Tax Facts for Cannabis Businesses

Gross Receipts Subject to Cannabis Excise Tax

As a cannabis retailer, you are responsible for collecting the 15-percent cannabis excise tax from purchasers (customers) of cannabis or cannabis products, based on the gross receipts from the retail sale of cannabis or cannabis products.

Gross receipts generally include any amount the purchaser is required to pay to purchase the cannabis or cannabis products, including but not limited to:

  • The selling price of the cannabis or cannabis products.
  • Any expense imposed on you as a retailer that you pass on to your customer, such as a local cannabis business tax.
  • Certain transportation fees when you deliver cannabis or cannabis products directly to your customer using your own vehicle.
  • Any charge for services that are part of the sale, such as a fee you charge your customer for processing a credit card payment.
  • The amount charged for any item the customer is required to purchase with the cannabis or cannabis products, including the packaging. For example:
    • The total amount charged for a cartridge and vaping device is included in gross receipts if the customer is required to purchase them both as a condition of the retail sale of the cannabis product contained in the cartridge.
    • The total amount charged for a bag, jar, or container in which the cannabis or cannabis product is contained is included in the gross receipts if the customer is required to purchase the bag, jar, or container as a condition of the retail sale of the cannabis or cannabis product.

    Below is an example on how the cannabis excise tax is calculated for a cannabis product sold at retail:

    Selling price of cannabis product
    $35.00
    Local cannabis business tax (10%)
    $3.50
    Delivery Fee
    $5.00
    Service Fee
    $3.00
    Gross Receipts Subject to Excise Tax
    $46.50
    Cannabis Excise Tax (15%)
    $6.98
    Gross Receipts Subject to Sales Tax
    $53.48

Notes

  1. The cannabis excise tax is included in gross receipts subject to sales tax.

On December 15, 2023, the Office of Administrative Law approved Regulation 3802, Gross Receipts from Sales of Cannabis and Cannabis Products, which provides additional guidance on gross receipts from sales of cannabis and cannabis products. For the full text of this regulation, you may access Regulation 3802 on our website.

  1. We do not administer local cannabis business taxes. For questions about the application of local cannabis business taxes, you should contact your local government agency. Any cannabis business tax included on the receipt to the customer is considered part of gross receipts unless otherwise excluded (see Revenue and Taxation Code section 6012).

District Tax on Deliveries of Cannabis or Cannabis Products

Your retail sales of cannabis, cannabis products, and any other tangible personal property (items) in California are generally subject to sales and use tax (tax) unless the law provides a specific exemption. The statewide sales and use tax rate is 7.25 percent (%); however, the tax rates are higher in areas where district taxes are also imposed. You are responsible for collecting and paying the total tax due, including the applicable district tax, when delivering items to customers in areas where district taxes are imposed.

Sales made at your business location versus sales delivered to your customer

If your business is in an area where district taxes are imposed, the applicable district tax rate is the rate in effect at your business location. When you deliver items to your customers, you are required to collect, report, and pay the district tax rate in effect at the location where the items are delivered.

As a reminder, locally-imposed cannabis business taxes that you pass on to your customers are also subject to sales or use tax, and your delivery charges are also generally taxable. Please see publication 100, Shipping and Delivery Charges, for more information on how tax applies to delivery charges.

Tax rates

You can find all the tax rates in California on our website. Please see our California City and County Sales and Use Tax Rates webpage. To find a sales and use tax rate by address, select the link Look up the current sales and use tax rate by address. The tax rate given will reflect the current rate for the address entered.

Example

A cannabis retailer makes sales at their business located in the city of Sacramento and also provides a delivery service to customers in nearby cities and counties. The city of Woodland has a different district tax rate, as well as a different local cannabis business tax rate, than Sacramento. The retailer is responsible for collecting, reporting, and paying the tax rate imposed by the applicable taxing district.

Sales made at your business located in the city of Sacramento

Excise tax calculation:

Selling price of cannabis product
$35.00
Local cannabis business tax ($35.00 × 4%)
$1.40
Subtotal subject to excise tax
$36.40
Cannabis excise tax rate
× 15%
Excise tax ($36.40 × 15%)
$5.46
Subtotal ($36.40 + $5.46)
$41.86

Sales tax computation:

Subtotal ($36.40 + $5.46)
$41.86
Sales tax rate
8.75%
Sales tax ($41.86 × 8.75%)
$3.66
Total due ($41.86 + $3.66)
$45.52

Sales delivered in the city of Woodland

Excise tax calculation:

Selling price of cannabis product
$35.00
Local cannabis business tax ($35.00 × 10%)
$3.50
Delivery charge
+ $5.00
Subtotal subject to excise tax
$43.50
Cannabis excise tax rate
× 15%
Excise tax ($43.50 × 15%)
$6.53
Subtotal ($43.50 + $6.53)
$50.03

Sales tax computation:

Subtotal ($43.50 + $6.53)
$50.03
Sales tax rate
8.00%
Sales tax ($50.03 × 8.00%)
$4.00
Total due ($50.03 + $4.00)
$54.03

This information is intended to give you an overview of how the district tax is calculated on your deliveries of cannabis or cannabis products and does not address all delivery requirements for the cannabis industry. Please contact the Department of Cannabis Control for questions on delivery requirements.

