Cannabis Retailers: Cannabis Excise Tax Paid to Your Distributor Must be Collected on Your Discounted Retail Sales

Cannabis Retailers: Cannabis Excise Tax Paid to Your Distributor Must be Collected on Your Discounted Retail Sales

As a retailer, when you sell cannabis or cannabis products, the law requires the purchaser to pay the excise tax at the time of the sale. Therefore, you must collect from your customer the same amount of cannabis excise tax that you paid to your distributor.

Discounted cannabis – arm’s length transaction
For example, you purchase two items of cannabis products for $100 ($50 each) and your distributor calculates the average market price of these two items as $160 (your wholesale cost of $100 plus the current predetermined CDTFA markup of 60 percent*). The distributor collects $24 in cannabis excise tax from you on this purchase ($160 x 15 percent).

If your regular selling price of these items is $100 each, when you offer your customers a “two for one promotion” on these items, that is, get two for the price of one, you are required to collect from your customer the $24 in cannabis excise tax paid to your distributor on these two items. Therefore, you should factor the excise tax you paid to your distributor into your discounted or promotional price.

You are not required to separately state the amount of cannabis excise tax collected from your customer on the receipt, but the receipt must state, “The cannabis excise taxes are included in the total amount of this invoice.”

* This example assumes a mark-up rate of 60 percent (0.60). Your distributor will use the rate in effect at the time of sale. The current rate can be found on our website.

Discounted cannabis – nonarm’s length transaction
The cannabis excise tax due in a nonarm’s length transaction is based on the retail selling price of the cannabis or cannabis products. For example, if you sell cannabis for a discounted price of $100 to your retail customer, the cannabis excise tax due is $15 ($100 x 15%), regardless of your wholesale cost.

You are not required to separately state the amount of cannabis excise tax collected from your customer on the receipt, but the receipt must state, “The cannabis excise taxes are included in the total amount of this invoice.”

This email is intended to give you an overview of some of the requirements for cannabis retailers and does not address all requirements for the cannabis industry. For more information, we encourage you to read our online Tax Guide for Cannabis Businesses, or contact us.

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