Marijuana businesses across California will be subject to new cannabis taxes starting January 1st. Depending on where your dispensary does business the tax rate can fluctuate. There are many questions and quite a bit of confusion when it comes to marijuana taxes for cannabis retailers.
Fortunately, the California Department of Tax and Fee Administration has release a video tutorial to simplify the new cannabis tax code. Basically there will be three different municipalities marijuana dispensaries will be paying taxes to: State taxes, District taxes, and City or County taxes. State marijuana taxes will be divided into three different categories: sales tax, excise tax, and use tax.
Today we’ll walk you through each tax mandate and provide your with some resources to help your dispensary understand the marijuana taxes that apply to you.
Marijuana Sales Tax
Every transaction made from your dispensary POS system will be taxed. Marijuana sales tax applies to cannabis flower, cannabis infused products, and cannabis related accessories. There are some exemption for medicinal cannabis sales but generally speaking every sale must include sales tax.
The State of California requires sales tax to be added at the point-of-sale for all purchases but there could be additional local taxes that must be added as well. Different areas of California have different sales tax rates so it’s important to find out what the sales tax is for your dispensary location. For example, Los Angeles has a sales tax rate of 9.5% however San Diego has a sales tax of only 7.75%. Learn what the tax rate is for marijuana retailer by using the comprehensive tax guide for cannabis businesses.
Cannabis Excise Tax
Unlike the marijuana sales tax, the cannabis excise tax has no exemptions for medical patients. All dispensary customers will be required to pay a 15% excise tax of the average market price. However, cannabis retailers will not be paying this tax to the State directly. Instead, dispensaries will pay the 15% excise tax directly to the distributor.
The excise tax will not need to be listed separately on the sales receipt but cannabis retailers will it must note that the excise tax is included in the total amount of each invoice. When basing the excise tax on the average market price it’s vital to understand that this based on the type of transaction. An arm’s length transaction is the wholesale price plus the retail mark-up. A non-arm’s length transaction is based on the cannabis retailers gross receipts from retail sale.
Dispensary Use Tax
Lastly, the State of California will also require marijuana dispensaries to pay a use tax. Cannabis use tax must be applied to any goods you use or consume that are purchased without paying sales tax.
The rate is exactly the same as your sales tax rate and typically is charged on items purchase outside of California. Also any products that are removed from retail inventory for person use are subject to the use tax.
It’s paramount to keep accurate record of all of your sales transactions in the case of an audit. New cannabis regulations stipulate that all marijuana dispensaries must keep accurate sales records and provide them upon request. These records can either be hard copies or digital records and must reflect all necessary marijuana taxes applied. Utilizing an advanced marijuana POS software will make this process easy. Sales records of commercial cannabis transactions must be kept on file for at least 7 years.
IndicaOnline POS system provides a simple solution for applying multiple tax rates to each sale. Dispensary staff simply create the three customer classifications, 18+ with medical marijuana ID card, 18+ with doctor recommendation, and 21+ with State ID, and set the associate tax rate preset for each. Schedule a demo today to learn how to add tax presets and download sales records to stay state compliant.