CA Tax Compliance

CA Tax Compliance

CA Tax Compliance is an overview of the CA filing requirements for cannabis excise and cultivation taxes and sales tax.

CA Tax Compliance
California Commercial Cannabis Document Suite – CCDS

Retailers

Cannabis retailers are required to pay the cannabis excise tax to a cannabis distributor.

In addition, cannabis retailers, who acquired cannabis or cannabis products prior to January 1, 2018, upon which they did not pay the cannabis excise tax to a distributor, must collect the 15 percent cannabis excise tax from their customers.

Retailers must pay the excise tax on those sales by the 15th of the following month in which they collected the tax to a licensed cannabis distributor with whom they have a business relationship (that is, a distributor that they purchase or acquire cannabis or cannabis products from on or after January 1, 2018).

As a cannabis retailer, you are not required to separately state the cannabis excise tax on your receipt or invoice to your customer, but you must include the following statement, The cannabis excise taxes are included in the total amount of the invoice.”

The cannabis excise tax is imposed on the purchaser as 15 percent of the average market price.

To calculate the cannabis excise tax due on your retail sales of cannabis or cannabis products that you acquired prior to January 1, 2018, you must multiply the average market price by the 15 percent excise tax rate.

The sales tax is due on the retail selling price of cannabis or cannabis products, including the cannabis excise tax.

Cultivators

Cannabis cultivators owe the cultivation tax on all harvested cannabis that enters the commercial market on or after January 1, 2018. The cultivation tax does not apply to harvested cannabis a cultivator transferred or sold prior to January 1, 2018.

Cultivators are required to pay the cultivation tax to a distributor or manufacturer.

Distributors

On and after January 1, 2018, distributors who sell or transfer cannabis or cannabis products to a cannabis retailer are required to collect the cannabis excise tax from the retailer.

In addition, cannabis retailers, who acquired cannabis or cannabis products prior to January 1, 2018, upon which they did not pay the cannabis excise tax to a distributor, must collect the 15 percent cannabis excise tax from their customers.

Retailers must pay the excise tax on those sales by the 15th of the following month in which they collected the tax to a licensed cannabis distributor with whom they have a business relationship (that is, a distributor that they purchase or acquire cannabis or cannabis products from on or after January 1, 2018).

Cannabis distributors must properly document the amount of cannabis excise tax collected. If you are a cannabis distributor and you collect the cannabis excise tax from retailers for cannabis or cannabis products the retailer acquired prior to January 1, 2018, you must provide the retailer an invoice, receipt, or another similar document that contains all of the following:

  • The invoice date
  • Your name and seller’s permit number, or if you are not required to hold a seller’s permit because you do not make sales, you must include a statement to that effect on the receipt.
  • Name of the cannabis retailer and the retailer’s seller’s permit number.
  • The amount of cannabis excise tax collected

As a distributor, you should keep accurate records of your commercial cannabis activity. This includes retaining records to support when the cannabis was transferred or sold to you from a cultivator or manufacturer, or when you sell or transfer to a retailer, and the amount of cultivation tax and excise taxes collected.

As a cannabis distributor, you are required to electronically report and pay both the cultivation tax and cannabis excise tax on your cannabis tax return. The cannabis tax return filing and payment of the cannabis taxes are due April 30, 2018, for the first quarter reporting period (January 1, 2018, through March 31, 2018).

Transportation Only Distributors

When a cannabis retailer contracts directly with a cultivator or manufacturer to purchase cannabis and cannabis products which you transport, you are not making a sale of cannabis and your transport of the cannabis and cannabis products is not subject to sales tax.

Every sale or transport of cannabis or cannabis products from one licensee to another licensee must be recorded on a sales invoice or receipt.  Maintaining good books and records will help you keep track of your sales and purchases and assist you when preparing to file your sales and use tax return. See the Record Keeping heading below for more information.

 

Reporting Requirements

Cultivation Tax –  must be reported:

  • For the reporting period in which the cannabis or cannabis products enter the commercial market.
  • In ounces, including partial ounces rounded to the nearest hundredth, based on the category of dried flowers, dried leaves, or fresh cannabis plant as listed on the invoice from the original cultivator, less any cannabis that was used for testing.

– You are required to enter adult-use ounces separately from medicinal ounces for each category. – You will need to obtain additional information from manufacturers on the category and ounces of cannabis used to manufacture the cannabis products to report the cultivation tax properly.

Cannabis Excise Tax – must be reported:

  • For the reporting period in which you sell or transfer the cannabis or cannabis products to the cannabis retailer.

– For example, the total average market price of your sales or transfers within the first quarter of 2018 (January 1, 2018, through March 31, 2018) must be reported on the first quarter 2018 return.

  • Based on the average market price of the cannabis or cannabis products

– When you calculate the average market price in an arm’s length transaction (retailer’s wholesale cost plus the markup determined by the CDT FAQ, currently 60 percent), you are not required to reconcile the average market price you calculate with the retailer’s actual retail selling price.

  • As “excess excise tax collected” on your cannabis tax return if the tax is collected from retailers for any inventory they purchased prior to January 1, 2018, and sold at retail on or after January 1, 2018.

