Cannabis Excise Tax: What Should You Know?

June 15, 2021 Cannabis Business, Entrepreneurs, Investors

California’s cannabis excise tax is an interesting subject for several reasons. One of which, is how it impacts theft and robbery that results in losses.

In the cannabis industry, theft and robbery are major problems. As cannabis becomes more accepted by states across the country, thieves have found new ways to steal from dispensaries and grow facilities.

However, there is some good news: if you’ve hired a professional cannabis accounting team and paid excise tax on your product that was lost or stolen due to crime, then you might be eligible for a refund under certain circumstances!

In this article, we’ll discuss CA cannabis excise tax, where it’s applicable, and what deductions are allowed for losses due to crime.

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CA Cannabis Excise Tax Insight

CA Excise Tax Collection on Retail Sales

At the start of 2018, cannabis distributors had to begin calculating and collecting the excise tax from cannabis retailers on cannabis or cannabis products they sell or transfer. This involves the distributor calculating the excise tax based on the “average market price,” which means taking the CDTFA’s predetermined mark-up rate and applying it to the wholesale cost of cannabis and cannabis products.

At this point, the current mark-up rate is displayed under Cannabis Taxes on the CDTFA’s Special Taxes and Fees Rates Page.

CA Cannabis Retailers Cannot Apply Excise Tax to Free Medicinal Cannabis

If you’re giving away medicinal cannabis for free, use tax is still due on the cost. Cannabis retailers are not allowed to give away cannabis or cannabis products unless given permission by the Bureau of Cannabis Control (BCC). This is the agency responsible for administering cannabis licensing activities for distributors and retailers.

If you’ve received permission to give cannabis or cannabis products away for free, the excise tax will not apply to you. However, if you are giving it away, you will owe use tax on the purchase price of the cannabis or cannabis products.

Love this post? Make sure to check out our other article about certified public accountants before you leave!

Discounted Retail Sales Warrant Excise Tax Collection by Distributors

Cannabis retailers must collect excise tax from their customers. This is regardless of whether you’re selling cannabis or cannabis products at retail.

With this being the case, you’ll need to collect the same amount of excise tax from customers that you paid to your distributor.

CA Cannabis Excise Tax and Losses Resulting from Robbery and Theft

Excise Tax for Cannabis Retailers

Cannabis retailers must pay the excise tax to distributors based on the average market price of the cannabis or cannabis products sold or transferred to them. But, if you’ve paid your excise tax to your distributor and those products were stolen after, you can request a refund of the tax from your distributor.

Of course, you’ll have to give the documentation substantiating the theft to your distributor.

For documentation purposes, some of the options include insurance claims, police reports, and other forms of documentation proving your products were stolen. Once you’re issued a refund, your distributor must give you a receipt showing how much excise tax was refunded.

All retail cannabis or cannabis product sales are due a 15 percent excise tax. Exemptions or deductions of the excise tax for the loss of proceeds resulting from theft of cash do not exist.

Cannabis Excise Tax for Distributors

Distributors need to collect the excise tax from cannabis retailers they’re supplying with cannabis or cannabis products. The excise tax doesn’t apply to cannabis or related products sold or transferred to cannabis retailers that are stolen from the retailer.

If theft of cannabis or cannabis products occurs at the retail level, and the retailer has already paid the distributor the excise tax, the retailer can request a refund for the excise tax paid. This refund comes from the distributor.

For distributor records, and for any claim for refund that gets filed, the distributor must get appropriate documentation from the cannabis retailer. Then, the distributor must give the cannabis retailer a receipt or comparable documentation indicating how much of the excise tax was returned to the retailer.

If the distributor has already reported and paid excise tax to the CDTFA and needed to return it to the retailer due to theft, the distributor can report the amount returned on their next cannabis tax return. This will be reported on the line that’s labeled “Less excess tax collected, if any.”

The other option is to submit a CDTFA-101, Claim for Refund, to report the excess excise tax that was paid to the CDTFA and later given back to the cannabis retailer. Supporting documentation of the loss that was given to you by the retailer is essential for this to work.

Cultivation Tax for Distributors

All cannabis entering the commercial market has cultivation taxes due, even if the cannabis is lost as a result of theft. The cannabis must pass the necessary testing and quality assurance review. But if the cannabis is stolen before entering the commercial market, cultivation tax isn’t due on it.

So, if a distributor already collected the cultivation tax on cannabis that hasn’t been introduced to the commercial market, they must return the cultivation tax to the originating cultivator. However, if the cultivation tax cannot be returned to the cannabis cultivator, the distributor is responsible for reporting and paying the cultivation tax to the CDTFA.

Sales & Use Tax

Regardless of theft of cash, sales tax is required on all taxable sales. Losing merchandise because of theft does not result in a deductible for sales and use tax purposes because there was no sale.

However, the loss of merchandise from theft could impact your cost of goods sold (COGS). Thus, you will need to maintain appropriate documentation just in case there’s an audit.

Documentation Insight

The right documentation is essential; this is how you’ll support the losses incurred from theft. For sales and use tax, cultivation tax, and excise tax, you can use various forms of documentation. This includes but is not limited to:

  • Police reports
  • Insurance claims
  • Reports from private investigating agencies

If you experience cannabis inventory losses, you should record them in the California Cannabis Track-and-Trace (CCTT) system. For times you have losses resulting from theft, it’s ideal to contact the Bureau of Cannabis Control to determine the requirements in the CCTT system.

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