Retailers with Cannabis Businesses

A cannabis retailer is a person required to be licensed by the Department of Cannabis Control (DCC) to engage in the retail sale or delivery of cannabis or cannabis products to customers.

A microbusiness license authorizes the licensee to operate as more than one type of business as approved by DCC at the same licensed premises. A microbusiness that operates as a cannabis retailer is responsible for all the same requirements under the Cannabis Tax Law as a licensed cannabis retailer.

If you are a cannabis retailer or a microbusiness making retail sales of cannabis or cannabis products, you are required to:

• Register with us for a seller's permit.
• Charge and collect sales tax on your taxable retail sales of cannabis, cannabis products, and any other tangible personal property sold in California.
• Report and pay use tax on taxable items purchased without payment of tax and used in California (for example, items removed from your resale inventory and used).
• File your sales and use tax returns online and pay the sales and/or use tax to us.

Beginning January 1, 2023, you are required to:

• Register with us for a cannabis retailer excise tax permit.
• Collect the 15 percent cannabis excise tax from your customers who purchase cannabis or cannabis products based on gross receipts from the retail sale.
• Provide each customer with an invoice, receipt, or other document that separately states the cannabis excise tax.
• File your cannabis retailer excise tax return online and pay the cannabis excise tax to us for your retail sales of cannabis or cannabis products made on and after January 1, 2023.

In addition, you must also:

• Obtain a cannabis retailer license issued by the Department of Cannabis Control.
• Contact your city and/or county government office for information on local licenses you may be required to obtain.
• Maintain adequate records.

Industry Topics

Sales Tax in General

Your retail sales of cannabis, cannabis products, and any other tangible personal property you sell in California are generally subject to sales tax, unless the law provides a specific exemption.

Your retail sales of medicinal cannabis or medicinal cannabis products are exempt from sales tax when the purchaser provides you with a valid government-issued identification card along with their valid Medical Marijuana Identification Card issued by the California Department of Public Health indicating they are a qualified patient or the primary caregiver for a qualified patient. Please refer to the Certain Sales of Medicinal Cannabis Exempt from Sales and Use Tax heading below for more information.

In addition to the sales price of the item being sold, the following items must also be included in the gross receipts subject to sales tax:

• The cannabis excise tax amount due on the retail sale of cannabis or cannabis products.
• Delivery charges when retailers make deliveries with their own vehicles. For more information on shipping or delivery charges, see publication 100, Shipping and Delivery Charges.
• Any local business tax listed separately on the receipt to your customer. Please refer to the Local Government Cannabis Business Taxes heading below for more information.

See the Example of Tax Computation Beginning January 1, 2023, heading below for an example of how the cannabis excise tax and sales tax are calculated.

The sales tax rate is made up of different components: a state tax rate, the local tax rate, and any district tax rate that may be in effect. The tax rate varies across the state and will generally depend on the location of your business. You may look up the current sales and use tax rate by visiting our Find a Sales and Use Tax Rate webpage.

Sales Tax Reimbursement

As a retailer, you are liable for the sales tax on your taxable sales, and you must report and pay the sales tax to us. A retailer has the option to collect sales tax reimbursement from their customers, but it is not mandatory.

If sales tax is included in the sales price, you must post a sign notifying your customers that the sales tax is included in the sales price. If signage is not posted on the premises visible to the customer, then sales tax must be based on the sales price and added to the receipt.

The current sales and use tax rates are available on our Find a Sales and Use Tax Rate webpage.

Cannabis Excise Tax Beginning January 1, 2023

Your retail sales of cannabis or cannabis products are subject to the cannabis excise tax. The cannabis excise tax is currently 15 percent of the gross receipts of any retail sale of cannabis or cannabis products. The 15 percent rate is subject to change beginning July 1, 2025.

• Gross receipts include the sales price of the cannabis or cannabis products, after discounts, and all charges related to the sale, such as delivery fees and any local cannabis business tax listed separately on the invoice or receipt provided to your customer.
• Gross receipts subject to cannabis excise tax do not include sales tax.

You are responsible for collecting the cannabis excise tax from your customers at the time of the retail sale of cannabis or cannabis products. The cannabis excise tax must be listed separately on the receipt or invoice provided to your customer. The cannabis excise tax is included in gross receipts subject to sales tax.

You must file cannabis retailer excise tax returns online and pay the cannabis excise tax due to CDTFA.

Gross Receipts

Gross receipts are defined under Revenue and Taxation Code (R&TC) section 34010 to have the same meaning as set forth under R&TC 6012. Regulation 3802 provides additional guidance regarding gross receipts for purposes of the cannabis excise tax. For additional information regarding gross receipts, please see our Cannabis Tax Fact — Gross Receipts Subject to Cannabis Excise Tax.

Example of Tax Computation Beginning January 1, 2023

For this example, the selling price of a cannabis product is $35.00. You deliver the item to your customer with your own vehicle and charge a $5.00 delivery fee and a $3.00 payment processing fee as a service fee. This example also assumes an 8.5 percent sales tax rate and a 10 percent local cannabis business tax which you separately state on the receipt to your customer. Both the local cannabis business tax and delivery fee in this example are subject to the cannabis excise tax and sales tax.

Excise tax calculation:

The 15 percent cannabis excise tax rate applies to the subtotal of $46.50, which calculates to $6.98 of cannabis excise tax due for this example.

We can now calculate the sales tax for this transaction. Gross receipts for purposes of calculating the sales tax include the cannabis excise tax. Therefore, the subtotal of $46.50 and the cannabis excise tax due of $6.98 are added to calculate the gross receipts subject to sales tax.

