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Business Taxes Law Guide—Revision 2024

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Cannabis Tax Regulations

Title 18. Public Revenues
Division 2. California Department of Tax and Fee Administration — Business Taxes (State Board of Equalization — Business Taxes — See Chapters 6 and 9.9)

Chapter 8.7. Cannabis Tax Regulations

Chapter 8.8. Cannabis Excise Tax Effective on and After January 1, 2023

Chapter 8.7. Cannabis Tax Regulations

Regulation 3700. Cannabis Excise and Cultivation Taxes.

Reference: Sections 34010, 34011, 34012, 34013, 34015, 55041.1 and 55044, Revenue and Taxation Code; Section 11018.2, Health and Safety Code; Section 15570.40(b), Government Code.

(a) Definitions. For purposes of this chapter (Cannabis Tax Regulations, commencing with Regulation 3700), the definitions of terms in part 14.5, Cannabis Tax, (commencing with section 34010) of division 2 of the Revenue and Taxation Code shall apply and the following terms are defined or further defined below.

(1) "California Cannabis Track-and-Trace system" means the system all persons licensed pursuant to division 10 (commencing with section 26000) of the Business and Professions Code are required to use to record the inventory and movement of cannabis and cannabis products through the commercial cannabis supply chain.

(2) "Cannabis accessories" shall have the same meaning as set forth in section 11018.2 of the Health and Safety Code.

(3) "Cannabis flowers" means the flowers of the plant Cannabis sativa L. that have been harvested, dried, trimmed or untrimmed, and cured, and prior to any processing whereby the plant material is 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 term "cannabis flowers" excludes leaves and stems removed from the cannabis flowers prior to the cannabis flowers being transferred or sold.

(4) "Cannabis leaves" means all parts of the plant Cannabis sativa L. other than cannabis flowers that are sold or consumed.

(5) "Cultivator" means all persons required to be licensed to cultivate cannabis pursuant to division 10 (commencing with section 26000) of the Business and Professions Code, including a microbusiness that cultivates cannabis as set forth in paragraph (3) of subdivision (a) of section 26070 of the Business and Professions Code.

(6) "Distributor" means a person required to be licensed as a distributor pursuant to division 10 (commencing with section 26000) of the Business and Professions Code, including a microbusiness that acts as a licensed distributor as set forth in paragraph (3) of subdivision (a) of section 26070 of the Business and Professions Code.

(7) "Fresh cannabis plant" means the flowers, leaves, or a combination of adjoined flowers, leaves, stems, and stalk from the plant Cannabis sativa L. that is either cut off just above the roots, or otherwise removed from the plant.

To be considered "fresh cannabis plant," the flowers, leaves, or combination of adjoined flowers, leaves, stems, and stalk must be weighed within two hours of the plant being harvested and without any artificial drying such as increasing the ambient temperature of the room or any other form of drying, or curing and must be entered into the California Cannabis Track-and-Trace system, manifested, and invoiced as "fresh cannabis plant." If the California Cannabis Track-and-Trace system is not available, or a licensee is not required to record activity, the paper manifest or invoice shall indicate "fresh cannabis plant" is being sold or transferred.

(8) "Manufacturer" means a person required to be licensed as a manufacturer pursuant to division 10 (commencing with section 26000) of the Business and Professions Code, including a microbusiness that acts as a licensed manufacturer as set forth in paragraph (3) of subdivision (a) of section 26070 of the Business and Professions Code.

(9) "Ounce" means 28.35 grams.

(10) "Plant waste" means waste of the plant Cannabis sativa L. that is managed pursuant to the cannabis waste management provisions of chapter 1, division 8 of title 3 of the California Code of Regulations.

(11) "Wholesale cost" means:

(A) Prior to January 1, 2020, the amount paid by the cannabis retailer for the cannabis or cannabis products, including transportation charges. Discounts and trade allowances must be added back when determining wholesale cost.

For purposes of this subdivision, "discounts or trade allowances" are price reductions, or allowances of any kind, whether stated or unstated, and include, without limitation, any price reduction applied to a supplier's price list. The discounts may be for prompt payment, payment in cash, bulk purchases, related-party transactions, or "preferred-customer" status.

(B) On and after January 1, 2020, the amount paid by the cannabis retailer for the cannabis or cannabis products, including transportation charges.

(b) Collection of Cultivation Tax When Testing Requirement is Waived. For purposes of the cultivation tax imposed on all harvested cannabis that enters the commercial market pursuant to section 34012 of the Revenue and Taxation Code, when the testing requirement is waived pursuant to subdivision (l) of section 26070 of the Business and Professions Code, a distributor shall collect the cultivation tax from cultivators when cannabis is transferred or sold to the distributor.

(c) Cultivation Tax. For transactions made on and after January 1, 2018, the rate of the cultivation tax applies as follows:

(1) Per dry-weight ounce of cannabis flowers, and at a proportionate rate for any other quantity.

(2) Per dry-weight ounce of cannabis leaves, and at a proportionate rate for any other quantity.

(3) Per ounce of fresh cannabis plant, and at a proportionate rate for any other quantity.

(d) Cultivation Tax Invoicing Requirements. A cultivator is liable for the cultivation tax imposed pursuant to section 34012 of the Revenue and Taxation Code. A cultivator's liability for the cultivation tax is not extinguished until the cultivation tax has been paid to the State, except as otherwise provided in subdivision (h) of Revenue and Taxation Code section 34012.

(1) The distributor shall provide to the cultivator, or to the manufacturer if the cannabis was first sold or transferred to a manufacturer, an invoice, receipt, or similar document that identifies the licensee receiving the product, the originating cultivator, associated unique identifier of the cannabis, the amount of cultivation tax, and the weight and category of the cannabis. The weight and category of the cannabis identified on the invoice shall equal the weight and category of the cannabis entered into the California Cannabis Track-and-Trace system.

