After proposition 64 was passed in 2016, California cannabis businesses knew there would be impending tax regulations for cultivators, manufacturers, retailers, and distributors. Earlier this week, the Bureau of Cannabis Control announced the two new taxes that will apply to retailers and cultivators.
All business will be required to obtain a sellers permit from the California Dept of Tax and Fee Administration (CDTFA). This permit is pre-requisite for any business making sales before applying to the California Department of Food and Agriculture, California Department of Consumer Affairs, or California Department of Public Health for a business license.
In addition to a sellers permit, distributors will be required to register with the CDTFA for tax permit. This is to ensure distributors are reporting and paying the two new taxes. Your probably thinking, 'I need a permit to pay taxes?' Yes, welcome to the new world of cannabis oversight.
Starting January 1st, 2018, the CDTFA will incur a 15% excise tax for cannabis purchasers. That's right, medical patients and adult-use customers will be effected directly by this new tax. Dispensaries and retailers are requires to collect the 15% excise tax at the point of purchase that will then be paid directly to the cannabis distributor. This tax will be in addition to the sales tax already placed on cannabis and cannabis products.
This tax will be exclusively for cannabis cultivators and will be dependent on the amount of cannabis produced. Any cannabis that enters the commercial market will be taxed and paid to the distributor or manufacturer based upon the nature of the transaction. The tax rates are as follows:
Cultivators will probably have to pay taxes from cannabis leaf to the manufacturers since leaf will largely be used for extraction. Distributors will receive the money from the cultivator cannabis flower tax.
Now that you know what to expect from the new tax system for 2018, you'll need to know how to go about filing these taxes. All cannabis related businesses that make sales will need to file sales and excise tax returns electronically. Once filed, businesses will pay sales and excise tax directly to the CDTFA. You will be required to file a return and report sales numbers on your return to the CDTFA, even if none of your sales are subject to sales tax.
Distributors will need to be extra diligent when filing their taxes. After they register with the CDTFA, (registration begins in November), they'll need to file their taxes and report money received from retailers, manufacturers, and cultivators.
While these taxes will definitely have a large impact on the commercial and medical cannabis industry, profits are still expected to soar. Hopefully these tax increases will help generate valuable funds for the State of California to spend on medical research, education, and environmental efforts. However as defined by Proposition 64, a large portion will be used to cover regulatory costs, university of implementation and regulation, and DUI protocols for law enforcement.