Sales tax computation:

The 8.5 percent sales tax rate applies to the subtotal of $53.48, which calculates to $4.55 of sales tax due for this example, and the total amount due from the customer is $58.03.

This is just a sample scenario. Different sales tax, cannabis excise tax, and local cannabis business tax rates may apply to your transactions, and you must use the rates in effect at the time of sale.

You may look up the current sales and use tax rate by visiting our Find a Sales and Use Tax Rate webpage.

The current cannabis excise tax rate is posted on our Special Taxes and Fees Rates Page under Cannabis Taxes.

Credit for Cannabis Excise Tax Paid to a Distributor

As a cannabis retailer, you must pay your distributor any amount of cannabis excise tax due for cannabis or cannabis products that you received or purchased from the distributor prior to January 1, 2023.

You may claim a credit on your cannabis retailer excise tax return for any cannabis excise tax paid to a distributor for cannabis or cannabis products the distributor sold or transferred to the retailer before January 1, 2023, and sold at retail on and after January 1, 2023.

The credit must be taken on your cannabis retailer excise tax return filed for the period in which the retail sale of the cannabis or cannabis products occurred. If the credit is not taken on the corresponding return, you may file a claim for refund for the amount for which you could have claimed a timely credit.

You must keep documentation to support any credits reported on your cannabis retailer excise tax return. Without proper documentation, the claimed credit may be disallowed, and you may be held liable for any unpaid cannabis excise tax.

Documentation may include, but is not limited to:

• Sales invoice or receipt indicating cannabis or cannabis products were sold in a retail sale on or after January 1, 2023. The invoice or receipt must include the associated unique identifier for the cannabis or cannabis products sold to the customer.
• Purchase invoice indicating the cannabis excise paid to the distributor on cannabis or cannabis products sold to the cannabis retailer prior to January 1, 2023, that includes:
  • The distributor's name and their Department of Cannabis Control license number.
  • The date the distributor sold or transferred the cannabis or cannabis products to the cannabis retailer.
  • The amount of cannabis excise tax the cannabis retailer paid to the distributor on cannabis or cannabis products sold to the cannabis retailer prior to January 1, 2023.
  • The associated unique identifier for the cannabis or cannabis products for which the cannabis excise tax was paid to the distributor.
• Any other records supporting the payment of the cannabis excise tax to a distributor for cannabis or cannabis products the distributor sold or transferred to the retailer prior to January 1, 2023, and sold at retail on and after January 1, 2023.

Retain Vendor Compensation

Cannabis retailers may retain vendor compensation of 20 percent of the cannabis excise taxes due on their retail sales of cannabis or cannabis products authorized under their retailer license issued by the Department of Cannabis Control (DCC) for one licensed retail premises, if:

• They have been approved by DCC for a fee waiver applicable to the issuance or renewal of that retailer license.
• They submit a Vendor Compensation Application with us and receive approval by us to retain vendor compensation under that retailer license.

Vendor Compensation Application

Cannabis retailers may request approval to retain vendor compensation by submitting a completed Vendor Compensation Application to us by logging into their online services account with their username and password. After logging in, find the cannabis retailer excise tax account and select the More option. The Vendor Compensation Application link is listed under the More section of the page.

When submitting the Vendor Compensation Application, cannabis retailers will be required to provide the following information and documentation:

• The name under which the cannabis retailer transacts business.
• The address of each licensed premises where the cannabis retailer engages in retail sales of cannabis or cannabis products (retail location(s)), and identification of the retail location under the retailer license approved for the DCC fee waiver.
• The cannabis retailer's excise tax permit and seller's permit.
• The issuance and expiration dates and license number of the retailer license that was approved for the DCC fee waiver.
• The date DCC approved the cannabis retailer for the DCC fee waiver.
• The contact information for the individual completing the application.
• A copy of the DCC approved fee waiver sent or emailed to the cannabis retailer.
• A copy of the retailer license that was approved for the DCC fee waiver.

Vendor compensation approval and period of retention

• We will send the cannabis retailer an email notification once the Vendor Compensation Application is approved or denied.
• The approval notification will include the period for which the cannabis retailer may retain vendor compensation (retention period).
• The retention period will begin on the first day of the calendar quarter following the date we issue the notice approving vendor compensation. For example, if we approve a Vendor Compensation Application on January 18, 2023, the retention period will begin on April 1, 2023.
• The retention period will generally be for a 12-month period as long as the cannabis retailer remains eligible for the DCC fee waiver for that period. Retention periods will not extend beyond December 31, 2025.

Report vendor compensation on the cannabis retailer excise tax return

• If approved, a cannabis retailer may retain vendor compensation from the cannabis excise taxes due on their retail sales of cannabis or cannabis products.
• The cannabis excise tax retained for vendor compensation must be collected on retail sales made under the retailer license that was approved by DCC for a fee waiver.
• The cannabis retailer should report the amount of vendor compensation retained from the cannabis excise tax on their cannabis retailer excise tax return based on the retail sales of cannabis or cannabis products made at the retail location under the retailer license approved for vendor compensation for the corresponding reporting period in which they made the retail sales.
• Vendor compensation cannot be retained on any retail sales made if the cannabis retailer license is expired or revoked or made under any other cannabis retailer license.

California Cannabis Track-and-Trace (CCTT)

You, as a cannabis retailer, are required to record in the CCTT system your wholesale cost and the retail selling price of the cannabis or cannabis products when the items are sold at retail, as well as comply with other requirements established in the Department of Cannabis Control's regulations.

