What Cannabis Businesses Need to Know About California Excise Tax Changes

 Posted on January 13, 2023 in Taxation Law

Since Proposition 64 legalized the personal use and cultivation of marijuana in California in 2016, many business owners have been able to take advantage of the legal cannabis market. However, there are a variety of laws and regulations that apply to these businesses, and it is important for business owners to keep abreast of changes to the laws that may affect them. One change that recently went into effect involves the cannabis excise tax. California cannabis businesses will need to make sure they are following the correct procedures to avoid potential tax penalties while addressing any other small business tax issues that they may encounter.

What Is the Cannabis Excise Tax?

Excise taxes are levied on specific products, services, or activities. There are multiple types of federal and state excise taxes that apply to products such as gasoline, cigarettes, or alcohol. The state of California levies a 15 percent excise tax on cannabis businesses and microbusinesses.

Changes to the Cannabis Excise Tax for 2023

Previously, the cannabis excise tax applied to marijuana and marijuana products sold by distributors to retailers. Distributors were required to collect excise taxes from retailers, and these taxes were calculated based on the average market price of cannabis and cannabis products.

As of January 1, 2023, distributors are no longer required to collect cannabis excise taxes. Retailers now collect excise taxes from customers when cannabis and cannabis products are sold. This 15 percent tax applies to the gross receipts collected through retail sales, which include the purchase price of products, delivery fees or other charges applied to a sale, and local cannabis taxes. However gross receipts do not include sales taxes or receipts from sales of non-cannabis products. Cannabis excise taxes must be listed as a separate item on receipts or invoices provided to customers.

Cannabis retailers and microbusinesses are required to obtain a retailer excise tax permit from the California Department of Tax and Fee Administration (CDTFA). However retailers that were already registered with the Department of Cannabis Control (DCC) have been automatically registered for excise tax permits. Retailers must file quarterly excise tax returns with the CDTFA and pay all taxes that are due. If retailers paid any excise taxes to distributors for products purchased prior to January 1, 2023 that were sold to customers after January 1, 2023, they can claim a credit for these taxes when filing their excise tax returns.

The CDTFA may take action to enforce the excise tax laws. An individual or business that is unlicensed may be liable for cannabis excise taxes if they possess, store, sell, or offer to sell marijuana or marijuana products. Penalties will apply in these situations, and they will be calculated as 25 percent of the taxes that are due or $500, whichever is greater. In cases where corporations, partnerships, or LLCs fail to pay cannabis taxes, the CDTFA may hold members, partners, or officers liable for unpaid taxes, penalties, and interest. People who are licensed to sell cannabis may be held liable for their failure to report the sale or transfer of cannabis or for falsifying any reports made to California's cannabis track and trace system.

Contact Our San Jose Small Business Tax Lawyer

The excise tax on cannabis products is an important component of the legal cannabis market in California. Business owners should familiarize themselves with excise taxes and other laws that apply to their business, as well as any changes that may affect them. Failing to comply with regulations can result in penalties or fines, so it is best for businesses to ensure they are up to date on all applicable taxation requirements. If you need help understanding your excise tax obligations, or if you need to address penalties that have been levied against your business, contact our experienced San Jose, CA tax law attorney. With years of experience providing knowledgeable guidance and advice regarding state and federal tax laws, John D. Teter Law Offices can assist your business with any tax-related issues you may encounter. Call 408-866-1810 today to set up a consultation.

Sources:

https://www.cdtfa.ca.gov/formspubs/L866.pdf

https://www.cdtfa.ca.gov/formspubs/L874.pdf