(2) The manufacturer shall provide to the cultivator when a cultivator sells or transfers cannabis to a manufacturer, an invoice, receipt, or similar document that identifies the licensee receiving the product, the originating cultivator, the associated unique identifier of the cannabis, the amount of cultivation tax, and the weight and category of the cannabis. The weight and category of the cannabis identified on the invoice shall equal the weight and category of the cannabis entered into the California Cannabis Track-and-Trace system.

(3) The manufacturer shall include on the invoice, receipt, or similar document to the distributor or the next party in the transaction, the associated weight and category of the cannabis used to produce the cannabis products. This associated cultivation tax and the weight and category of the cannabis used to produce a cannabis product shall follow the cannabis product from one party to the next until it reaches a distributor for quality assurance review, as described in section 26110 of the Business and Professions Code.

(e) Remittance of Cultivation Tax. A distributor who conducts the required quality assurance review before the cannabis or cannabis products can be sold or transferred to a cannabis retailer pursuant to section 5307, of chapter 2, division 42 of title 16 of the California Code of Regulations, is responsible for the remittance of the cultivation tax based on the weight and category of the cannabis that enters the commercial market.

(f) Cannabis Removed from a Cultivator's Premises is Presumed Sold.

(1) Unless the contrary is established, it shall be presumed that all cannabis removed from the cultivator's premises, except for plant waste, is sold and thereby taxable pursuant to section 34012 of the Revenue and Taxation Code.

(2) The presumption in subdivision (f)(1) may be rebutted by a preponderance of the evidence demonstrating that the cannabis was removed for purposes other than for entry into the commercial market. Reasons for which cannabis may be removed and not subject to tax on that removal include, but are not limited to, the following:

(A) Fire,

(B) Flood,

(C) Pest control,

(D) Processing by a cultivator, such as trimming, drying, curing, grading, packaging, or labeling,

(E) Storage prior to the completion of, and compliance with, the quality assurance review and testing, as required by Business and Professions Code section 26110, and

(F) Testing.

(g) Receipts for Cannabis Excise Tax Paid to Cannabis Retailers. A purchaser of cannabis or cannabis products is liable for the cannabis excise tax imposed pursuant to section 34011 of the Revenue and Taxation Code. A purchaser's liability for the cannabis excise tax is not extinguished until the cannabis excise tax has been paid to the State, except as otherwise provided in subdivision (g)(2).

(1) Each cannabis retailer is required to provide a purchaser of cannabis or cannabis products with an invoice, receipt, or other document that includes a statement that reads: "The cannabis excise taxes are included in the total amount of this invoice."

(2) An invoice, receipt, or other document with the required statement set forth in subdivision (g)(1) obtained from the cannabis retailer is sufficient to relieve the purchaser of the cannabis excise tax imposed on the purchase of the cannabis or cannabis products.

(3) A cannabis retailer may separately state a charge for the cannabis excise tax when the cannabis or cannabis products are sold to a purchaser and the separately stated charge shall be equal to the cannabis excise tax required to be paid to a distributor pursuant to section 34011 of the Revenue and Taxation Code.

(h) Excess Cannabis Excise Tax Collected by a Cannabis Retailer.

(1) Definition. When an amount represented by a cannabis retailer to a customer as constituting cannabis excise tax is computed upon an amount that is not taxable or is in excess of the taxable amount and is actually paid by the customer to the cannabis retailer, the amount so paid is excess cannabis excise tax collected. Excess cannabis excise tax is charged when tax is computed on a transaction which is not subject to cannabis excise tax, when cannabis excise tax is computed on an amount in excess of the amount subject to cannabis excise tax, when cannabis excise tax is computed using a tax rate higher than the rate imposed by law, and when mathematical or clerical errors result in an overstatement of the cannabis excise tax on an invoice, receipt, or similar document.

(2) Procedure Upon the Determination of Excess Cannabis Excise Tax Collected. Whenever the Department determines that a person has collected excess cannabis excise tax, the person will be afforded an opportunity to refund the excess cannabis excise tax collection to the customers from whom they were collected.

(3) Evidence Sufficient to Establish that Excess Cannabis Excise Tax Amounts Have Been or Will Be Returned to the Customer.

(A) If a person already has refunded to each customer amounts collected as excess cannabis excise tax due, this may be evidenced by any type of record that can be verified by audit such as:

1. Receipts or cancelled checks.

2. Books of account showing that credit has been allowed the customer as an offset against an existing indebtedness owed by the customer to the person.

(B) If a person has not already made excess cannabis excise tax refunds to each customer but desires to do so rather than incur an obligation to the state, the person must:

1. Inform in writing each customer from whom an excess cannabis excise tax amount was collected that the excess cannabis excise tax amount collected will be refunded to the customer or that, at the customer's option, the customer will be credited with such amount, and

2. The person must obtain and retain for verification by the Department an acknowledgement from the customer that the customer has received notice of the amount of indebtedness of the person to the customer.

(C) In the event a cannabis retailer is unable to make such refunds to a customer, the cannabis retailer shall remit the excess cannabis excise tax to a distributor pursuant to paragraph 4 of this subdivision.

(4) Cannabis Retailer's Remittance of Excess Cannabis Excise Tax to a Distributor.

(A) Once a cannabis retailer determines that it has collected excess cannabis excise tax and is unable to make a refund to the customer, and has not previously paid the excess cannabis excise tax to a distributor, the cannabis retailer shall remit the excess cannabis excise tax to a distributor licensed pursuant to division 10 (commencing with section 26000) of the Business and Professions Code.

