Taxing guidelines for California cannabis businesses
California cannabis tax laws can be tricky! As a cannabis business in California, do you know who you have to collect taxes from? And do you know which kind of taxes you must collect? Read on for this brief overview from our team, broken down by business type, on what taxes you need to be collecting and from who.
Cultivators are those involved in the growing process, including planting, harvesting, drying, curing, grading or trimming. If you're involved in cannabis cultivation, you are required to register with the California Department of Tax and Fee Administration (CDTFA) for a seller's permit.
You will also be required to pay cultivation tax to your distributor or manufacturer (depending on where the first transfer or sale takes place). The cultivation tax is applied to all harvested cannabis that enters the commercial market, which means it has complied with all quality assurance, inspection and testing requirements.
Distributors procure, sell and/or transports cannabis between licensed cannabis businesses, such as cultivators, manufacturers or retailers. As with cultivators, the CDTFA requires you to register for a seller's permit, and you're also required to register with the same agency for a cannabis tax permit.
Additionally, you're required to collect cannabis cultivation tax from cultivators or manufacturers you receive cannabis or cannabis products from, and collect cannabis excise tax from cannabis retailers you supply. Provide receipts in both of these cases, and file and pay the cannabis tax to the CDTFA.
Manufacturers produce or prepare cannabis or cannabis products, like edibles, at a fixed location. Additionally, those businesses that package, repackage, label or relabel cannabis products are also considered manufacturers. Again, manufacturers are required to register with the CDTFA for a seller's permit.
As far as taxes go, manufacturers are required to collect tax from certain businesses. When you receive unprocessed cannabis from cultivators, you're required to collect cannabis cultivation tax (and provide a receipt). Then, you're required to pay that cultivation tax to your distributor when they pick up your goods.
Retailers are those who sell cannabis and/or cannabis products directly to consumers. Retailers are required to, again, register with the CDTFA for a seller's permit. They're also responsible for collecting a few different types of taxes.
Retailers must collect sales tax on taxable retail sales of cannabis, cannabis products and other products. Sales taxes should be electronically filed with the state and paid to the CDTFA.
You should also charge and collect cannabis excise tax from customers who purchase cannabis or cannabis products. This tax is paid to your distributor.
While taxation can be overwhelming, particularly as it is not always paid directly to the taxing agency, we hope this guide gives you a better understanding how cannabis taxation actually works in the state of California.
Be sure to know who's licensing California's cannabis.
Contact CCA so we can help make sure your business stays compliant when these tax guidelines go into effect on January 1, 2018.