Written by Abraham Finberg, CPA
Effective January 01, 2018, California will have a 15% excise tax on retail sales of marijuana, a cultivation tax of $9.25 per dry-weight ounce of flowers, and $2.75 per dry-weight ounce of leaves. That seems simple and we wish it was. Here are some of the weird permutations of this tax.
15% Tax on Gross Receipts
Dispensaries will charge 15% on the gross receipts. Now, what are gross receipts? It's the amount paid for marijuana or marijuana product. That means flowers, wax, extracts etc... If it has a marijuana ingredient in it you have to pay the 15% excise tax. So far that should seem familiar. It's almost like another sales tax. Here's the fun part. Although the excise tax doesn't count as revenue for Federal Income Tax purposes, it counts as a sale for sales tax. That's right - you have to pay sales tax on the excise tax. Here's what it says in Section 34011 (e) of the Marijuana Tax Law, “Gross receipts from the sale of marijuana or marijuana products for purposes of assessing the sales and use tax under Part 1 of this division shall include the tax levied pursuant to this section.”
Point of Taxation - Taxing Plants Upon Removal
Anything unusual about the cultivation tax? The tax is owed when you remove the plant from the premises, not when it's sold, unless it is plant waste. That means if you only focus on flowers and don't do anything with the leftover leaves and trimming such as using it for edibles, you need to make sure you document that it as plant waste. How do you prove that? Have an SOP for the plant waste and maybe take pictures of the process. If you are audited, make sure the auditor sees the trimmers disposing of the waste.
There is an Open Door to Create New Taxes
If you are thinking, forget cultivating and retail let's sell unharvested plants and clones to avoid tax, think again. Unfortunately, according to 34012 (c) of the Marijuana Tax Law the board can create new categories of cultivation taxes including sales of immature plants and other types of unprocessed marijuana. This most likely is imposed to avoid selling “wet” marijuana as opposed to dried marijuana.
Taxes are Not Connected to Licensing
Anyone who is required to get a license by January 1st, 2018 has to pay the tax. That means if you have a local license and you don't get your state license until the end of 2018 you will still have to pay the tax from the beginning of 2018. This also means if you don't bother getting into compliance, you still owe taxes.
When does it start? January 01, 2018.
How much tax for dispensaries? 15%
How much tax for cultivators? $9.25 for flower, dry-weight ounce, $2.75 for leaves, dry weight ounce, both upon removing it from the grow site.
How much tax for clones sellers, extractors and manufacturers? No additional taxes right now but the Board of Equalization has the right to create new categories of taxes.
Do you have to pay sales tax on excise tax collected? Yes.
Do you have to pay local city or county taxes on excise tax collected? Probably not.
If you don't have a state license do you need to pay the excise tax? Yes.