(B) Upon a cannabis retailer's remittance of the excess cannabis excise tax to a distributor, as set forth in subdivision (h)(4)(A), a distributor shall provide the cannabis retailer with an invoice, receipt, or other similar document that contains all of the following:

1. Date of execution of the invoice, receipt, or other similar document,

2. Name of the distributor,

3. Name of the cannabis retailer,

4. The amount of excess cannabis excise tax,

5. The number of the seller's permit held by the cannabis retailer, and

6. The number of the seller's permit held by the distributor. If the distributor is not required to hold a seller's permit because the distributor makes no sales, the distributor must include a statement to that effect on the receipt in lieu of a seller's permit number.

(5) Distributor's Reporting and Remittance of the Excess Cannabis Excise Tax. A distributor shall report and remit the excess cannabis excise tax collected from the cannabis retailer pursuant to subdivision (h)(4) with the distributor's first return subsequent to receiving the excess cannabis excise tax from the cannabis retailer.

(6) The excess cannabis excise tax provisions in subdivisions (h)(1) through (5) are superseded by the provisions in Regulation 3703 and no longer operative on and after January 30, 2023.

(i) Cannabis or Cannabis Products Sold with Cannabis Accessories. A cannabis excise tax shall be imposed upon purchasers of cannabis or cannabis products sold in this state at the rate of 15 percent of the average market price of any retail sale by a cannabis retailer. Unless as otherwise provided below, the cannabis excise tax does not apply to cannabis accessories.

(1) When cannabis or cannabis products are sold or transferred with cannabis accessories (e.g., vape cartridges) to a cannabis retailer, and a distributor separately states the price of the cannabis or cannabis products from the cannabis accessories, the cannabis excise tax applies to the average market price of the cannabis or cannabis products, and not to the separately stated charge for the cannabis accessories.

(A) A distributor that makes a sales price segregation must maintain supporting documentation used to establish the individual cost of the cannabis or cannabis products and the cannabis accessories.

(B) Charges will be regarded as separately stated only if they are separately set forth in the invoice, receipt, or other document issued to the purchaser contemporaneously with the sale. The fact that the charges can be computed from other records will not suffice as a separate statement.

(2) When cannabis or cannabis products are sold or transferred with cannabis accessories (e.g., vape cartridges) to a cannabis retailer, and a distributor does not separately state the sales price of the cannabis or cannabis products from the cannabis accessories, the cost of the cannabis accessories shall be included in the average market price to which the cannabis excise tax applies.

(3) Subdivision (i) is inoperative on and after January 1, 2023.

(j) Reporting the Cannabis Excise Tax. A distributor shall report and remit the cannabis excise tax due with the return for the quarterly period in which the distributor sells or transfers the cannabis or cannabis products to a cannabis retailer.

(1) A person that holds both a cannabis retailer license and a distributor license, or a microbusiness that is authorized to act as a distributor, is subject to the same cannabis excise tax collection and reporting requirements as a person that holds only a distributor license.

(2) A distributor that sells or transfers cannabis or cannabis products to another distributor is not responsible for collecting the cannabis excise tax from the other distributor.

(3) Transactions between two distributors shall document that no cannabis excise tax was collected or remitted on the invoice between the two distributors. Documentation shall identify the selling distributor, the selling distributor's license number, the purchasing distributor, and the purchasing distributor's license number. When the transaction is between a distributor and a microbusiness acting as a distributor, the documentation shall indicate that the microbusiness is acting as a distributor.

(4) The distributor or microbusiness that sells or transfers cannabis or cannabis products to a cannabis retailer is responsible for collecting the cannabis excise tax from the cannabis retailer based on the average market price of the cannabis or cannabis products supplied to the cannabis retailer.

(k) Penalties.

(1) Penalty for Unpaid Taxes. In addition to any other penalty imposed pursuant to the Fee Collection Procedures Law (commencing with section 55001 of the Revenue and Taxation Code) or any other penalty provided by law, a penalty of 50 percent of the amount of the unpaid cannabis excise tax or cannabis cultivation tax shall be added to the cannabis excise tax and cultivation tax not paid in whole or in part within the time required pursuant to sections 34015 and 55041.1 of the Revenue and Taxation Code.

(2) Relief from Penalty for Reasonable Cause. If the Department finds that a person's failure to make a payment of the cannabis excise tax or cannabis cultivation tax is due to reasonable cause and circumstances beyond the person's control, and occurred notwithstanding the exercise of ordinary care and the absence of willful neglect, the person may be relieved of the penalty provided by subdivision (k)(1) for such failure.

Any person seeking to be relieved of the penalty shall file with the Department a statement under penalty of perjury setting forth the facts upon which the claim for relief is based.

History—New chapter 8.7 and regulation filed December 21, 2017, as an emergency; effective and operative December 21, 2017.