There are several new optional fields available in the CCTT system when recording retail receipts.

Under the Transaction Details option for each sales receipt, the following is a list of new fields you should use when recording the sales price of cannabis or cannabis products sold in a retail sale.

• Invoice number – the number on the receipt or invoice to the customer.
• Price – the selling price of the cannabis or cannabis products before taxes.
• Excise tax – the cannabis excise tax imposed by the state.
• City tax – the local business tax imposed by the city if applicable.
• County tax – the local business tax imposed by the county if applicable.
• Municipal tax – the local business tax imposed by a municipality if applicable.
• Discount – use this field to record a discount applied to the overall ticket price, if applicable.
• Sales tax – the California sales tax.

These fields can also be entered using the file import feature in the CCTT system.

You can find additional information regarding new CCTT features on Metrc's California Bulletin Database page.

Losses Due to Theft

You are required to pay sales tax and cannabis excise tax on all taxable sales despite the loss of cash due to theft. There is no exemption or deduction of the sales and use tax and cannabis excise tax due to theft of cash.

• The cannabis excise tax is imposed on cannabis or cannabis products sold at retail. Therefore, if cannabis or cannabis products are stolen from a cannabis retailer, the cannabis excise tax does not apply because no retail sale occurred.
• In addition, loss of merchandise due to theft is not deductible for sales tax purposes (as no retail sale occurred). However, since the loss of merchandise from theft may affect your cost of goods sold, you should maintain documentation in case of an audit.

For both sales and use tax and cannabis excise tax, acceptable forms of documentation for loss due to theft may include police reports and/or insurance claims.

In addition, please contact the Department of Cannabis Control for your requirements with them when you have losses due to theft.

Sales of Cannabidiol (CBD) Products

CBD products that contain cannabis are subject to the cannabis excise tax. CBD products which are derived from industrial hemp plants and do not contain cannabis are not subject to the cannabis excise tax, even if the CBD product contains trace amounts of Tetrahydrocannabinol (THC).

The Cannabis Tax Law and the Health and Safety Code define cannabis and cannabis products. "Cannabis" is defined "all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resin extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of the plant, its seeds or resin" and does not include industrial hemp.

"Cannabis products" are defined as cannabis that has undergone a process whereby the plant material has been transformed into a concentrate, including but not limited to, concentrated cannabis, or an edible or topical product containing cannabis or concentrated cannabis and other ingredients.

The California Department of Food and Agriculture (CDFA) regulates the industrial hemp industry. Please contact CDFA for specific information on industrial hemp.

The California Department of Public Health (CDPH) has regulatory authority over industrial hemp products. Please contact CDPH for specific information regarding industrial hemp products.

Cannabis Trade Samples

California law allows certain cannabis licensees to provide and receive cannabis or cannabis products trade samples (cannabis trade samples). As a cannabis retailer, you can receive cannabis trade samples from cultivators, manufacturers, distributors, and microbusinesses authorized to engage in cultivation, manufacturing, or distribution, but you cannot designate cannabis or cannabis products as trade samples and provide cannabis trade samples to other licensees or consumers. The cannabis excise tax does not apply to cannabis trade samples.

Please visit DCC's website for additional information regarding cannabis trade sample requirements.

Documenting receipt of cannabis trade samples:

You are required by law to keep business records so that we may verify the accuracy of the cannabis trade samples you received. The records you keep should be consistent with the information recorded in the California Cannabis Track-and-Trace system regarding the transfer of cannabis trade samples to you.

Taxes may be due for cannabis trade samples:

• A cannabis licensee that receives cannabis or cannabis products as trade samples and later sells the cannabis or cannabis products is liable for cannabis excise tax along with applicable penalties and interest on the cannabis or cannabis products sold.
• A cannabis licensee that sells cannabis or cannabis products designated as trade samples in a retail sale is liable for sales tax due on the cannabis or cannabis products sold.

Donated Medicinal Cannabis

Cannabis retailers may provide free medicinal cannabis or medicinal cannabis products (medicinal cannabis) to medicinal cannabis patients or their primary caregiver. When you, as a retailer, donate free medicinal cannabis to a medicinal cannabis patient or their primary caregiver, the cannabis excise tax and use tax do not apply.

The medicinal cannabis patient must have a qualifying physician’s recommendation, or the patient or the patient’s primary caregiver must have a valid Medical Marijuana Identification Card issued by the California Department of Public Health. When you receive medicinal cannabis designated for donation from another licensee, you must certify in writing to that licensee, using a document, such as a letter, note, or purchase order, that you will donate the medicinal cannabis to a medicinal cannabis patient or their primary caregiver. You should keep a copy of the written certification that you provided to the licensee who provided the medicinal cannabis.

When taken in good faith, the written certification relieves you from the liability for the use tax when donating the medicinal cannabis to a medicinal cannabis patient or their primary caregiver. However, if you later sell or use medicinal cannabis designated for donation in some other manner, you are liable for any taxes that are due, including the cannabis excise tax and sales or use tax, along with applicable penalties and interest on the medicinal cannabis sold or used in a manner other than for donation.

For information on the sales tax exemption for certain medicinal cannabis sales, please see the heading Certain Sales of Medicinal Cannabis Exempt from Sales and Use Tax below.

Discounted Sales

There may be times when you run a promotion that discounts the selling price of a cannabis or cannabis product, including, deep discounts or two for the price of one discounts. The cannabis excise tax and sales and use tax still apply to sales of discounted cannabis or cannabis product.

Sales made for less than 50 percent of cost
Generally, if a sale is made for less than 50 percent of your cost when the value of the merchandise is not obsolete or about to expire, you do not owe sales tax, but you do owe use tax on your cost of the product sold.

