Cannabis Excise Tax Changes Begin January 1, 2023

Beginning January 1, 2023 the collection and payment of the 15% cannabis excise tax changes from the distributor to the retailer.

Since we began the legal cannabis industry here in California in January 2018, it has always been required that cannabis retailers were to collect the cannabis excise tax from the end customers who purchased the cannabis goods. The retailer passed along the excise tax to the distributor who then submitted the excise tax to the CDTFA (California Department of Tax and Fee Administration). As proof that the excise tax was paid by the end customer, the sales receipt must have either a line item with the exact amount of excise tax paid or the required wording that said, “The cannabis s excise taxes are included in the total amount of this invoice.”

The odd way the State of California initially set up the collection and payment of the excise tax by the distributor meant that the excise tax actually had to be collected by the distributor before the retailer even collected it from the end customer. This caused a situation where the industry got creative in the way it calculated the product price and excise tax, and negotiated payment terms. Distributors were required to remit excise tax to the CDTFA once cannabis goods were transferred to retailers often before the retailer paid the distributor for the cannabis goods.

All of this changes on January 1, 2023. Retailers in particular need to prepare for the excise tax change that is almost here.

Tips for a smooth transition

  • Retailers must prepare to submit CDTFA tax returns and remit the cannabis excise tax.
  • Retailers and distributors should communicate with each other regarding cannabis goods pricing now that the excise tax is not part of the transaction.
  • Storefront retailers, delivery-only retailers, microbusinesses that conduct storefront and/or delivery of cannabis should read the CDTFA Special Notice regarding excise tax collect and remittance changes.
  • Distributors should also read the CDTFA Special Notice on the excise tax transition to understand their final excise tax filing responsibilities.
  • All license types should work with their CPAs, accountants, bookkeepers, purchasing and billing teams, etc. to prepare for the changes.

CDTFA Special Notice: Retailers (storefront and delivery), distributors, and microbusinesses with retail and/ delivery should read this CDTFA Special Notice regarding changes to excise tax collection and remittance:

https://www.cdtfa.ca.gov/formspubs/L866.pdf

All retailers should be familiar with the CDTFA’s website that provides excellent information and examples for how to calculate excise tax:
https://www.cdtfa.ca.gov/industry/cannabis.htm#Retailers

Taxes are a part of life and the cannabis industry. Let’s be glad the cultivation tax was eliminated as we prepare for this change in the excise tax.