Distributors are also no longer responsible for obtaining a cannabis tax permit or reporting and paying the cannabis excise tax due to us for cannabis or cannabis products sold or transferred on or after January 1, 2023, to cannabis retailers.

• Cannabis tax permits issued to distributors are closed with an effective date of December 31, 2022.
• Distributors must file their final cannabis tax return and pay the cannabis excise tax due on or before January 31, 2023 for December 2022 monthly filers and for the fourth quarter of 2022 (October 1, 2022, through December 31, 2022).

• Distributors and manufacturers must no longer collect the cultivation tax from cultivators on harvested cannabis entering the commercial market beginning July 1, 2022.
• Cultivators are no longer responsible for paying the cultivation tax to manufacturers or distributors when cultivators sell or transfer cannabis to another licensee.
• Any cultivation tax collected on cannabis that entered the commercial market on and after July 1, 2022, must be returned to the cultivator that originally paid the cultivation tax. If the cultivation tax cannot be returned to the cultivator that paid it, then it must be paid to us as excess cultivation tax collected.

What to Do if Excess Cultivation Tax is Collected

Cultivation tax that cannot be returned to the cultivator who paid it is considered excess cultivation tax collected.

• A manufacturer who has collected cultivation tax and cannot return it to the cultivator who paid it must notify us so we can collect the excess cultivation tax from the manufacturer, unless the excess cultivation tax was transferred to a distributor prior to January 31, 2023.
• A distributor who has collected cultivation tax and cannot return it to the cultivator who paid it must notify us so we can collect the excess cultivation tax from the distributor, unless the excess cultivation tax was paid to CDTFA on or before January 31, 2023.

Keep Accurate Records

Each licensee in a transaction should keep clear records to document when the cultivation tax was collected or not collected, returned to a cultivator, transferred to a distributor, or when excess cultivation tax was paid to us.

When a wholesale manifest is used, the distributor is required to record the retailer's wholesale cost of each package in the transfer. When a nursery sells or transfers immature plants or seeds to a cannabis retailer, the Metrc User's Guide recommends that the nursery use a wholesale manifest in the CCTT system and record the retailer's wholesale cost of the immature plants or seeds. For clarity, we recommend that you also indicate the unit of measure for each of the items included in the package.

A microbusiness authorized to distribute cannabis or cannabis products, that transfers or sells cannabis or cannabis products to a cannabis retailer or another microbusiness licensee functioning as a cannabis retailer, must follow the same process above.

If you are a distributor and you receive medicinal cannabis for donation to a medicinal cannabis patient or their primary caregiver, you should provide written certification to the licensee donating the medicinal cannabis that you will transfer the medicinal cannabis to another licensee for subsequent donation to a medicinal cannabis patient or their primary caregiver.

You should also obtain written certification from the licensee to whom you transfer the medicinal cannabis for subsequent donation to a medicinal cannabis patient or their primary caregiver.

If you are a cultivator or manufacturer and you transfer medicinal cannabis to a distributor for subsequent donation to a medicinal cannabis patient or their primary caregiver, then you should obtain written certification from the distributor that they will transfer the medicinal cannabis to another licensee for subsequent donation to a medicinal cannabis patient or their primary caregiver.

As a distributor, cultivator, or manufacturer, you should maintain records of the written certifications that you provided to or received from other licensees to support transactions where medicinal was transferred for donation to a medicinal cannabis patient or their primary caregiver .

The written certification may be a document, such as a letter, note, purchase order, or a preprinted form. When the written certification is taken in good faith, it relieves you from liability for the use tax when donating the medicinal cannabis. However, if you certify in writing that the medicinal cannabis will be donated and later sell or use the medicinal cannabis in some other manner than for donation, you are liable for the sales or use tax, along with applicable penalties and interest on the medicinal cannabis or medicinal cannabis products sold or used in some other manner than for donation.

You should maintain documentation, like an invoice or receipt, when you provide free cannabis trade samples to another cannabis licensee. This documentation should be consistent with the information recorded in the California Cannabis Track-and-Trace system.

It is important that you obtain valid resale certificates from your customers in a timely manner to support your sales for resale. If a valid resale certificate is not provided, it will be presumed that sales tax applies to the sale and you must report and pay the sales tax to us.

