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Changes to Excise Tax Responsibilities for Retailers and Distributors Coming January 1

By Lauren Mendelsohn

November 3, 2022

 

Significant changes to California’s cannabis excise tax are coming soon, thanks to Assembly Bill 195 (2021-2022), a cannabis “trailer bill” which was adopted by the State legislature over the summer and signed into law by Governor Gavin Newsom on June 30, 2022. We previously discussed AB-195 and its impacts here.

Specifically, on January 1, 2023, the point of remittance of the cannabis excise tax will move from the distributor to the retailer. Simultaneously, the excise tax calculation will change to a straight percentage (15% to begin with, capped at 19%) of the gross receipts from each retail sale of cannabis goods, without the need to calculate the average market price. Licensed retailers will be responsible for not only collecting the appropriate amount of cannabis taxes from their customers, but also for reporting this correctly and ensuring these cannabis taxes are delivered to CDTFA.

Importantly, “gross receipts” for cannabis excise tax purposes does not include any applicable sales tax or the retail cost of any non-cannabis items, but does include the sales price of the cannabis goods as well as any charges such as delivery fees or local taxes applicable to a particular retail sale. Retailers must continue to list the excise tax amount separately on customer receipts.

Licensed cannabis retailers will need to obtain a cannabis retailer excise tax account. The California Tax and Fee Administration (CDTFA) says they will automatically register retailers and microbusinesses who are licensed by the Department of Cannabis Control (DCC) to conduct cannabis retail activities, and that any retailers who are not automatically registered for a cannabis retailer excise tax account can do so through CDTFA’s online service portal beginning in December 2020. The cannabis retailer excise tax account will be required in addition to a retailer’s sales and use tax account. The first cannabis retailer excise tax returns will be due on May 1, 2023 which will cover the Q1 (January 1 – March 31) 2023 reporting period.

Distributors will have their excise tax accounts closed on December 31, 2022, and will need to file their last cannabis tax return by January 1, 2023.

Licensed retailers who received cannabis goods from, and paid corresponding excise taxes to, a distributor prior to January 1, 2023 but sold those cannabis goods to retail customers after January 1, 2023 will be able to claim a credit on their cannabis retailer excise tax return.  It is important that retailers keep proper documentation in order to support any such claims for credits.

Furthermore, licensed retailers who have been approved for a DCC equity fee waiver may retain 20% of the equity tax collected as vendor compensation. CDTFA will create a form that eligible retailers must fill out to receive approval to retain vendor compensation.

In addition to all of the above, the recent changes to the cannabis tax laws created new enforcement provisions that allow CDTFA to impose penalties on unlicensed persons and agents of licensees for failure to pay cannabis taxes that are due, as well as on licensees for failing to or falsely reporting sales or transfers of cannabis in the track-and-trace system.

Below are some recently released some guidance documents regarding the changes to cannabis excise tax responsibilities:

CDTFA is in the process of adopting emergency regulations which will provide more details regarding the changes to the cannabis excise tax. Stay tuned to our blog for more information.

 

This information is  provided as a public educational service and is not intended, nor should be construed, as legal advice. For specific questions regarding California’s cannabis laws and regulations, including questions about excise taxes, contact the Law Offices of Omar Figueroa at  707-829-0215 or info@omarfigueroa.com to schedule a confidential legal consultation.

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