it may not be enough to ward off the black market entirely.

Colorado took a similar approach when they rolled back cannabis taxes after operators were being pushed into the black market. As the Washington Post reported, in the immediate aftermath of legalization Colorado’s up-to-33% effective tax rate created a large market for illicit goods: “Camouflaged amid the legal medicinal and recreational marijuana market, the ever-adaptable underground market thrives. Some in law enforcement and on the street say it may be as strong as it’s ever been, so great is the unmet local and visitor demand.” California lawmakers are aware of the risks of overtaxation and the resulting effects.

Special Thanks to MARGOLIN & LAWRENCE for Content Share

 

California Cannabis Taxes and how they are shared

New Information –CDTFA has proposed adoption of cannabis taxes Regulation 3700, Cannabis Excise and Cultivation Taxes.

On November 8, 2016, California voters approved Proposition 64, Control, Regulate and Tax Adult Use of Marijuana Act. To align the requirements for licensing and regulation of medicinal and adult-use of commercial cannabis, Proposition 64 has been recently amended by Senate Bill (SB) 94. Among other changes, SB 94 repealed the Medical Cannabis Regulation and Safety Act (MCRSA) and included certain provisions of the MCRSA in the licensing provisions of Proposition 64. The consolidated provisions are now known as the Medicinal and Adult-Use of Cannabis Regulation and Safety Act (MAUCRSA), and the term marijuana was changed throughout the law to the term cannabis.

Effective November 9, 2016, certain sales of medicinal cannabis are exempt from sales and use tax. (See the Retailers section, under the heading, Proposition 64 Exempts Certain Medical Cannabis Sales from Sales and Use Tax)

Beginning January 1, 2018, two new cannabis taxes apply as follow:

  1. A 15 percent excise tax is imposed upon purchasers of cannabis and cannabis products. Retailers of cannabis and cannabis products are required to collect the 15 percent excise tax from the purchaser based on the average market price of any retail sale and pay it to their cannabis distributor.
  2. A cultivation tax is imposed upon cannabis cultivators on all harvested cannabis that enters the commercial market. Cannabis cultivators are required to pay the cultivation tax to either their distributor or their manufacturer. The rate of the cultivation tax is:
    • $9.25 per dry-weight ounce of cannabis flowers that enter the commercial market, and
    • $2.75 per dry-weight ounce of cannabis leaves that enter the commercial market.

Senate Bill (SB) 94, which was approved by the Governor on June 27, 2017, amended several provisions in the cannabis tax law as enacted by Proposition 64. SB 94 provides that:

  • Distributors must collect the cannabis excise tax from retailers and the cultivation tax from cultivators or manufacturers.
  • Distributors must report and pay the cannabis excise tax and the cultivation tax to the CDTFA.

Sign up for the CDTFA Cannabis Outreach email listserv to receive the latest news on cannabis tax compliance and related issues like CDTFA-issued special notices and news releases.

Helping your business succeed is important to the CDTFA. To help you better understand the tax obligations specific to your cannabis business, we have created this guide detailing the tax issues and important information relevant to your industry.

Medical Cannabis In a Jar

How to Use This Guide

Each section of this guide contains important information relevant to cannabis businesses. The Getting Started section provides key resources related to registration, filing returns, account maintenance, and other information cannabis business may need.

The Distributors section covers topics related to the general application of tax to purchases and sales by distributors.

The Retailers section covers topics related to the general application of tax to purchases and sales by retailers. It also has information on exemptions that retailers may qualify for and the exemption certificates required.

The Cultivators section covers topics related to the general application of tax to cultivators and processors, the available exemptions and the exemption certificates required.

The Manufacturers section covers topics related to the general application of tax to purchases and sales by manufacturers.

Lastly, the Resources section provides links to useful information, including special notices web-based seminars, publications, statutory and regulatory information, and access to assistance from our Customer Service Representatives.

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