The Excise Tax: The Calculations Behind the 15% Tax on Cultivation

Posted by Guest Author | Nov 21, 2017 | 0 Comments

Written by Abraham Finberg, CPA

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On January 01, 2018, when California cannabis cultivators harvest products enter the commercial market, they will need to pay their distributor $9.25 per dry-weight ounce of cannabis flowers, and $2.75 per dry-weight ounce of cannabis leaves.   That sentence is quite a mouthful and is definitely not using terms a master grower would use so let's try to break it down, point by point.

Entering the commercial market: When the product is ready for sale and has gone through all required quality assurance and testing. This means you will owe the tax when your product can legally be sold, not when you actually sell the product.

Cultivator: At first glance, you are probably wondering why you need a definition, it's the person who grows cannabis! Here's the thing, as far as regulation is concerned, cultivation also includes, drying, curing, grading or trimming as well as planting, growing or harvesting the plant. What if you are in the business of supplying trimmers for cultivators, or more likely, you are a self-employed trimmer? Would you also need a cultivation license? Possibly

Cannabis: Within the regulation, cannabis means buds when using the term flowers and things like trim, used in edibles or extraction, when using the term leaves. Here's an interesting nuance to this regulation, immature cannabis plants (clones) and seeds are NOT subject to the cultivation tax.

Ounce: The cultivation tax is not rounded to the nearest ounce. If you sell 40 grams to a distributor, it will be 1.4 ounces with $12.95 in tax (40 x 0.035 = 1.4 oz. x $9.25 = 12.95)

Distributor: In an interesting twist to the regulation, similar to the 15% excise tax, the distributor of the cultivator is required to collect the cultivation tax rather than the cultivator. The distributor will need to give you a receipt with their name, your name and a unique identified along with the amount of cannabis tax paid. This will probably be the only proof you paid the tax, in case the distributor doesn't pay the taxes. Keep these receipts in a safe place!

So, what happens if you sell your trim to a manufacturer, or even flowers? You pay the tax to the manufacturer and the manufacturer will pay it to their distributor. Then the distributor of the manufacturer will final pay the cultivation tax for you.

Tax matters can be complex and often difficult to navigate. Be prepared come 2018!

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