For example, you sell a cannabis product that is not obsolete or about to expire for $1.00; you originally purchased this product from your supplier for $10.00. Since your selling price is less than 50 percent of your cost to purchase the cannabis product, you owe use tax based on your purchase price of $10.00. If the sales and use tax rate at your retail store location is 9.5 percent, you owe use tax of $0.95 ($10.00 × 9.5 percent) on this transaction.

To pay use tax, you should report your cost (which is generally your purchase price) of the cannabis or cannabis product as Purchases Subject to Use Tax on your sales and use tax return. Those purchases become part of the total amount that is subject to tax.

For more information on use tax, visit our use tax webpage.

Promotions
If you run a promotion where your customer buys an amount of cannabis or a particular cannabis product at the full selling price and then receives additional cannabis or cannabis product for a reduced price, you owe sales tax based on the amount you receive from your customer.

For example, you run a promotion that allows new customers who purchase an eighth of an ounce of cannabis for $35.00 to purchase another eighth of an ounce for $1.00. You owe sales tax based on your total selling price of $36 for this promotion, plus the cannabis excise tax. If the sales and use tax rate at your store location is 9.5 percent and the cannabis excise tax amount is $5.40, the sales tax due is $3.93 (($36.00 + $5.40) × 9.5 percent).

Collectives/Cooperatives

The Cannabis Tax Law provides that any person required to be licensed as a cannabis retailer by the Department of Cannabis Control (DCC), must collect the cannabis excise tax from a purchaser and pay the cannabis excise tax owed to CDTFA.

For more information on the legal requirements that must be satisfied to operate as a cannabis collective or cooperative, please contact the Department of Cannabis Control to determine your cannabis licensing requirements.

For sales and use tax purposes, a cannabis collective or cooperative generally means a group of people organized for the mutual benefit of its members who equitably share ownership in the cannabis or cannabis products produced and the costs and expenses incurred in producing the cannabis or cannabis products.

Generally, a cannabis collective or cooperative charges a membership fee or requires a certain amount of labor be performed. Paying the fee or performing the labor entitles each member to a proportionate share of the cannabis or cannabis products produced. Sales or use tax and cannabis excise tax does not apply to the transfer of cannabis or cannabis products to members of the collective or cooperative, assuming each member of the collective or cooperative has an ownership interest in the cannabis, prior to its harvest, proportionate to their contribution, and no amount is charged above and beyond the equitable contribution of a member.

Sales tax and cannabis excise tax does apply to any retail sales of cannabis or cannabis products if sales are made to individuals that are not members of the collective or cooperative, or if a member is charged an amount above their equitable share of the costs and expenses, or the member has no ownership interest in the cannabis or cannabis product prior to transfer.

Certain Sales of Medicinal Cannabis Sales Exempt from Sales and Use Tax

The sales and use tax exemption applies to the retail sales or the storage, use, or consumption in this state of medicinal cannabis or medicinal cannabis products, as those terms are defined in the Business and Professions code section 26001. To obtain the exemption, qualified patients or their primary caregiver must furnish their valid Medical Marijuana Identification Card (MMIC) issued by the California Department of Public Health (CDPH) and a valid government-issued identification card (ID) at the time of purchase.

To properly claim the sales and use tax exemption, you should not collect sales tax reimbursement on the qualifying exempt sales of medicinal cannabis or medicinal cannabis products. In addition, you should claim a deduction on your sales and use tax return for the qualifying exempt medicinal cannabis or medicinal cannabis products sales. To claim the exempt sales, you must verify that purchasers have the proper identification (a valid MMIC and a valid government-issued ID) and maintain specific information for your records as explained below under the Record Keeping section.

This exemption only applies to sales and use tax and does not apply to the cannabis excise tax due on retail sales of medicinal cannabis or medicinal cannabis products.

Record Keeping

Cannabis retailers who make qualifying exempt sales of medicinal cannabis or medicinal cannabis products and claim the deduction on their sales and use tax return, should maintain the following records (either physical or electronic) for each transaction:

• The purchaser's nine-digit ID number and expiration date, as shown on the qualified patient's or primary caregiver's unexpired Medical Marijuana Identification Card (MMIC) (see below for example of a patient MMIC); and
• The related sales invoice or other original record of sale.

A valid MMIC is issued by the CDPH. The card includes the following features:

• Issued by the "State of California" with the state seal.
• States either "Patient" or "Caregiver".
• Patient's or primary caregiver's photo.
• Nine-digit ID number.
• CDPH website to verify ID number.
• Expiration date.
• County that issued card with phone number.

Retailers may verify the validity of the nine-digit ID number on the CDPH website.

Consignment Sales

You are responsible for obtaining a seller's permit and reporting and paying the sales tax on the retail selling price of consignment sales.

When you have possession or control of the item you are selling and can transfer ownership or use of the item to the buyer without further action on the part of the owner, you are considered the retailer of the item.

For example, your store accepts pipes and accessories to sell on consignment. You agree to sell the products but will not pay for the product unless it sells. Your agreement authorizes you to sell the products and transfer ownership to the buyer. You are considered the retailer of the accessories you sell in this way and must pay sales tax based on your retail selling price.

For more information, please see publication 114, Consignment Sales.

Temporary Cannabis Events

Department of Cannabis Control (DCC) regulations provide that only licensed retailers (including non-storefront retailers) or microbusinesses authorized to sell cannabis to retail customers may sell cannabis or cannabis products at a temporary event. The cannabis excise tax and generally the sales and use tax apply to any retail sales of cannabis or cannabis product.

