Cannabis Tax Calculation Example
Cannabis Tax Calculation Example provides a “base case” example of the calculation of the taxes which apply to the sale of cannabis in Oakland, California. The illustration is very simple and prospectively we may present iterations with various complications. The calculations follow the CDTFA guidelines. For the purposes of this illustration –
This post was originally published on our Cannabis Practice Group’s website. We believe that the content is fundamental and critical for our cannabis industry clients to understand. As such, we are reposting it to our main site to ensure everyone is aware.
The illustration contains a significant simplification, as the Cannabis Cultivation Tax [“CCT”] is assumed to have been paid by the Distributor at $148 per pound. The Distributor incurs additional costs of $200 per pound for processing, testing, and packaging. The Distributor pays the Cultivator $1000 per pound. The Dispensary [Retailer] pays the Distributor $1,240 per pound which includes $148 of CCT per pound and CET of $240 per pound. As one can imagine, the actual calculations can quickly become substantially more complicated.
Cannabis Excise Tax [“CET”] is calculated by applying the 15 percent excise tax rate to the “average market price” of the cannabis. The average market price can be calculated as either:
Gross receipts, which is the retail selling price to your customer, or
Wholesale cost plus a markup predetermined by the California Department of Tax and Fee Administration (CDTFA). The current markup rate is 60 percent.
The CET applies to both Medical and Adult Use cannabis sales.
Local – Municipal Business Tax – where a unit of local government has gross receipts or business tax, a separate amount is added to invoices or receipts to cover the Local – Municipal Business Tax. The Local – Municipal Business Tax rate is applied to the sum of sales tax applies to the sum of the retail price of the cannabis and the CET.
The Local – Municipal Business Tax may distinguish between medical and adult use cannabis.
California State Sales Tax – sales tax is applied to the total selling price including the Cannabis Excise Tax [“CET”] and Local – Municipal Business Tax.
We immediately notice that Adult Use cannabis has a substantially greater tax burden than Medical Use.
|Market Price of Cannabis||1,600.00||per pound|
|Wholesale Price of Cannabis||1,000.00||per pound||60.00%|
|Cannabis Cultivation Tax – CCT||148.00||per pound||Flower|
|Additional Cost – Process, Test, Pkg||200.00|
|Cannabis ExciseTax – CET||15.00%||Average Mkt Price|
|CA State Sales Tax||8.75%|
|Oakland Cannabis Tax – Medical||5.00%|
|Oakland Cannabis Tax – Adult||10.00%|
|For illustration purposes, we assume retail sales of||150||# of cannabis|
|with the Cultivation Tax paid by the Distributor and included in the wholesale price|
|We illustrate the following cases.||Sales are||100.00%||Flower|
|A||All sales in Oakland, at retail for adult use.|
|B||All sales in Oakland at retail for medical use.|
|Sales Price||$ 240,000.00||$240,000.00|
|Cannabis Excise Tax||36,000.00||36,000.00|
|Oakland Business Tax||27,600.00||13,800.00|
|California Sales Tax||26,565.00||–|
|Sub – Total||330,165.00||289,800.00|
|Total Price||$ 330,165.00||$289,800.00|
|includes taxes listed above + CCT|
Recapitulation of Total Taxes
|$ 112,365.00||$ 72,000.00|
You may wish to bookmark this example as we will refer to it as a base case in subsequent posts.
Cannabis Tax Calculation Example