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Microbusinesses or Cannabis Businesses with Multiple Licenses: How to Calculate the Cannabis Excise Tax on Nonarm’s Length Transactions

Microbusinesses or Cannabis Businesses with Multiple Licenses: How to Calculate the Cannabis Excise Tax on Nonarm’s Length Transactions

Distributors or microbusinesses authorized to operate as distributors are required to calculate and collect the 15 percent cannabis excise tax from cannabis retailers on the sale or transfer of cannabis or cannabis products (cannabis) based on the average market price of the cannabis. In a nonarm’s length transaction, generally when a cannabis retailer is also the distributor, the average market price of the cannabis is equal to the gross receipts, and the 15 percent cannabis excise tax is applied to the gross receipts of the retail sale of the cannabis.

What is included in gross receipts?

Gross receipts include all charges related to the sale of cannabis, such as labor, services, and certain transportation charges. For example, as a retailer, when you deliver cannabis to your customers using your own vehicles and there is no explicit written agreement prior to the delivery that passes title to the purchaser before delivery, the charge for that delivery is included in the gross receipts subject to the cannabis excise tax. Additionally, if you add a separate amount to your customers’ invoices or receipts to cover a cannabis business tax required by your city, that amount is included in the gross receipts subject to the cannabis excise tax.

Example

You are a licensed microbusiness authorized to cultivate, distribute, and make retail sales of cannabis. You sell cannabis flowers to your retail customers for $35.00 per eighth of an ounce and charge $5.00 for delivery. You have an 8.5 percent sales tax rate and a 10 percent business tax. In this nonarm’s length transaction, the average market price is your gross receipts from the retail sale of the cannabis flowers.

Excise tax calculation:

Selling price of cannabis $35.00
Cannabis business tax $3.50
Delivery $5.00
Subtotal ($35.00 + $3.50 + $5.00) $43.50
Excise tax ($43.50 x 15%) $6.53

Sales tax calculation:

Subtotal ($43.50 + $6.53) $50.03
Sales tax ($50.03 x 8.5%) $4.25
Total due ($50.03 + $4.25) $54.28

The distribution part of your business is responsible for reporting and paying the cannabis excise tax of $6.53 ($43.50 × 15%) to the CDTFA on your cannabis tax return along with the cultivation tax that is due on the cannabis flowers that entered the commercial market. The cannabis retail part of your business is responsible for reporting and paying the sales tax of $4.25 ($50.03 x 8.5%) to the CDTFA on your sales and use tax return.

This email is intended to give you an overview of how the cannabis excise tax is calculated in a nonarm’s length transaction and does not address all requirements for the cannabis industry. We encourage you to read our online Tax Guide for Cannabis Businesses, or contact us at www.cdtfa.ca.gov/contact.htm.

Microbusinesses or Cannabis Businesses with Multiple Licenses Cultivation Tax Requirements

Microbusinesses or Cannabis
Businesses with Multiple Licenses
Cultivation Tax Requirements

You are subject to the same requirements as an independent/third party distributor if you are a cannabis business licensed as a microbusiness that is authorized to engage in distribution, or if you hold multiple cannabis license types to operate as a distributor as well as a cultivator and/or manufacturer. This email explains how and when to report the cultivation tax if you are a distributor that obtains cannabis or cannabis products from a related or affiliated cultivator and/or manufacturer.

Cultivator supplies cannabis to a related/affiliated manufacturer
If you are a microbusiness that cultivates and manufactures cannabis, or a related/affiliated cultivator and manufacturer, you are responsible for calculating the cultivation tax due based on the weight and category of the cannabis that you transfer from the cultivation part of your business to the manufacturing part of your business.

Manufacturer supplies cannabis products to a related/affiliated distributor
As a manufacturer, you are responsible for keeping track of the weight and category of the cannabis used to make a cannabis product. You should provide the weight and category of the cannabis to your related/affiliated distributor.

Distributing cannabis or cannabis products for a related/affiliated cultivator or manufacturer
As a distributor who distributes cannabis or cannabis products for a related/affiliated cultivator or manufacturer, you are responsible for keeping track of the weight and category of the cannabis or cannabis products. If you are also the distributor who arranges for the required testing and you conduct the quality assurance review, then you are responsible for reporting the weight and category of the cannabis or cannabis products entering the commercial market and paying the cultivation tax due to the California Department of Tax and Fee Administration (CDTFA) on the cannabis tax return.

When to report and pay the cultivation tax

  • Distributors are required to report and pay the cultivation tax to the CDTFA during the reporting period that the cannabis or cannabis products passes the required testing and quality assurance review and is considered to have entered the commercial market.
  • The electronic return and payment of the cultivation tax is due the last day of the month following the reporting period. For example, the filing deadline for the first quarter of 2018 is due by April 30, 2018.

This email is intended to give you an overview of some of the requirements for cannabis businesses that distribute cannabis on their own behalf and does not address all requirements for the cannabis industry. We encourage you to read our online Tax Guide for Cannabis Businesses, or contact us.

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