Cannabis businesses and state sales tax: A primer
In addition to cultivation and excise taxes, some cannabis businesses must collect and pay sales and use tax to the state of California. Here's how that works, which businesses may be affected, and how you will know if you're required to file and pay these types of taxes.
Sales tax basics
California state sales tax applies to the sale of merchandise within the state, no matter what type of merchandise is sold — this, of course, includes cannabis and cannabis product sales. This is in addition to (and completely separate from) the newer tax types, such as cannabis cultivation and cannabis excise taxes.
As such, if you are engaged in business in California and sell tangible personal property, you must register with the California Department of Tax and Fee Administration (CDTFA) for a seller's permit. In addition, you will be required to regularly file sales and use tax returns, even if you don't have any taxable sales to report.
While sales between different types of cannabis businesses are generally not subject to sales tax (see the section on resale certificates, below), sales to consumers are almost always taxed in this manner. The cannabis business type most often affected by sales tax collection, then, is retailers — they need to collect and subsequently pay sales tax to the state of California.
Sales tax exemptions
There are a few special circumstances where a cannabis business will not collect sales tax, however.
- Medicinal cannabis sales
One exception at the retail level is certain medicinal cannabis sales — qualified patients (or their primary caregiver) can obtain a sales tax exemption by furnishing a valid Medical Marijuana Identification Card (MMIC) and a valid government-issued ID at time of purchase. In addition to not collecting sales tax, retailers must also claim a deduction on sales tax returns for those qualifying exempt sales.
- Resale certificate
Also, if your transactions are between two cannabis businesses (such as between a cultivator and a distributor), you can purchase it without paying sales or use tax by providing the seller with a valid and timely resale certificate.
Of course, if you plan to keep the product for personal use, you should not produce a resale certificate at the time of purchase — and you must pay sales tax at the time of purchase.
SALES TAX IS AN IMPORTANT TOPIC FOR NEW OR ESTABLISHED CANNABIS BUSINESSES. LET CCA HELP MAKE SURE YOUR BUSINESS IS COMPLIANT BEFORE CALIFORNIA GOES ONLINE ON JANUARY 1, 2018.