Emergency regulation repealed and amended Regulation 3700 adopted; effective September 4, 2019. The amendments added subdivision (a)(1) and (2) and renumbered subdivision (a)(1) through (9) as subdivision (a)(3) through (11); added "trimmed or untrimmed" to the first sentence in renumbered subdivision (a)(3) and added the text after "stems" at the end of renumbered subdivision (a)(3); added "Code" after "Professions" in renumbered subdivision (a)(6); deleted "further processing, including any" from before "artificial," added "or" before "curing," deleted "or trimming" from after "curing" and added the text after "curing" in the second paragraph in renumbered subdivision (a)(7); replaced "not hazardous waste, as defined in section 40141 of the Public Resources Code, and is solid waste, as defined in section 40191 of the Public Resources Code, that has been made unusable and unrecognizable. For the purpose of this subdivision, plant waste is deemed 'unusable and unrecognizable' when it is ground and incorporated with other ground material so that the resulting mixture is at least fifty percent non cannabis material by volume" with the text after "is" in renumbered subdivision (a)(10); added a colon to renumbered subdivision (a)(11) and reformatted the rest of the subdivision as subdivision (a)(11)(A); added "Prior to January 1, 2020" to, replaced "retailer" with "cannabis retailer" in, and replaced "product" with "products" in reformatted subdivision (a)(11)(A); added a new subdivision (a)(11)(B); deleted "Rates" from the end of the title of subdivision (c); replaced "is" with "applies" in subdivision (c); replaced "Nine dollars and twenty five cents ($9.25) per," "Two dollars and seventy five cents ($2.75) per," and "One dollar and twenty nine cents ($1.29) per" with "Per" at the beginnings of subdivision (c)(1), (2), and (3), respectively; added subdivisions (d) and (e), renumbered subdivisions (d) as subdivision (f), and revised renumbered subdivision (f)(2) to refer to subdivision (f)(1), instead of subdivision (d)(1); added the text after "Processing" in renumbered subdivision (f)(2)(D); added subdivisions (g), (h), and (i) and renumbered subdivisions (e) and (f) as subdivisions (j) and (k); added subdivision (j)(1) through (4); replaced "Late Payments" with "Penalty for Unpaid Taxes" in renumbered subdivision (k)(1); deleted "Late Payment" from before "Penalty," deleted "timely" from before "payment," and added "of the cannabis excise tax or cannabis cultivation tax" after "payment" in renumbered subdivision (k)(2); revised renumbered subdivision (k)(2) to refer to subdivision (k)(1), instead of subdivision (f)(1); and added references to Revenue and Taxation Code section 55041.1 and Health and Safety Code section 11018.2 to the regulation's reference note.

Amended January 30, 2023, as an emergency; effective and operative January 30, 2023. The amendments added subdivision (h)(6). A Certificate of Compliance must be transmitted to the Office of Administrative Law by January 30, 2025, or the amendments will be repealed by operation of law on the following day.

Amended December 15, 2023, as an emergency; effective December 15, 2023. The amendments added subdivision (i)(3). A Certificate of Compliance must be transmitted to the Office of Administrative Law by December 15, 2025, or the amendments will be repealed by operation of law on the following day.

Regulation 3701. Collection and Remittance of the Cannabis Excise Tax.

[Repealed by operation of law December 11, 2019.]

Regulation 3702. California Cannabis Track-and-Trace.

[Repealed by operation of law April 26, 2021.]

Regulation 3702. California Cannabis Track-and-Trace.

Reference: Sections 34011 and 34015, Revenue and Taxation Code; Section 26067, Business and Professions Code.

A distributor or cannabis retailer that is required to record commercial cannabis activity in the California Cannabis Track-and-Trace system pursuant to the Medicinal and Adult-Use Cannabis Regulation and Safety Act (commencing with section 26000 of the Business and Professions Code), shall enter into the California Cannabis Track-and-Trace system specified information as follows:

(1) Wholesale Cost. When cannabis or cannabis products are sold or transferred to a cannabis retailer in an arm’s length transaction, the distributor and cannabis retailer shall enter the cannabis retailer’s wholesale cost of the cannabis or cannabis products.

(2) Retail Selling Price. When cannabis or cannabis products are sold in a retail sale, the cannabis retailer shall enter the retail selling price of the cannabis or cannabis products.

History—Emergency regulation repealed and amended Regulation 3702 adopted, effective April 26, 2021. The amendments deleted Government Code section 15570.40 from the regulation’s authority note and deleted Revenue and Taxation Code section 34010 and Business and Professions Code section 26068 from the regulation’s reference note.

Regulation 3703. Excess Cannabis Tax.

Reference: Sections 34011, 34012, 34012.3, 34012.5, 34013 and 34015, Revenue and Taxation Code.

(a) Excess Cannabis Tax. For purposes of this regulation, “excess cannabis tax” means any amount:

(1) A cannabis retailer collected from a purchaser under the representation by the cannabis retailer that it was cannabis excise tax, which was computed upon an amount that is not subject to cannabis excise tax or was in excess of the amount of cannabis excise tax required to be collected from the purchaser.

(2) A distributor collected from a cannabis retailer under the representation by the distributor that it was cannabis excise tax, which was computed upon an amount that is not subject to cannabis excise tax or was in excess of the amount of cannabis excise tax required to be collected from the cannabis retailer.

(3) A distributor or manufacturer collected from a cultivator under the representation by the distributor or manufacturer that it was cultivation tax, which was computed upon an amount that is not subject to cultivation tax or was in excess of the amount of cultivation tax required to be collected from the cultivator.

(4) A distributor or manufacturer collected from a cultivator under the representation by the distributor or manufacturer that it was cultivation tax, which was computed upon harvested cannabis or harvested cannabis used to make cannabis products that did not enter the commercial market on or before June 30, 2022.

(b) Debt for Unreturned Excess Cannabis Tax. Any amount of excess cannabis tax that is not returned to the purchaser, cannabis retailer, or cultivator that paid it constitutes a debt owed to this state.

(c) Procedures for Cannabis Retailers. When a cannabis retailer ascertains that they have collected excess cannabis tax from a purchaser that has not been paid to the state, they should refund the excess cannabis tax to the purchaser that paid it. If the cannabis retailer is unable or chooses not to refund the excess cannabis tax to the purchaser that paid it, then they shall report and remit it to the Department, unless it was remitted to a distributor pursuant to Regulation 3700 prior to January 30, 2023.

(d) Procedures for Distributors and Manufacturers.