– For these types of transactions, the retailer will collect the cannabis excise tax from their customers and pay the amount collected to you, a cannabis distributor

– For specific invoice requirements related to these types of transactions.

Sales Tax

Distributors – you are responsible for transporting cannabis and cannabis products between licensed cannabis businesses. Even if all your sales or transports of cannabis and cannabis products are not subject to sales tax, you are still required to file a sales tax return and report your activities to the CDTFA.

When you sell cannabis or cannabis products to a customer, such as a cannabis retailer, and the customer provides you with a valid and timely resale certificate, the sale is not subject to sales tax.

It is important that you obtain timely valid resale certificates to support your sales for resale. If no timely valid resale certificate is provided, it will be presumed that sales tax also applies to the sale and you must report and pay the sales tax to the CDTFA. Even if all your sales are not subject to sales tax and you collect the proper resale certificates, you are still required to file a return and report your activities to the CDTFA. Simply provide your total sales on line 1 of your sales and use tax return and your total nontaxable sales, which indicate that you made no taxable sales if this is the case.

Invoicing requirements for the Cannabis Taxes

As a cannabis distributor, you must properly document the amount of the cultivation tax and the cannabis excise tax you collect. When collecting the cultivation tax from cultivators or manufacturers, or the cannabis excise tax from retailers, you must provide an invoice, receipt, or other similar document that contains the following:

  • Your name, as the distributor
  • The name of the other licensee (that is, the cultivator, manufacturer, retailer)
  • The associated unique identifier for the cannabis or cannabis product.
  • The amount of cannabis tax collected.
  • The date of the sale or transfer.

These invoices or receipts serve as verification to cultivators, manufacturers, and retailers that the cannabis taxes were paid to a distributor and relieves them of their cannabis taxes liability.

Sales and use tax return If you make sales of tangible personal property, you are required to hold a seller’s permit. As a cannabis distributor, you are responsible for electronically filing both your sales and use tax return and your cannabis tax return by the filing due dates. You must still file a sales and use tax return by the due date even if you do not make taxable sales (for example, all your sales are for resale). If you sell cannabis or cannabis products for resale to other licensees, make sure the purchaser gives you a timely and valid resale certificate.

Purchases – When you purchase a product that will be resold, you can purchase it without paying sales or use tax by providing the seller a valid and timely resale certificate. Sales tax will apply if you sell the product at retail. However, when you purchase a product for resale without paying sales tax but, instead of selling it, you consume or use the product, then you owe use tax based on the purchase price.

For example, if you issue a resale certificate when purchasing a pipe but instead gift it to someone, you owe the use tax based on its purchase price.

The use tax rate is the same as the sales tax rate in effect at the location of use.

To pay the use tax, report the purchase price of the taxable products as “Purchases Subject to Use Tax” on line 2 of your sales and use tax return. Those purchases become part of the total amount that is subject to tax.

Supplies, Equipment, and other Business Expenses

Products you purchase for use in your business (signs, fire extinguishers, display cases, weight and measure equipment, computers, etc.) are subject to sales tax at the time of purchase. Your supplier will normally collect and report the sales tax. However, if you purchase equipment or supplies for use in your business online or from an out-of-state seller, the sale may be subject to use tax.

If the out-of-state seller does not charge California use tax, you should report the purchase price on your sales and use tax return. To pay use tax, report the purchase price of the taxable products under Purchases Subject to Use Tax on your sales and use tax return. Those purchases become part of the total amount subject to tax.

Pre-2018 Cannabis

However, the cultivation tax is not due on harvested cannabis transferred or sold to distributors or manufacturers prior to January 1, 2018, even if entry into the commercial market (completes testing and complies with quality assurance review) occurs after that date. Manufacturers and distributors must maintain documentation to support that the cannabis was transferred or sold from a cultivator prior to January 1, 2018.

Recordkeeping –

You are required by law to keep business records so that we may verify the accuracy of your sales and use tax (if applicable) and cannabis tax returns and determine how much tax is due.

Additionally, maintaining good books and records will help you keep track of your sales and purchases and assist you when preparing to file your sales and use tax and cannabis tax returns. Records must be kept for at least four (4) years, unless otherwise directed by the CDTFA. If you do not maintain records, it may be considered evidence of negligence or intent to evade the tax and may result in penalties.

Please note, the Medicinal and Adult-Use Cannabis Regulation and Safety Act requires a licensee to keep accurate records of commercial cannabis activity for a minimum of seven years. For example, every sale or transport of cannabis or cannabis products from one licensee to another must be recorded on a sales invoice or receipt. Sales invoices and receipts may be maintained electronically and must be available for review. Each sales invoice or receipt must include:

  • Name and address of the seller.
  • Name and address of the purchaser.
  • Date of sale and invoice number.
  • Kind, quantity, size, and capacity of packages of cannabis or cannabis products sold.
  • The cost to the purchaser, including any discount applied to the price shown on the invoice.
  • The location of transport of the cannabis or cannabis product unless the transport was from the licensee’s location.
  • Any other information specified by the licensing authority.

 

CCDS