There are two ways to verify a seller's permit number on a resale certificate:

• Select Verify a permit, license, or account. You can also use this search tool to verify that a permit, license, or account is valid for many programs administered by us, including a cannabis retailer excise tax permit.
• You can also call our automated toll-free number at 1-888-225-5263, available 24 hours a day, seven days a week. You will need the seller's permit number that you want to verify.

Even if all your sales are for resale and you collect the proper resale certificates, you are still required to file a return and report your activities to us. Simply report the amount of your total sales on line 1 and the same amount as nontaxable sales for resale, indicating that you made no taxable sales.

See publication 103, Sales for Resale for more information regarding resale certificates for sales tax purposes.

A distributor is not making a sale of cannabis or cannabis products when:

• A cannabis retailer contracts directly with a cultivator or manufacturer to purchase cannabis and cannabis products and,
• The distributor only transports the cannabis or cannabis products

In these circumstances, the distributor is not making a sale of cannabis and the transport of the cannabis is not subject to sales tax

Every sale or transport of cannabis or cannabis products from one licensee to another licensee must be recorded on a sales invoice or receipt. Maintaining good books and records will help you keep track of your sales and purchases and assist you when preparing to file your sales and use tax return. See the Record Keeping heading below for more information.

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

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

To pay the use tax, report the purchase price of the taxable products as "Purchases Subject to Use Tax" on line 2 of 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

When you purchase items for use in your business (signs, fire extinguishers, display cases, weight and measure equipment, computers, etc.) from a seller located in California, the sale is generally subject to sales tax. Your supplier will normally collect tax reimbursement from you and report the tax. However, wrapping and packaging supplies used to wrap merchandise or bags in which you place products sold to your customers may be purchased for resale.

If you purchase equipment or supplies for use in your business from an out-of-state seller, whether in person, online, or through other methods, your purchase will generally be subject to use tax.

If the out-of-state seller does not collect California use tax, you should report the purchase price on your sales and use tax return. To pay 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.

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

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

Examples of records you must keep include:

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

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

Please note, 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.

The three basic elements of the partial exemption are:

• Qualified person,
• Qualified machinery or equipment, and
• Use machinery or equipment in a qualified manner.

Distributors, manufacturers, and cultivators of cannabis may qualify for a partial manufacturing exemption. Please visit our Tax Guide for Manufacturing and Research & Development Equipment Exemption for more specific information on the partial manufacturing exemption.

As a processor license, any trimming, drying, curing, grading, and packaging activities are considered fabrication labor and are subject to sales tax. A cultivator may provide you with a valid and timely resale certificate to support that the fabrication labor is being performed in order to allow the cannabis to be sold for resale. If no timely valid resale certificate is provided, it will be presumed that sales tax applies to the fabrication labor charges and you must report and pay the sales tax to us. Even if all your sales are not subject to sales tax and proper resale certificates are collected, you are still required to file a sales tax return and report your activities to us; you would then indicate on the sales tax return that no taxable sales were made. See publication 108, Labor Charges, for more information.

The partial exemption applies only to the state general fund portion of the sales tax, currently 5.00 percent.
You should provide a farm equipment and machinery partial farm exemption certificate to your vendor when you purchase qualifying items.

Three requirements must be met for the partial exemption from sales and use tax to apply. The item must be:

1. Sold to a qualified person.
2. Used exclusively or primarily (depending on the type of item) in producing and harvesting agricultural products. Primarily means 50 percent or more of the time.
3. Defined as farm equipment and machinery which includes, but is not limited to, any tool, machine, equipment, appliance, device, or apparatus used while conducting agricultural operations.

If any of these three requirements is not met, the partial exemption from sales and use tax will not apply.

Examples of equipment and machinery that may qualify:

• Planting equipment
• Trimming tools
• Drying racks and trays
• Grow tents and lights
• Environmental controls
• Greenhouses
• Hydroponic equipment
• Solar equipment (see below for more information)
• Irrigation equipment

If you lease, rather than purchase farm equipment or machinery, you may still qualify for the partial sales and use tax exemption. For more information about leases, please see publication 46, Leasing Tangible Personal Property.

Mobile transportation equipment generally does not qualify for the partial exemption from sales and use tax.

For more detailed information about equipment and machinery used in farming, see Regulation 1533.1, Farm Equipment and Machinery and publication 66, Agricultural Industry.