(1) When a manufacturer ascertains that they collected excess cannabis tax from a cultivator that has not been paid to the state, they should refund the excess cannabis tax to the cultivator that paid it. If the manufacturer is unable or chooses not to refund the excess cannabis tax to the cultivator that paid it, then they shall notify the Department so it can collect the excess cannabis tax from the manufacturer, unless the excess cannabis tax was transferred to a distributor to report and remit to the Department pursuant to Regulation 3700 prior to January 30, 2023.

(2) When a distributor ascertains that they collected excess cannabis tax from a cultivator or cannabis retailer that has not been paid to the state, they should refund the excess cannabis tax to the cultivator or cannabis retailer that paid it. If the distributor is unable or chooses not to refund the excess cannabis tax to the cultivator or cannabis retailer that paid it, then they shall notify the Department so it can collect the excess cannabis tax from the distributor, unless the distributor remitted the excess cannabis tax to the Department on or before January 31, 2023.

(e) Determination for Excess Cannabis Tax. When the Department ascertains that a cannabis retailer, distributor, or manufacturer has collected excess cannabis tax that has not been paid to the state, they will be afforded an opportunity to establish that it has been or will be refunded to the purchaser, cannabis retailer, or cultivator that paid it. If the cannabis retailer, distributor, or manufacturer fails or refuses to refund the excess cannabis tax, the Department will issue a notice of determination for the amount of the excess cannabis tax not previously refunded or paid to the state.

(1) A cannabis retailer, distributor, or manufacturer that disagrees with any item included in a notice of determination for excess cannabis tax may file a petition for redetermination with the Department within 30 days from the date that the notice of determination was mailed in accordance with the procedures in article 2a of chapter 1 of division 5 (commencing with section 35005) of title 18 of the California Code of Regulations. If a petition for redetermination is not filed within the 30-day period, the amount determined to be due becomes final and collectible at the expiration of that period.

(2) A timely filed petition for redetermination shall be acknowledged and reviewed in accordance with articles 2a and 8 of chapter 1 of division 5 (commencing with section 35005) of title 18 of the California Code of Regulations, and the amount determined to be due becomes final and collectible 30 days after the Department’s final decision on the petition was mailed.

(f) Evidence to Establish that Excess Cannabis Tax Has Been or Will be Refunded.

(1) A person may establish that excess cannabis tax was refunded to a purchaser, cannabis retailer, or cultivator by providing any type of record showing the refund that can be verified by audit, such as a receipt, cancelled check, or books of account showing that credit has been allowed the purchaser, cannabis retailer, or cultivator as an offset against an existing indebtedness owed to the person making the refund.

(2) To establish that excess cannabis tax will be refunded to a purchaser, cannabis retailer, or cultivator, the person must:

(A) Inform the purchaser, cannabis retailer, or cultivator in writing that the excess cannabis tax will be refunded to the purchaser, cannabis retailer, or cultivator or that, at their option, they will be credited with such amount as an offset against an existing indebtedness owed to the person making the refund; and

(B) Obtain and retain for verification by the Department an acknowledgement from the purchaser, cannabis retailer, or cultivator that they received notice of the amount of indebtedness of the person to the purchaser, cannabis retailer, or cultivator.

(g) Records. A cannabis retailer, distributor, or manufacturer shall maintain and make available for examination on request by the Department or its authorized representatives all records necessary to determine whether it owes excess cannabis tax to the state. Such records include, but are not limited to:

(1) Books of account;

(2) Receipts, invoices, cash register tapes, and other documents of original entry supporting the entries in the books of account; and

(3) Schedules or working papers used in connection with the preparation of tax returns and reports.

History—New regulation filed January 30, 2023, as an emergency; effective and operative January 30, 2023. A Certificate of Compliance must be transmitted to the Office of Administrative Law by January 30, 2025, or the regulation will be repealed by operation of law on the following day.

Chapter 8.8. Cannabis Excise Tax Effective on and After January 1, 2023

Regulation 3800. Cannabis Excise Tax and Cannabis Retailer Excise Tax Permit.

Reference: Sections 34011.2, 34014, 34015, and 55302, Revenue and Taxation Code.

(a) Definitions. For purposes of this regulation, the following terms have the following meanings:

(1) "Business information" means information the Department deems necessary to determine if a person is required to obtain a cannabis retailer excise tax permit from the Department, determine if the person is required to remit the cannabis excise tax it collects by electronic funds transfer, assign the person a reporting period, and determine how to obtain access to the person's books and records. Such information includes, but is not limited to, the name of the person's business, the addresses of the person's business locations, the date the person's business started or will start, the business's business activities, the business's projected revenue, and the name and contact information of at least one individual the Department may contact to obtain access to the business's books and records.

(2) "Contact information" means information the Department deems necessary to contact and communicate with a person applying for a cannabis retailer excise tax permit and with that person's authorized representative(s). Such information includes, but is not limited to, a current mailing address, email address, and telephone number.

(3) "Department" means the California Department of Tax and Fee Administration.

(4) "Identifying information" means information the Department deems necessary to specifically identify a person applying for a cannabis retailer excise tax permit. Such information includes the person's name, the person's type (e.g., individual, partnership, limited liability company, corporation, etc.), and the person's Federal Employer Identification Number, and may also include, but is not limited to, the person's driver's license number or other government-issued identification card number or entity number issued by the California Secretary of State.

(5) "Ownership information" means information the Department deems necessary to identify the owners of an entity or business. Such information includes, but is not limited to, the owners' names and contact information.

(6) "Representative information" means information the Department deems necessary to verify that the individual who submitted an application for a cannabis retailer excise tax permit is the person applying for a cannabis retailer excise tax permit or is authorized to submit the application on behalf of the person applying for a cannabis retailer excise tax permit. Such information includes, but is not limited to, the individual's name, title, and contact information.

