California retail cannabis tax at a glance
As of January 1, 2018, cannabis retailers in California may find taxing guidelines extra confusing. Not only must you collect cannabis taxes, but you must pay cannabis taxes as well. Our team breaks down which taxes must be collected and paid in this quick-reference guide.
Understand the different types of taxes and who pays what to whom
Retailers are the businesses that provide cannabis and cannabis products directly into the hands of consumers. Dispensaries and other retailers are the only cannabis businesses that deal with the public, and they are also responsible for collecting a couple of different types of taxes. This can seem confusing, because retailers don't pay all of their taxes to a single person or agency.
The first step in proper taxation: All cannabis retailers must register with the California Department of Tax and Fee Administration (CDTFA) for a seller's permit. Next, let's take a look at how taxes work as a California cannabis retailer.
Cannabis retailers must collect sales tax from their cannabis sales. This not only encompasses cannabis and cannabis products, but anything else they sell at their place of business to consumers.
Retailers must then electronically file sales tax returns, and they must be paid to the CDTFA. Use tax (which applies to purchases from an out-of-state business that would qualify for sales tax) must also be filed and paid to the CDTFA.
Cannabis excise tax
Retailers must also collect cannabis excise tax from their customers. Instead of filing and paying this to the CDTFA, retailers instead pay cannabis excise tax to their distributors. It's important that retailers know to avoid remitting cannabis excise taxes on sales and use tax returns — they do wind up with the CDTFA eventually, but not from retailers.
Additionally, you must also provide a detailed invoice to your customer. This can be a simple receipt, but it has to clearly outline what portion of their payment goes towards the cannabis excise tax. Also, the receipt or invoice must clearly state, "The cannabis cultivation tax and excise taxes are included in the total amount of this invoice."
Taxes can be stressful, but for retailers, it's pretty easy to sort out the tax types to determine what taxes need collected and who they should ultimately go to. In essence, sales and use taxes are filed and paid to the CDTFA, and the cannabis excise tax is paid to a retailer's distributor(s).
Learn more about taxing guidelines for California cannabis businesses here.
Contact CCA today to make sure you're ready for the tax regulations going into effect on January 1, 2018.