For more information on what sales tax applies to your retail sales, see the Sales Tax in General heading above. You will pay the sales and use tax due to CDTFA with your sales and use tax return.

It is important to make sure that you appropriately register for a seller's permit for each location in which you make sales. Generally, if you will be selling items at a location for fewer than 90 days, you are considered a temporary seller and are required to hold a temporary seller's permit. You will need to register each temporary sales location. On the other hand, if you already hold a seller's permit for a permanent place of business but also make sales at a temporary location, you will not need to register for a separate temporary seller's permit. Instead, you must register for a sub-permit for each of your temporary locations. You may register for a sub-permit by selecting the Permits & Licenses heading on the top navigation of our website. For more information about temporary sellers, please see our Temporary Sellers guide.

DCC is the agency that issues state licenses for temporary cannabis events. For more information on temporary cannabis events, please see the DCC website.

Sales Made on State-Designated Fairgrounds

If you are a retailer who makes sales of tangible personal property that take place on the real property of a California state-designated fair (state-designated fairground), you must separately state the amount of those sales on your sales and use tax return. Sales that take place on state-designated fairgrounds include over-the-counter sales on the fairgrounds and may include sales in which the property is shipped or delivered to or from the fairground.

The separately reported amount will be used for funding allocation purposes only. There is no additional tax or fee due on these sales. For more information on the new reporting requirement, please see Tax Guide for Reporting Requirement on State-Designated Fairgrounds.

Purchases

When you purchase a product that will be resold, you can purchase it without paying sales or use tax by providing the seller a valid and timely resale certificate. Sales tax will apply when you sell the product at retail. However, when you purchase a product for resale without paying sales tax but, instead of selling it, you consume or use the product, then you owe the use tax based upon the amount of the purchase price.

For example, if you issue a resale certificate when purchasing a pipe but instead gift it to someone, you owe use tax based upon its purchase price.

The use tax rate is the same as the sales tax rate in effect at the location of use.

To pay use tax, report the purchase price of the taxable items as Purchases Subject to Use Tax on your sales and use tax return. Those purchases become part of the total amount that is subject to tax.

For more information about issuing resale certificates, see publication 103, Sales for Resale.

For more information on use tax, visit our use tax webpage.

Supplies, Equipment, and other Business Expenses

Products you purchase for use in your business (signs, fire extinguishers, display cases, weight and measure equipment, computers, etc.) are subject to sales tax at the time of purchase. Your supplier will normally collect and report the sales tax. However, if you purchase equipment or supplies for use in your business online or from an out-of-state seller, the sale may be subject to use tax.

If the out-of-state seller does not charge California use tax, you should report the purchase price on your sales and use tax return. To pay the use tax, report the purchase price of the taxable products under Purchases Subject to Use Tax on your sales and use tax return. Those purchases become part of the total amount subject to tax.

In general, wrapping and packaging supplies used to wrap merchandise or bags in which you place products sold to your customers, may be purchased for resale (see Regulation 1589 for more details). All other purchases of supplies are generally subject to tax.

To find out more about use tax, please visit our use tax webpage.

Local Government Cannabis Business Taxes

Many cities and counties have enacted measures requiring that cannabis businesses located in their jurisdictions pay a cannabis business tax. If you add a separate amount to your customers' invoices or receipts to cover your cannabis business tax, cannabis excise tax and sales tax applies to the cannabis business tax amount.

Generally, whenever an expense of the retailer is separately added to any taxable sale, the expense is also subject to sales tax and cannabis excise tax.

In the example below, the computation of cannabis excise tax and sales tax on a taxable sale includes a cannabis business tax. Sales tax is applied to the total selling price including the cannabis excise tax and cannabis business tax. This example assumes an 8.5 percent sales tax rate and a 10 percent cannabis business tax.

Excise tax calculation:

The 15 percent cannabis excise tax rate applies to the subtotal of $43.50, which calculates to $6.53 of cannabis excise tax due for this example.

Sales tax calculation:

This example assumes a 15 percent cannabis excise tax rate and an 8.5 percent sales and use tax rate. You must use the rates in effect at the time of the retail sale.

• The current cannabis excise tax rate can be found on the Special Taxes and Fees Rates Page, under Cannabis Taxes.
• You may look up the current sales and use tax rate by visiting our Find a Sales and Use Tax Rate page.

This example is to illustrate how cannabis excise tax and sales tax apply and is not intended to be used as a guide on how to calculate a cannabis business tax imposed by local governments. We do not administer local government cannabis business taxes. Please refer to your local government for information on the application of a cannabis business tax.

Record Keeping

You are required by law to keep business records so that we may verify the accuracy of your sales and use tax return and determine how much tax is due, when a return has not been filed.

Additionally, maintaining good books and records will help you keep track of your sales and purchases and assist you when preparing your sales and use tax return and cannabis retailer excise tax return. Tax laws require that records must be kept for at least four years, unless otherwise directed by us. If you do not maintain records, we may consider it evidence of negligence or intent to evade the tax and penalties may be assessed.

Examples of records you must keep include:

• Sales invoices
• Point of sale records
• Cash register tapes
• Sales journals
• Resale certificates
• Shipping documents
• Purchase invoices
• Bank records
• Purchase orders
• Purchase journals
• Tax returns
• California Cannabis Track-and-Trace records that include transactional data

For more detailed information on recordkeeping, please see our Keeping Records webpage, publication 76, Audits, and Regulations 1698 and 4901.