(b) A cannabis excise tax is imposed upon purchasers of cannabis or cannabis products sold at retail in this state on and after January 1, 2023, pursuant to Revenue and Taxation Code section 34011.2. The tax is 15 percent of the cannabis retailer's gross receipts from the retail sale of the cannabis and cannabis products to the purchaser on and after January 1, 2023, and the cannabis retailer is responsible for collecting the cannabis excise tax from the purchaser and remitting that tax to the Department.

(c) On and after January 1, 2023, a person must have a cannabis retailer excise tax permit issued by the Department to engage in business as a cannabis retailer.

(d) To obtain a cannabis retailer excise tax permit, a person shall complete and submit an application for a cannabis retailer excise tax permit through the Department's online services portal via its website at www.cdtfa.ca.gov. Every application for a cannabis retailer excise tax permit shall provide the applicant's identifying information, contact information, business information, ownership information, and representative information.

History— New chapter 8.8 (Regulations 3800, 3805, and 3810) and regulation filed January 30, 2023, as an emergency; effective and operative January 30, 2023. A Certificate of Compliance must be transmitted to the Office of Administrative Law by January 30, 2025, or the chapter and regulation will be repealed by operation of law on the following day.

Regulation 3802. Gross Receipts from Sales of Cannabis and Cannabis Products.

Reference: Sections 6012, 34010, 34011.2, 55061 and 55302, Revenue and Taxation Code.

(a) For purposes of the cannabis excise tax imposed by Revenue and Taxation Code (RTC) section 34011.2 (cannabis excise tax) "gross receipts" from the retail sale of cannabis or cannabis products include any amount the purchaser is required to pay to purchase the cannabis or cannabis products, regardless of how the amount is denominated or labeled on the invoice, receipt, or other document provided to the purchaser, unless the amount is excluded or deductible from "gross receipts" pursuant to RTC section 6012. "Gross receipts" specifically include, but are not limited to, any amount the purchaser is required to pay for:

(1) Services that are part of the sale of the cannabis or cannabis products. For example, when a cannabis retailer requires a purchaser to pay a fee to reimburse itself for the cost of processing the purchaser’s credit card payment for the purchase of cannabis, the fee is included in the gross receipts from the sale of the cannabis.

(2) Tangible personal property, including packaging, the purchaser is required to purchase as a condition of the sale of the cannabis or cannabis products. For example, if a purchaser is required to purchase a plastic bag or jar as a condition of the retail sale of the cannabis, the amount the purchaser is required to pay for the plastic bag or jar is included in the gross receipts from the sale of the cannabis. If a purchaser is required to purchase a cartridge as a condition of the retail sale of the cannabis product contained in the cartridge, the amount the purchaser is required to pay for the cartridge is included in the gross receipts from the sale of the cannabis product. Also, if a purchaser is required to purchase a cartridge and vaping device as a condition of the retail sale of the cannabis product contained in the cartridge, the amount the purchaser is required to pay for the cartridge and vaping device is included in the gross receipts from the sale of the cannabis product.

(b) (1) For purposes of the cannabis excise tax, "gross receipts" from the retail sale of cannabis or cannabis products does not include a reasonable amount charged for optional tangible personal property purchased with cannabis or cannabis products in the same retail sale regardless of whether those amounts are separately stated on the invoice, receipt, or other document provided by the cannabis retailer to the purchaser and regardless of whether the optional tangible personal property is purchased with the cannabis or cannabis products as a unit.

(A) "Optional tangible personal property" means tangible personal property that a purchaser is not required to purchase as a condition of the sale of the cannabis or cannabis product because the purchaser could purchase that cannabis or cannabis product or the same kind of cannabis or cannabis product, as defined in subdivision (b)(1)(B), from the cannabis retailer without purchasing the tangible personal property.

(B) For purposes of subdivision (b)(1)(A), "same kind of cannabis" means cannabis that is the same brand, quantity, strain, and type (e.g., flower, pre-roll, shake) as the cannabis purchased and "same kind of cannabis product" means cannabis product that is the same brand, quantity, strain, and type (e.g., beverage, capsule, concentrate, edible, tincture, topical, cannabis oil) as the cannabis product purchased.

(C) For example, when a cannabis retailer sells seven-gram jars of XYZ brand Hawaiian Punch strain cannabis flower separately from lighters or pipes so that purchasers are not required to purchase the lighters or pipes as a condition of the sale of the cannabis, then a lighter or pipe is optional tangible personal property when a purchaser chooses to purchase one with a seven-gram jar of XYZ brand Hawaiian Punch strain cannabis flower in the same retail sale. Also, when a cannabis retailer sells one-gram cartridges of XYZ brand Hawaiian Punch strain cannabis oil separately from vaping devices so that purchasers are not required to purchase the vaping devices as a condition of the sale of the cannabis products, then a vaping device is optional tangible personal property when a purchaser chooses to purchase one with a one-gram cartridge of XYZ brand Hawaiian Punch strain cannabis oil in the same retail sale.

(2) The cannabis retailer has the burden to maintain and make available to the Department records that establish that tangible personal property purchased with cannabis or cannabis products in a retail sale was optional tangible personal property. If the Department determines that tangible personal property purchased with cannabis or cannabis products in a retail sale was not optional tangible personal property, the entire amount charged for the tangible personal property shall be included in the gross receipts from the retail sale of the cannabis or cannabis products pursuant to subdivision (a).

