Various reports in industry publications have cited cases of “sticker shock” among California cannabis consumers. Between California’s excise tax, regular sales tax, and local business tax, adult-use customers are paying anywhere between 28 and 40 percent cannabis retail taxes on every purchase. That can add up to a pretty substantial bill that may be upsetting to some patrons. So what do you do when your customer calls the final price into question? Unfortunately, you can’t do anything to change California’s cannabis laws – but you can explain exactly what the taxes are and where they’re going.
California Cannabis Dispensary Taxes
While opening and managing a cannabis dispensary in California, it's crucial to understand the sales and excise tax breakdown. The total tax on California dispensary cannabis sales varies by location. The statewide base sales tax rate is 7.25 percent — 6 percent state tax, plus a 1.25 percent mandatory local tax. Local jurisdictions can apply an additional tax of up to 3 percent, bringing total sales tax as high as 10.25 percent. Let's break down the components of California's cannabis dispensary taxes in more detail:
1. Excise Tax (15%)
The excise tax is a business tax charged to cannabis retailers and paid to the distributor. California's cannabis excise sales tax is 15% and it applies to all legal cannabis sales in California, both medical and adult use. Although the regulations do not explicitly say that the excise tax has to be rolled into the retail price, this seems to be the intention and the best practice. The cannabis excise tax goes toward state spending on such things as environmental cleanup, law enforcement, and drug prevention programs.
2. California State Sales Tax (8-10%)
The state cannabis sales tax rate varies slightly depending on where you are, but it typically ranges between 8 and 10 percent. This tax is charged at the cannabis dispensary POS, on top of the sales price and the cannabis business tax. However, medical patients with a state-issued medical marijuana card are exempt from this tax. This revenue goes to the state’s general fund as well as toward local transportation, social services, and public safety funds.
3. Cannabis Business Tax (5-15%)
California’s local governments (city or county) also can tax cannabis sales at their discretion. These local cannabis business tax rates can range anywhere between 5 and 15 percent and are charged at the dispensary point of sale system on top of the cannabis product’s selling price. The funds typically go toward maintaining local services.
4. Medical vs. Adult-Use Tax Rates
It’s important to note that medical marijuana sales are exempt from the state sales tax in California. Medical patients still have to pay the 15 percent cannabis excise tax, and local jurisdictions can choose to levy a sales tax on medical cannabis.
Now, let's dive into how Cova Software can assist California dispensaries in calculating and reporting the excise and sales tax, an essential aspect of cannabis retail.
How Cova Helps in Calculating and Reporting California Excise and Sales Tax
Starting January 1, 2023, the responsibility for collecting and paying the cannabis excise tax in California shifted from distributors to cannabis retailers. This significant change means that California retailers need robust tools to manage and report their excise tax obligations effectively. Cova's Taxes module, available within the Cova HUB, empowers dispensaries to set up and track California excise tax seamlessly. Here's how Cova facilitates the calculation and reporting of California excise sales tax for cannabis retailers:
1. Tiered Tax Structure
Cova's Taxes module allows dispensaries to create tiers of compound taxes. This feature is particularly beneficial for California cannabis dispensaries, as it enables them to handle the intricate tax structure in the state effectively. With the ability to set up tiered tax rates, businesses can accurately calculate and apply the 15 percent excise tax to their cannabis products.
2. Detailed Reports
Cova provides dispensaries with access to the California Excise Tax report within the Advanced Reports section of the HUB. This report is a powerful tool that allows businesses to track product sales for specific date ranges. It simplifies compliance with tax regulations by providing insights into excise tax liabilities. Dispensaries can utilize filters, such as Sold Date(s) and Received Date(s), to identify products sold in a particular year but received in the previous year, ensuring accurate tax reporting.
3. Streamlined Cannabis Compliance
With Cova's tax management tools, dispensaries can streamline their compliance efforts. California's excise tax regulations are complex, and errors in tax calculation or reporting can lead to compliance risks and legal consequences. Cova's user-friendly interface and comprehensive reporting capabilities help businesses stay on top of their excise tax obligations, reducing the risk of compliance issues.
In conclusion, understanding the California cannabis sales tax landscape is crucial for both dispensary owners and customers. The tax rates and regulations can vary by location and product type, making it essential for retailers to stay informed and prepared to explain these taxes to their patrons. With Cova's advanced tax management tools and comprehensive reporting capabilities, dispensaries can navigate California cannabis compliance and the evolving tax landscape with confidence. Click below to learn more about how Cova and our solutions can help your dispensary always stay compliant.