If you own a business in California that sells cannabis and/or cannabis products, the CDTFA will require your business to register with the CDTFA for a seller’s permit and regularly file sales and use tax returns. In addition to a seller’s permit, the CDTFA requires distributors to register with the CDTFA for a cannabis tax permit and regularly file tax returns. Businesses are frequently inquiring about CDTFA cannabis taxation for their business.
Sales and Use Taxes
In California, all retail sales of tangible personal property are taxable unless the law provides a specific exemption. The law defines tangible personal property as an item that can be seen, weighed, measured, felt, or touched. The CDTFA generally classifies cannabis and cannabis products as tangible personal property and without a specific exemption, sales of such property are subject to sales and use tax.
Please note, on November 8, 2016, California voters approved Proposition 64, Control, Regulate and Tax Adult Use of Marijuana Act. Proposition 64, among other things, provides that effective November 9, 2016, certain sales of medicinal cannabis are exempt from sales and use tax.
Use tax may be due when you purchase taxable items without payment of California tax from an out-of-state vendor for use in California. You may owe use tax on items that you remove from your inventory and use in California if you did not pay tax when you purchased the items.
Cannabis Excise Tax
Effective January 1, 2018, the state of California imposes a 15-percent excise tax upon retail purchasers of cannabis or cannabis products. The 15-percent excise tax is calculated based on the average market price of the cannabis or cannabis products sold in a retail sale.
In addition, a cultivation tax on all harvested cannabis that enters the commercial market is imposed on cultivators based on the weight and category of the cannabis. There are currently three categories:
- Cannabis flowers,
- Cannabis leaves, and
- Fresh cannabis plant.*
The CDTFA annually adjusts the cultivation tax rates to account for inflation starting January 1, 2020. Due to recent legislation (Assembly Bill 1872), the cultivation tax rates for the 2020 calendar year remain unchanged for the 2021 calendar year. The CDTFA will adjust the cultivation tax rates annually for inflation beginning with the 2022 calendar year. We will mail a special notice to cannabis businesses informing them of any rate adjustments.
Cannabis Seller Required Sales & Use Tax Return
All cannabis sellers must file regular sales and use tax returns to report their sales. In addition, if a cannabis seller has no taxable transactions to report, the seller should still file its sales and use tax return and report its activities to the CDTFA.
Cannabis Tax Return
A distributor of cannabis or cannabis products should electronically file its cannabis tax return with the CDTFA to report the amounts of both the cultivation tax and cannabis excise tax due. Moreover, if a distributor has no taxable transactions to report, it should still file its cannabis tax return and report its activities to the CDTFA. The cannabis tax return is due on the last day of the month following the reporting period. The cannabis tax account is separate from other accounts the business may have with the CDTFA.
You can file your cannabis tax return and make payments online with us through our online services.
If you have questions about CDTFA cannabis taxation, contact a tax attorney to discuss. If you have received a CDTFA audit notice, contact a tax attorney to discuss your options to resolve the audit. In addition, you may submit a CDTFA appeal if you have received a notice of determination from the CDTFA, and you may qualify for a CDTFA offer in compromise.