Observations CDTFA Multi-License
Observations CDTFA Multi-License – When we wrote Guidance – Micro-business – Multi-License we indicated that we would circle back to discuss our comments on the calculation. Well, we did review it and identified a litany of issues. Here are some quick observations for consideration. First, CDTFA’s an example.
You are a licensed microbusiness authorized to cultivate, distribute, and make retail sales of cannabis. You sell cannabis flowers to your retail customers for $35.00 per eighth of an ounce and charge $5.00 for delivery. You have an 8.5 percent sales tax rate and a 10 percent business tax. In this non-arm’s length transaction, the average market price is your gross receipts from the retail sale of the cannabis flowers.
Excise tax calculation:
The selling price of cannabis $35.00 Cannabis business tax $3.50 Delivery $5.00 Subtotal ($35.00 + $3.50 + $5.00) $43.50 Excise tax ($43.50 x 15%) $6.53
Sales tax calculation:
Subtotal ($43.50 + $6.53) $50.03 Sales tax ($50.03 x 8.5%) $4.25 Total due ($50.03 + $4.25) $54.28
The distribution part of your business is responsible for reporting and paying the cannabis excise tax of $6.53 ($43.50 × 15%) to the CDTFA on your cannabis tax return along with the cultivation tax that is due on the cannabis flowers that entered the commercial market. The cannabis retail part of your business is responsible for reporting and paying the sales tax of $4.25 ($50.03 x 8.5%) to the CDTFA on your sales and use tax return.
Source: The quoted item above is the notice from CDTFA under Tax Facts
Our observations are as follows:
The introduction to the example indicates CDTFA is going to address circumstances that are more broadly applicable than the narrow situation described in the example.
CDTFA’s example is a small subset of the circumstances that the announcement indicates it is going to address.
CDTFA’s example does not comport with the various manners in which cannabis flower would generally be priced and delivered.
CDTFA’s example is not consistent with reality. CDTFA’s example is a unicorn. The computation of Cannabis Excise Tax (“CET”) in the example is correct if and only if the licensed distributor is delivering its own cannabis with its own employees in the local jurisdiction in which the distributor’s business is located. In almost all instances a micro-business distributor will be delivering cannabis into a different local jurisdiction.
The text references cannabis cultivation tax [“CCT”] as being payable by the distributor but it is not included in the tax calculation. This makes the computation misleading to the reader because the amount due CDTFA is $7.24 ($6.53+ $0.71).
An example of delivery of medical cannabis should be included for purposes of comparison to this delivery as the tax computation will be significantly different.
CDTFA should also include for comparison an example of the computation when the customer picks up the cannabis with no other change in the facts.
In some instances, local jurisdictions impose an excise tax on consumers. In such an instance the local excise tax is not properly included in the gross receipts of the distributor for the purposes of computing CET.
Observations CDTFA Multi-License