Cannabis Excise Tax for Dispensaries
On March 26, 2018, California Department of Tax and Fee Administration (CDTFA) distributed a notice to let dispensary owners know their distributors will be required to calculate and collect the cannabis excise tax from dispensaries on cannabis or cannabis products that they sell or transfer to them.
The cannabis excise tax based on the “average market price,” which is computed by applying the CDTFA’s predetermined markup rate (currently at 60%) to the wholesale cost of the cannabis and cannabis products sold or transferred.
Choices Distribution will provide our customers with the following invoices when we collect the taxes that includes:
- Your name, as the licensee receiving the product,
- The unique identifier associated with the cannabis or cannabis products, and
- The amount of cannabis excise tax paid.
When you sell cannabis or cannabis products, you are required to collect the cannabis excise tax from your customer. Although your cannabis distributor is required to use the predetermined markup rate to compute the average market price in an arm’s length transaction, the predetermined markup rate is not meant or required to be used by you to determine your selling price of cannabis or cannabis products.
You are not required to reconcile the average market price the distributor calculates for determining the excise tax with your retail selling price of cannabis or cannabis products. You are, however, required to disclose that an excise tax was collected and applied to cannabis and cannabis products on your receipts.
This should read, “The cannabis excise taxes are included in the total amount of the invoice.”
Remember: Sales tax is due on your retail sales of cannabis or cannabis products and is computed on your retail selling price, including the cannabis excise tax, unless you are exempt on your application.
What is an Excise Tax?
An excise tax is an indirect tax charged on the sale of a particular good. Indirect means the tax is not directly paid by an individual consumer; instead, the Internal Revenue Service (IRS) levies the tax on the producer or merchant, who passes the tax onto the consumer by including it in the product’s price.
Disclaimer: This information is meant solely as information and subject to change. It is not meant to provide you with business tax guidance and tax regulations. For tax guidance on cannabis in the state, please go to California’s Tax Guide for Cannabis Businesses portal.