One aspect of selling products at your dispensary that seems to create a lot of confusion for cannabis retailers is how to apply marijuana taxes. Every state tends to have small variances in how the tax structure is set up but once almost every state has a different tax rate for medical patients versus adult-use customers.
In this article, we’ll breakdown how marijuana taxes work in California but this guide should assist cannabis retailers in any state when setting up their dispensary POS system to apply taxes.
Cannabis Excise Tax
The cannabis excise tax is a percentage that a dispensary pays to the distributor for cannabis product that is applied to all transactions that include cannabis. In California, the cannabis excise tax is 15% and this based on the average market price at the point of sale.
The excise tax must be included in the price for consumers and often times cannabis retailers will include this percentage in the overall product price. One important thing to remember is that the 15% excise tax must be included in the subtotal so that the sales tax is calculated correctly. The excise tax does not have to be itemized on the sales receipt, however it is necessary to include that, "the cannabis excise taxes are included in the total amount of this invoice."
Applying Sales Tax
As with any product sold in conventional retailers, sales tax must be applied during checkout. There is usually state sales tax as well as local sales tax. Cannabis retailers can combine the percentages of state and local sales tax to add to the subtotal of the transaction. It is highly recommended that dispensaries consult with a certified CPA to determine the total sales tax that must be applied to each purchase.
Patients with a State Medical Marijuana card are the only exception to sales tax. In California, medical marijuana patients who are approved by the California Department of Public Health are exempt of all sales tax. The excise tax must still be included in the price of the products but due to their health condition medical marijuana patient can forego paying sales tax.
Some dispensaries sell items that don’t actually contain cannabis but are considered cannabis accessories or merchandise. Unfortunately for medical marijuana patients who possess a state medical marijuana card, they are not exempt from sales tax on products that do not contain cannabis.
In this case, the same percentage of sales tax will be applied to non-cannabis products, however the excise tax will not be applied to these items. Therefore, retailers can set the price of non-cannabis products with the usual markup and then just add the sales tax percentage to the subtotal.
Selecting Patient Type
If a cannabis retailer is serving medical patients and adult-use customers, there will different marijuana taxes that apply for each. IndicaOnline dispensary point-of-sale software has developed a sophisticated tax structure that is capable of handling these complexities. All existing customers will need to be assigned a specific patient type.
In California, there are three patient types: medical with state marijuana ID card, medical with doctor’s recommendation, and adult-use. Both medical patients can purchase cannabis products if they are over 18 years old but a medical patient with marijuana ID card is exempt from sales tax. Once your clientele have been categorized into the correct patient types, you will then to set the appropriate tax tier.
Setting Tax Tiers
After consulting with a certified accountant to verify the percentage of sales tax to be charged at your dispensary location, you can create multiple tax tiers for cannabis and non-cannabis products so that the correct amount of tax is charged for each patient type. Once these tax tiers have been established, IndicaOnline’s powerful POS software takes over and automatically calculates the taxes for each transaction.
It’s so important to ensure that your cannabis retailer is charging the correct amount of marijuana taxes so that you don’t find yourself in an audit from the IRS. We’ve worked tirelessly to create tax features that will simplify cannabis sales. To learn more about how we can streamline your marijuana dispensary, contact us for a free demonstration.