The Medicinal and Adult-Use Cannabis Regulation and Safety Act requires a licensee to keep accurate records of commercial cannabis activity for a minimum of seven years. For example, every sale or transport of cannabis or cannabis products from one licensee to another must be recorded on a sales invoice or receipt. Sales invoices and receipts may be maintained electronically and must be available for review. Each sales invoice or receipt must include:

• The name and address of the seller.
• The name and address of the purchaser.
• The date of sale and invoice number.
• The kind, quantity, size, and capacity of packages of cannabis or cannabis products sold.
• The cost to the purchaser, including any discount applied to the price shown on the invoice.
• The location of transport of the cannabis or cannabis product unless the transport was from the licensee's location.
• Any other information specified by the licensing authority.

Refunds

If you believe you have paid more sales or use tax or cannabis excise tax than you owe, you may file a claim for refund using our online services.

To submit a claim for refund, log in using your username and password, and click on the account for which you want to request a refund. The claim for refund is located under the I Want To section, More subsection. Select the Submit a Claim for Refund link and follow the prompts.

Claims for refund must state the specific reason(s) for the overpayment, specify the period for which you are making the claim, and the amount of the overpayment. We may request documentation to support your claim.

Be sure to file your claim for refund by the applicable deadline. If you don't file on time, we cannot consider your claim even if you overpaid the tax. You must file a claim for refund by whichever of the following dates occurs last:

• Three years after the due date of the return on the period for which you overpaid the tax.
• Six months after you overpaid the tax.
• Six months after the date a determination (billing) became final.
• Three years after we collected an involuntary payment, such as from a levy or lien.

You may file a claim for refund for any excess cannabis excise tax reported and paid to CDTFA and then later returned to your customer. You may establish that the excess cannabis excise tax was refunded to your customer by providing any type of record showing the refund that can be verified by us, such as a receipt, cancelled check, or books of account showing that the credit has been allowed to the customer as an offset against an existing amount owed to you.

For more information, see our publication 117, Filing a Claim for Refund.

50 Percent Penalty for Late Payment of Cannabis Excise Tax

The Cannabis Tax Law imposes a minimum mandatory 50 percent penalty for not paying the amount of cannabis excise tax due.

If you do not pay the cannabis excise tax by your due date and you are assessed a 50 percent penalty, you may be relieved of the 50 percent penalty if we find that you did not timely pay due to a reasonable cause and circumstances beyond your control, and you exercised ordinary care and there was an absence of willful neglect.

To request relief of the mandatory 50 percent penalty, you must file a statement with us, signed under penalty of perjury, which states the facts upon which the request for penalty relief is based.

You may also be relieved of the 50 percent penalty if you are in an area identified in a state of emergency proclamation made by the Governor for the period the state of emergency proclamation is effective. We may grant the relief only during the first 12 months following the issuance of the state of emergency proclamation or the duration of the state of emergency, whichever is less.

You may request relief of penalty by visiting our Online Services page, and following the directions under the Request Relief tab

Historical Industry Topics

The historical industry topics listed below apply to transactions that occurred prior to January 1, 2023.

Cannabis Excise Tax Collection (January 1, 2018 – December 31, 2022)

The cannabis excise tax is imposed on the purchaser of cannabis or cannabis products. As a retailer, you are required to collect the cannabis excise tax from your customers at the time of the retail sale of cannabis or cannabis products.

For sales or transfers of cannabis or cannabis products from distributors before January 1, 2023

As a cannabis retailer, you must pay the cannabis excise tax to your distributor for cannabis or cannabis products you purchased or received from your distributor prior to January 1, 2023. Cannabis or cannabis products may not be sold unless the cannabis excise tax is paid by the purchaser at the time of sale.

Cannabis distributors are required to calculate and collect the cannabis excise tax from you on cannabis or cannabis products that they sell or transfer before January 1, 2023, to you based on the average market price of the cannabis or cannabis products. When you sell cannabis or cannabis products in a retail sale prior to January 1, 2023, you are required to collect the cannabis excise tax from the purchaser based on the average market price of the cannabis or cannabis products. The easiest way to calculate the cannabis excise tax is to include the amount of cannabis excise tax that you paid to your distributor in the selling price to the purchaser. You are not required to itemize the amount of cannabis excise tax collected from your customer on the receipt for your retail sales made prior to January 1, 2023. You must include the following statement on every invoice or receipt to purchasers:

“The cannabis excise taxes are included in the total amount of this invoice.”

Average Market Price (January 1, 2018 – December 31, 2022)

A cannabis excise tax applies to the average market price of cannabis or cannabis products sold in a retail sale prior to January 1, 2023. The average market price is determined by the type of transaction (either “arm's length” or “nonarms' length”) that occurred when the seller (cultivator, manufacturer, or distributor) sold the product to you.

Arm's Length Transaction

An “arm's length transaction” is a sale entered into in good faith for a price that reflects the fair market value in the open market between two informed and willing parties, neither required to participate in the transaction.

In an arm's length transaction, the average market price means the average retail price determined by the wholesale cost of the cannabis or cannabis products sold or transferred to a cannabis retailer, plus a mark-up determined by us. On and after January 1, 2020, the wholesale cost is the amount you, the retailer, paid for the cannabis or cannabis products, including transportation charges. For transactions prior to January 1, 2020, the wholesale cost is the amount you, the retailer paid for the cannabis or cannabis products, including transportation charges and adding back in any discounts or trade allowances. For more information on wholesale cost, see the New Definition of Wholesale Cost for Calculating the Average Market Price heading under the Tax Facts tab.