(3) The cannabis retailer also has the burden to maintain and make available to the Department records that establish that the amount charged for optional tangible personal property purchased with cannabis or cannabis products in a retail sale was reasonable. If the Department determines that any amount charged for optional tangible personal property exceeds a reasonable charge, the excess amount shall be included in the gross receipts from the sale of the cannabis or cannabis products pursuant to subdivision (a). The factors the Department may consider in determining whether the amount charged for optional tangible personal property is reasonable, include, but are not limited to:

(A) The wholesale cost of optional tangible personal property.

(B) The size of the markup added to the wholesale cost of the optional tangible personal property.

(C) The amount charged for the cannabis or cannabis products sold with the optional tangible personal property in the same retail sale.

(c) For purposes of the cannabis excise tax, "gross receipts" from the retail sale of cannabis or cannabis products excludes certain transportation charges as provided in RTC section 6012 and Regulation 1628, Transportation Charges.

History— New regulation filed December 15, 2023, as an emergency; effective and operative December 15, 2023. A Certificate of Compliance must be transmitted to the Office of Administrative Law by December 15, 2025, or the regulation will be repealed by operation of law on the following day.

Regulation 3805. Cannabis Excise Tax Credit.

Reference: Sections 34011.01 and 55302, Revenue and Taxation Code.

(a) A cannabis retailer may claim a credit on their cannabis tax return for the cannabis excise tax amount the cannabis retailer paid to a distributor, pursuant to Revenue and Taxation Code section 34011, on cannabis or cannabis products the distributor sold or transferred to the cannabis retailer prior to January 1, 2023, and the cannabis retailer sold to a purchaser on or after January 1, 2023, in a retail sale subject to cannabis excise tax, pursuant to Revenue and Taxation Code section 34011.2.

(1) The credit must be taken on the cannabis retailer’s cannabis 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 proper return, the cannabis retailer may file a claim for refund for the amount for which they could have claimed a timely credit.

(2) A cannabis retailer may not claim a credit or refund under this regulation for any amount that a distributor refunded to the retailer.

(b) To support a cannabis excise tax credit or refund, the cannabis retailer shall maintain records, such as invoices, receipts, and other similar documents, that can be verified by audit of:

(1) The retail sale of the cannabis or cannabis products to the purchaser on or after January 1, 2023, including the associated unique identifier for the cannabis or cannabis products sold to the purchaser.

(2) The cannabis excise tax paid to the distributor on the cannabis or cannabis products sold to the purchaser, including:

(A) The distributor’s name and Department of Cannabis Control license number;

(B) The date the distributor sold or transferred the cannabis or cannabis products to the cannabis retailer;

(C) The amount of cannabis excise tax the cannabis retailer paid to the distributor on the cannabis or cannabis products sold to the purchaser; and

(D) The associated unique identifier for the cannabis or cannabis products on which the cannabis excise tax was paid to the distributor.

History— New regulation filed January 30, 2023, as an emergency; effective and operative January 30, 2023. A Certificate of Compliance must be transmitted to the Office of Administrative Law by January 30, 2025, or the regulation will be repealed by operation of law on the following day.

Regulation 3810. Vendor Compensation.

Reference: Sections 34010, 34011.1 and 34011.2, Revenue and Taxation Code.

(a) Definitions. For purposes of this regulation, the following definitions shall apply:

(1) "Cannabis excise tax" means the cannabis excise tax imposed by section 34011.2 of the Revenue and Taxation Code.

(2) "Department" means the California Department of Tax and Fee Administration.

(3) "Fee waiver" means a retailer license fee waiver or retailer license renewal fee waiver provided pursuant to section 26249 of the Business and Professions Code and implementing regulations.

(4) "Licensed cannabis retailer" means a cannabis retailer, as defined in section 34010 of the Revenue and Taxation Code, that has obtained a retailer license.

(5) "Licensed retail premises" means the physical location from which commercial cannabis activities are authorized to be conducted under a retailer license.

(6) "Retailer license" means a license issued by the Department of Cannabis Control pursuant to division 10 (commencing with section 26000) of the Business and Professions Code authorizing a cannabis retailer to engage in the retail sale of cannabis or cannabis products to customers.

(b) Requirements to Retain Vendor Compensation. A licensed cannabis retailer may retain vendor compensation in an amount equal to 20 percent of the cannabis excise taxes imposed on their retail sales of cannabis or cannabis products authorized under their retailer license for one licensed retail premises, during the periods prescribed by subdivision (d), if the licensed cannabis retailer has received:

(1) Approval from the Department of Cannabis Control for a fee waiver that applies to the issuance or renewal of that retailer license; and

(2) A notice from the Department described in subdivision (c)(4) approving the licensed cannabis retailer to retain vendor compensation from the cannabis excise taxes imposed on their retail sales of cannabis or cannabis products authorized under that retailer license.

(c) Vendor Compensation Application.

(1) A licensed cannabis retailer must request approval to retain vendor compensation by submitting a completed Vendor Compensation Application to the Department through the Department's online services portal via its website at www.cdtfa.ca.gov.

(2) Every Vendor Compensation Application shall include the following:

(A) The name under which the cannabis retailer transacts or intends to transact business;

(B) The addresses of each licensed premises at which the licensed cannabis retailer is authorized to engage in retail sales of cannabis or cannabis products, and identification of the licensed premises where commercial cannabis activities are authorized to be conducted under the retailer license for which the Department of Cannabis Control approved the licensed cannabis retailer's fee waiver;

(C) The number of the licensed cannabis retailer's cannabis tax permit issued pursuant to part 14.5 (commencing with section 34010) of division 2 of the Revenue and Taxation Code;

(D) The issuance and expiration dates and number of the retailer license of the licensed cannabis retailer for which the Department of Cannabis Control approved the licensed cannabis retailer's fee waiver;

(E) The date the Department of Cannabis Control approved the licensed cannabis retailer's fee waiver;

(F) The number of the licensed cannabis retailer's seller's permit issued pursuant to article 2 (commencing with section 6066), chapter 2, part 1, division 2 of the Revenue and Taxation Code; and

(G) The contact information for the individual completing the application, including the individual's first and last name, telephone number, and email address.