This example illustrates how cannabis excise tax and sales tax apply and is not intended to be used as a guide on whether to apply or how to calculate a cannabis business tax imposed by local governments. We do not administer local government cannabis business taxes. You should refer to your local government agency for information on the application of a cannabis business tax. Please visit www.calgold.ca.gov for local government contact information.

For More Information

We encourage you to read our Local and District Tax Guide for Retailers for more information and examples on local and district taxes. You may also find our Tax Guide for Cannabis Businesses helpful. If you have questions regarding this notice, you may call our Customer Service Center at 1 800 400 7115 (CRS:711), then select the option for Sales and Use Tax. Customer service representatives are available to assist you Monday through Friday from 7:30 a.m. to 5:00 p.m. (Pacific time), except state holidays.

Notes

  1. Revenue and Taxation Code (R&TC) section 6012, Revenue and Taxation Code (R&TC) section 6051
  2. R&TC section 7261; Sales and Use Tax Regulation (Regulation) 1823
  3. Regulation 1827
  4. R&TC section 6011, R&TC section 6012; Regulation 1628

New Receipt Requirements for Cannabis Retailers

As a cannabis retailer, many of your responsibilities under the Cannabis Tax Law have changed, including your receipt requirements.

Receipt requirement beginning January 1, 2023

When making a retail sale of cannabis or cannabis products, cannabis retailers are required to provide their customers with an invoice or receipt that separately states the cannabis excise tax due, as specified under Revenue and Taxation Code (R&TC) section 34011.2(d). Failure to separately state the cannabis excise tax on invoices or receipts may result in the entire selling price of the cannabis or cannabis products, without adjustment for any cannabis excise tax collected, being included in gross receipts and subject to the 15 percent cannabis excise tax.

Below is an example transaction that separately lists the cannabis excise tax to the customer. Please note that 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.

  • Selling price of cannabis product
  • $35.00
  • Local cannabis business tax ($35.00 × 10%)
  • $3.50
  • Delivery
  • $5.00
  • Subtotal subject to excise tax
  • $43.50
  • Excise tax ($43.50 × 15%)
  • $6.53
  • Subtotal ($43.50 + $6.53)
  • $50.03
  • Sales tax ($50.03 × 8.5%)
  • $4.25
  • Total
  • $54.28

Requirement to include statement is no longer applicable

The former requirement under R&TC section 34011(a)(2) that cannabis retailers provide their customers with an invoice or receipt including the statement “The cannabis excise taxes are included in the total amount of this invoice” is not applicable for retail sales of cannabis or cannabis products made on or after January 1, 2023.

Cultivation Tax No Longer Applies

Beginning July 1, 2022, the cultivation tax no longer applies to cannabis or cannabis products that enter the commercial market. Additionally, distributors and manufacturers are no longer required to collect the cultivation tax from cultivators when a cultivator sells or transfers cannabis to a manufacturer or distributor on or after July 1, 2022.

What happens when a cultivator sells cannabis to a distributor or manufacturer on or after July 1, 2022?

The distributor or manufacturer must not collect the cultivation tax from the cultivator. The invoice between the cultivator and distributor or manufacturer should indicate no cultivation tax was due.

What happens when a cultivator sells cannabis to a distributor or manufacturer before July 1, 2022, and the cannabis or cannabis products enter the commercial market on or after July 1, 2022?

The cultivation tax is not due on cannabis or cannabis products that enter the commercial market on or after July 1, 2022, even if a cultivator sold or transferred cannabis prior to July 1, 2022. Any cultivation tax collected on cannabis that entered the commercial market on or after July 1, 2022, must be returned to the cultivator that originally paid the cultivation tax. Cannabis enters the commercial market when the cannabis or cannabis products pass the required testing and quality assurance review.

How does a manufacturer pay excess cultivation tax collected?

A manufacturer who collected cultivation tax and cannot return it to the cultivator who paid it must transfer the excess cultivation tax collected to a distributor for the distributor to pay the excess cultivation tax collected to CDTFA.

How does a distributor pay excess cultivation tax?

A distributor must pay excess cultivation tax collected to CDTFA by reporting and paying the excess cultivation tax collected on their next cannabis tax return.