CDTFA was required to determine the mark-up rate every six months, which applies through December 31, 2022. The mark-up rate is posted on our Special Taxes and Fees Rates Page, under Cannabis Taxes.

The mark-up rate is not intended to be used to determine each party's selling price. The mark-up is only used by the distributor to calculate the amount of excise tax due in an arm's length transaction. Each party in the supply chain can use any mark-up they would like to establish their selling price. Your actual retail selling price may be different than the average market price. The excise tax amount collected from your customers should be the same amount collected from you by your distributor.

Nonarm's Length Transaction

A nonarm's length transaction is a transaction that does not meet the definition of an arm's length transaction, meaning there is no good faith sale to a cannabis retailer at a price reflecting fair market value.

In a nonarm's length transaction, the average market price means the cannabis retailer's gross receipts from the retail sale of the cannabis or cannabis products. Gross receipts include all charges related to your sales, such as labor, service, certain transportation charges, and any local business tax listed separately on the invoice or receipt. For more information on gross receipts, see Revenue and Taxation Code section 6012 and the Nonarm's Length Transaction heading on this page.

Arm's Length Transaction (January 1, 2018 – December 31, 2022)

An “arm's length transaction” is a sale entered into in good faith, between the cannabis retailer and its supplier at a sales price that reflects the fair market value in the open market between two informed and willing parties, neither under any compulsion to participate in the transaction. In an arm's length transaction, the average market price means the average retail price determined by the wholesale cost of the cannabis or cannabis products sold or transferred to you, plus a mark-up.

Distributors are required to calculate and collect the amount of cannabis excise tax due on the cannabis or cannabis products they supply to you prior to January 1, 2023. For more information on how the cannabis excise tax is calculated in an arm's length transaction, see the heading Cannabis Excise Tax and Sales Tax Computation below.

Nonarm's Length Transaction (January 1, 2018 – December 31, 2022)

A “nonarm's length transaction” is a transaction that does not meet the definition of an “arm's length transaction.” In other words, the transaction is not a sale to a cannabis retailer that is entered into in good faith and that reflects fair market value in the open market. One example of a nonarm's length transaction would be when a distributor sells cannabis to a cannabis retailer at a sales price that is lower than what the same distributor offers to other cannabis retailers and, which does not reflect the fair market value.

When a microbusiness, authorized to cultivate cannabis or manufacture cannabis products, also sells cannabis or cannabis products at retail, there is no sale that reflects the fair market price in the open market from the cultivation or manufacturing part of the business to the retail part of the business. As such, the transaction would be a nonarm’s length transaction.

In a nonarm's length transaction, the average market price is the cannabis retailer's gross receipts from the retail sale of the cannabis or cannabis products.

The cannabis excise tax should be reported and paid based on 15 percent of the cannabis retailer's gross receipts. Gross receipts include all charges related to your sales, such as labor, service, delivery charges, and any local business tax listed separately on the invoice or receipt. For example, if you, as the retailer, deliver cannabis or cannabis products to your customers with your own vehicles and there is no explicit written agreement executed prior to the delivery that title passes to the purchaser before delivery, the charge for that delivery is included in the gross receipts subject to the cannabis excise tax. Additionally, if you add a separate amount to your customers' invoices or receipts to cover a cannabis business tax required by your city, that amount is included in the gross receipts subject to the cannabis excise tax. For more information on gross receipts, see Revenue and Taxation Code section 6012.

The example below provides a sample scenario and guidance on how to determine the average market price and calculate the cannabis excise tax and sales tax due in a nonarm's length transaction that occurred prior to January 1, 2023:

Example – A microbusiness (which is licensed to be a cultivator, distributor, manufacturer, and retailer) grows and sells the flowers at retail to their customers for $35.00 per eighth of an ounce. The microbusiness also charges $5.00 for delivery. This example assumes an 8.5 percent sales tax rate and a 10 percent business tax, but your actual rates may differ. You must use the rates in effect at the time of sale. Current sales tax rates can be found on our website.

The average market price is determined by the type of transaction (either arm's length or nonarm's length) that occurred when the seller (cultivator, manufacturer, or distributor) sold or transferred the product to the retailer.

Excise tax calculation:

Sales tax calculation:

The microbusiness is responsible for reporting and paying the cannabis excise tax of $6.53 ($43.50 × 15%) to us on their cannabis tax return. The microbusiness is also responsible for reporting and paying the sales tax of $4.25 ($50.03 × 8.5%) to us on their sales and use tax return.

Please check with your local jurisdiction for guidance on how the local business tax shall be calculated and for the current rate.

Mark-up Rate (January 1, 2018 – December 31, 2022)

Distributors use a mark-up rate to compute the average market price of cannabis and cannabis products sold or transferred prior to January 1, 2023, to a cannabis retailer in an arm's length transaction. The mark-up rate is not intended to be used to determine the amount for which you sell your cannabis and cannabis products. You may use any mark-up you would like to establish your selling price.

CDTFA was required to determine the mark-up rate every six months, which applies through December 31, 2022. The mark-up rate is posted on our Special Taxes and Fees Rates Page.

Cannabis Excise Tax and Sales Tax Computation (January 1, 2018 – December 31, 2022)

The cannabis excise tax is 15 percent of the average market price of cannabis or cannabis products sold in a retail sale prior to January 1, 2023, and the sales tax is based on your gross receipts. The examples below provide sample scenarios and guidance on how the cannabis excise tax and sales tax due are computed.

The examples assume a mark-up rate of 75 percent (0.75). You must use the rate in effect at the time of sale. The mark-up rates can be found on the Special Taxes and Fees Rates Page, under Cannabis Taxes.