(3) Each completed Vendor Compensation Application shall also be submitted with the following:

(A) A copy of the Department of Cannabis Control approved fee waiver issued to the licensed cannabis retailer; and

(B) A copy of the retailer license of the licensed cannabis retailer for which the Department of Cannabis Control approved the licensed cannabis retailer's fee waiver.

(4) The Department will notify the licensed cannabis retailer in writing as to whether they are approved to retain vendor compensation. If they are approved, the Department will also specify the quarterly periods for which they are approved to retain vendor compensation, as provided in subdivision (b), from the cannabis excise taxes imposed on their retail sales of cannabis or cannabis products authorized under their retailer license referred to in subdivision (b).

(d) Retention Periods.

(1) An approval to retain vendor compensation is effective on the first day of the calendar quarter commencing after the date the Department issued the notice approving a licensed cannabis retailer's Vendor Compensation Application and is valid for that calendar quarter. For example, if the Department issues the notice approving a licensed cannabis retailer's Vendor Compensation Application on February 22, 2023, then the cannabis retailer's approval is effective April 1, 2023, and the cannabis retailer is approved to retain vendor compensation, as provided in subdivision (b), from the cannabis excise taxes they are required to report to the Department for the second calendar quarter of 2023.

(2) In general, an approval to retain vendor compensation shall remain valid for four consecutive calendar quarters beginning with the first calendar quarter commencing after the date the Department issued the notice approving the licensed cannabis retailer's Vendor Compensation Application and shall expire at the end of that one-year period. For example, if the Department issues the notice approving a licensed cannabis retailer's Vendor Compensation Application on February 22, 2023, then the cannabis retailer is approved to retain vendor compensation, as provided in subdivision (b), from the cannabis excise taxes they are required to report to the Department for the second, third, and fourth calendar quarters of 2023, and first calendar quarter of 2024, unless the approval to retain vendor compensation expires earlier under subdivision (d)(3).

(3) Unless an approval to retain vendor compensation would expire earlier pursuant to subdivision (d)(2), it shall expire on the last day of the calendar quarter commencing after the date the Department of Cannabis Control first notifies the Department that the cannabis retailer is no longer eligible for a fee waiver, pursuant to subdivision (a)(5) of section 34011.1 of the Revenue and Taxation Code, by either:

(A) Updating a database maintained by the Department of Cannabis Control and accessible to the Department to reflect that the cannabis retailer has become ineligible for a fee waiver; or

(B) Otherwise providing information to the Department reflecting that the cannabis retailer has become ineligible for a fee waiver at the Department's request and for purposes of verifying a cannabis retailer's eligibility to retain vendor compensation.

For example, if the Department of Cannabis Control first notifies the Department on March 20, 2024, that a cannabis retailer has become ineligible for a fee waiver, the cannabis retailer's approval to retain vendor compensation expires at the end of the second quarter on June 30, 2024, unless the approval to retain vendor compensation already expired under subdivision (d)(2).

(4) A licensed cannabis retailer may not retain vendor compensation from the cannabis excise taxes required to be reported to the Department for any period commencing after the date their approval to retain vendor compensation expires.

(e) License Limitation. An approval to retain vendor compensation issued under this regulation only approves a licensed cannabis retailer to retain vendor compensation from cannabis excise taxes imposed on their retail sales of cannabis or cannabis products authorized under their retailer license referred to in subdivision (b), including retail sales authorized under that retailer license after it was renewed. An approval to retain vendor compensation does not approve a licensed cannabis retailer to retain vendor compensation from cannabis excise taxes imposed on any other retail sales. Such retail sales include, but are not limited to, retail sales made after their retailer license referred to in subdivision (b) expired and before that retailer license was renewed, made after that retailer license was revoked, or made under any other retailer license, including a new retailer license for the same premises.

(f) New Application Requirement. If a licensed cannabis retailer's approval to retain vendor compensation has expired or their retailer license referred to in subdivision (b) has expired and not been renewed or has been revoked, the licensed cannabis retailer must submit a new Vendor Compensation Application to the Department as provided in subdivision (c) along with:

(1) A copy of the current Department of Cannabis Control approved fee waiver issued to the licensed cannabis retailer; and

(2) A copy of the current retailer license of the licensed cannabis retailer for which the Department of Cannabis Control approved the licensed cannabis retailer's fee waiver.

(g) Claiming Vendor Compensation.

(1) If approved, a licensed cannabis retailer shall report the amount of vendor compensation retained from the cannabis excise taxes imposed on their retail sales of cannabis or cannabis products, pursuant to subdivision (b), as a credit on their Cannabis Retailer Excise Tax Return for the corresponding reporting period in which they made the retail sales of cannabis or cannabis products.

(2) If a licensed cannabis retailer remits any amount of cannabis excise tax to the Department that they were eligible to retain under this regulation, then the licensed cannabis retailer must file a timely claim for refund to obtain a refund for that amount.

(h) Expiration. A licensed cannabis retailer shall not retain vendor compensation from cannabis excise taxes imposed on retail sales of cannabis or cannabis products made after December 31, 2025.

History— New regulation filed January 30, 2023, as an emergency; effective and operative January 30, 2023. A Certificate of Compliance must be transmitted to the Office of Administrative Law by January 30, 2025, or the regulation will be repealed by operation of law on the following day.