California, often the leader in disruptive industries, as well as being known for complexity in its taxing schemes, is once again making a significant change in the taxation of recreational cannabis. Readers may be aware that California was the first state to legalize medical marijuana in 1996. And the sales tax landscape around the sale of cannabis for recreational use has been evolving since the state legalized it in November 2016, and we’ve covered some of these rules (and changes) as our clients in this industry have also evolved.
In previous blogs, we discussed some introductory rules regarding Cannabis in CA, and last September, there were some further updates. Now, the state is taking aim at modifying the collection of the excise tax portion of the cannabis landscape.
The Existing Law
Prior to January 1, 2023, all cannabis distributors (those who sell to dispensaries) were required to register with the California Department of Tax and Fee Administration (CDTFA) and collect the cannabis excise tax (15%) at the time the product was sold to retailers.
How Are the Rules Changing
The CDTFA just announced new rules regarding the collection of the excise tax on cannabis sales from distributors to the retailers (dispensaries). These rules would shift the way the tax is paid and collected. According to an article by the CDTFA (https://www.cdtfa.ca.gov/formspubs/L874.pdf), beginning on January 1, 2023, the responsibility for collecting and paying the cannabis excise tax to the CDTFA shifts from the distributors to the cannabis retailers.
An excise tax account is required for cannabis retailers, as well as the retailer’s sales and use tax account. The cannabis retailers who are already registered with the excise tax account will be automatically notified. Those retailers who are not automatically registered must register through the CDTFA’s online services in the late December timeframe.
Nuances of the New Rules
- For the first quarter of 2023, the first cannabis retailer excise tax return will be due on May 1, 2023.
- As with all sales tax projects, proper documentation must be kept. We recommend that retailers keep all documentation that supports any credits that they claim. If items cannot be supported, any credits may later be disallowed Assembly bill (AB) 195 is the piece of legislation that outlines the changes by the CDTFA to the cannabis industry in California. To view AB 195, click here.
For more information on all of the cannabis laws regarding these changes, see the CDTFA website. The CDTFA will continually update this guide.
Let us help
Working with an experienced team of state tax consultants like Miles Consulting Group is an excellent way to stay updated on everything related to sales tax, particularly in this unique industry. If you have any questions about cannabis sales tax rules in California, please contact us today. We’re happy to help you navigate this continually changing sales tax landscape.