Example #1 – Cannabis – from purchase to resale

This example explains:

1. How the distributor computes and charges you (the retailer) the cannabis excise tax due on cannabis or cannabis products that you purchase for resale prior to January 1, 2023;
2. How to collect the cannabis excise tax due from the purchaser for your retail sales made prior to January 1, 2023; and
3. How to compute the sales tax due on your retail sales of cannabis or cannabis products.

1. How the distributor computes the cannabis excise tax due for transactions that occur prior to January 1, 2023

You purchase one pound of cannabis flowers from your distributor for resale in your store. Your purchase from the distributor is an "arm's length" transaction, that is, your purchase price from your distributor reflects the fair market value in the open market.

Your distributor charges you $1,200 for the cannabis flowers and an additional $300 as a transportation fee. The distributor is required to collect the cannabis excise tax from you, which is computed as 15 percent of the “average market price” of the retail sale. In an arm's length transaction, the distributor determines the average market price by adding the 75 percent mark-up to your wholesale cost as follows:

The distributor computes the cannabis excise tax due of $393.75 on the average market price as follows:

The distributor must provide you with an invoice, receipt or other similar document that identifies you (the licensee receiving the product), the distributor from which the product originates, the associated unique identifier, and the amount of cannabis excise tax paid.

2. How to collect the cannabis excise tax due on your retail sales of cannabis or cannabis products made prior to January 1, 2023

When reselling the cannabis flowers purchased from your distributor in this transaction, you must collect the cannabis excise tax from the purchaser. You may not sell cannabis or cannabis products unless the purchaser pays the excise tax.

You are not required to itemize the cannabis excise tax on your receipt or invoice you provide to the purchaser, but you must include the following statement: “The cannabis excise taxes are included in the total amount of this invoice.”

3. How to compute the sales tax due on your retail sales of cannabis or cannabis products

The sales tax due on your taxable cannabis sales at retail must be computed on your selling price of cannabis, plus the cannabis excise tax. This example assumes an 8.5 percent sales tax rate, but your actual rate may differ. You must use the rates in effect at the time of sale. If you sell an eighth of an ounce of cannabis for $38.00, including the cannabis excise tax, assuming an 8.5 percent sales tax rate, you will be responsible for $3.23 in sales tax on your sale of an eighth of an ounce of cannabis:

When you report this sale on your sales and use tax return, the measure of tax (that is, the amount that is subject to sales tax) is $38, the selling price plus the cannabis excise tax.

If you do not separately state an amount for sales tax on the invoice or receipt you provide to your customer, you must post on your premises, or include on the price tag, in an advertisement, or other printed material, a notice to the effect: “All prices of taxable items include sales tax reimbursement computed to the nearest mill.”

Example 2 – Cannabis sold with a cannabis accessory

You sell an eighth of an ounce of cannabis for $38.00, which includes the cannabis excise tax, along with rolling papers. The selling price of the cannabis, including the cannabis excise tax, and the rolling papers are subject to sales tax.

Sales tax calculation:

Example 3 – Medicinal cannabis sold to a qualified patient or their primary caregiver

You sell an eighth of an ounce of cannabis for $38.00, which includes the cannabis excise tax, to a purchaser who has a valid Medical Marijuana Identification Card (MMIC) issued by the California Department of Public Health and a valid government issued identification card (ID).

Since the purchaser has a valid MMIC and ID, the sale is exempt from sales tax. There is no exemption from the cannabis excise tax.

Sales tax calculation:

Example 4 – Medicinal cannabis sold with a cannabis accessory

You sell an eighth of an ounce of cannabis for $38.00, which includes the cannabis excise tax, along with rolling papers to a purchaser who has a valid Medical Marijuana Identification Card (MMIC) issued by the California Department of Public Health and a valid government issued identification card (ID).

Since the purchaser has a valid MMIC and ID, the sale of cannabis is exempt from sales tax; however, sales tax does apply to the selling price of the rolling papers. There is no applicable exemption from the cannabis excise tax.

Sales tax calculation:

Example 5 – Medicinal cannabis sold to a purchaser with only a physician's note

You sell cannabis infused lotion for $40.00, which includes the cannabis excise tax, to a purchaser that provides you with a physician's note prescribing the product for medicinal use. The sales tax applies to the selling price of the lotion, including the cannabis excise tax. In order for the exemption from sales and use tax to apply, the purchaser must provide you with a valid Medical Marijuana Identification Card (MMIC) issued by the California Department of Public Health and a valid government issued identification card (ID). A physician's note is not sufficient to support the exemption from sales tax.

Sales tax calculation:

Receipts for Cannabis Excise Tax Paid to Cannabis Retailers (January 1, 2018 – December 31, 2022)

Each cannabis retailer is required to provide a purchaser (retail customer) of cannabis or cannabis products with an invoice, receipt, or other similar document for retail sales made prior to January 1, 2023, that includes the following statement:

“The cannabis excise taxes are included in the total amount of this invoice.”

This invoice or receipt with the required statement is sufficient to relieve the purchaser of their liability for the cannabis excise tax due on the purchase of cannabis or cannabis products.

The cannabis retailer may separately state the charge for the cannabis excise tax when cannabis or cannabis products are sold to the retail customer prior to January 1, 2023, and the separately stated charge must equal the excise tax required to be paid to the distributor, which may be more or less than 15-percent of the actual retail selling price. When the amount collected from the retail customer is more than what was paid to the distributor, the retailer has collected excess tax, which must be returned to the customer or paid to the distributor. The retailer cannot keep the excess tax amount collected.