Buildings for Raising Plants

Certain buildings may meet the definition of farm equipment for purposes of qualifying for the partial sales and use tax exemption for farm equipment. The building must be a single-purpose building to house plants, such as a greenhouse.
To be considered farm equipment, a horticulture building must meet these two requirements:

• Specifically designed for commercially raising plants.
• Used exclusively for that purpose.

Solar Power Facilities

If you qualify for the partial exemption from sales and use tax for farm equipment, your purchase of a solar power facility may also qualify.

How does a system qualify?

• Solar Power Facility Directly Attached to Farm Equipment and Machinery
  When a solar power facility is directly attached to, and primarily provides power to qualifying farm equipment and machinery, the solar power facility generally qualifies as farm equipment and machinery. As such, the purchase of this type of solar power facility generally qualifies for the partial exemption as long as the other requirements for the partial exemption are met.
• Solar Power Facility Not Directly Attached to Farm Equipment and Machinery
  A solar power facility may also qualify as farm equipment and machinery when the solar power facility is not directly attached to qualifying farm equipment and machinery but is instead tied to the regional power grid and subject to a net metering agreement between the taxpayer and the electric cooperative. In such cases, you need to demonstrate that the solar facility was specifically purchased to provide power primarily to qualifying farm equipment and machinery.

For example, the sale of diesel fuel to a grower may qualify for the partial exemption from sales and use tax when the grower uses diesel fuel in their tractor to cultivate the land in preparation for planting cannabis. For more information on when the partial exemption applies to the sale or purchase of diesel fuel used in farming activities, please see our Tax Guide for the Agricultural Industry, under the Farming Exemptions tab, and then go to the Diesel Fuel Used in Farming or Food Processing topic.

In addition to the partial sales and use tax exemption, there is an exemption from the diesel fuel tax for fuel sold to a farmer for farming purposes and for sale of dyed diesel fuel. For more information on the diesel fuel tax exemptions, please see our Tax Guide for Motor Fuel Taxes and select the Diesel Fuel option under the Industry Topics tab.

The exemption from sales and use tax applies to the sale or purchase of LPG only if it is used in commercial crop production or harvesting.

You should provide a timely LPG exemption certificate to your vendor.

Nonagricultural use does not qualify for the exemption, even if it is used on a ranch or farm. For more information, see Regulation 1533, Liquefied Petroleum Gas.

The exemption from the use fuel tax applies to fuel used in agricultural equipment. For more information, see the Use Fuel Tax Guide and select the Fuel Exemptions option under the Industry Topics tab.

In order for the certificate to be valid, you must:

• Furnish the certificate in a timely manner to the seller.
• Provide all relevant information:
  Your name and address.
  The type of property being purchased.
  You or your company's name, title, telephone number, address, and the seller's permit number.
• Sign and date the document.

An exemption certificate will be considered timely if it is given at any time before the seller bills the purchaser for the property, or any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of the property to the purchaser.

Listed below are the types of exemption certificates you may need:

• Qualified Sales and Purchases of Farm Equipment and Machinery
• Qualified Sales and Purchases of Diesel
• Certificate of Farming Use
• LPG Exemption Certificate

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 is the retailer's wholesale cost of the cannabis or cannabis products sold or transferred by a cultivator, manufacturer, or distributor to a cannabis retailer, plus a mark-up.

We determine the mark-up rate every six months through the reporting period ending December 31, 2022. Prior mark-up rates are posted on our Special Taxes and Fees Rate Page, under Cannabis Taxes.

The mark-up rate is not intended to be used to determine each party's retail selling price; it is only used 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.

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 the retailer's sales, such as labor, service, certain transportation charges, and any local business tax. For more information on gross receipts, see Revenue and Taxation Code section 6012 and the Nonarm's Length Transaction heading on this page.

What is an Arm's Length Transaction?

An arm's length transaction is defined as 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.

What is a Nonarm's Length Transaction?

A non-arm'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 fair market price.

Distributors were required to collect the cannabis excise tax from retailers whom they sold or transferred cannabis or cannabis products before January 1, 2023, based on the average market price of the cannabis sold in a retail sale. In an arm's length transaction, the average market price is calculated by using the retailer's wholesale cost of the cannabis or cannabis products plus our predetermined mark-up.

Example – As a distributor, you sell cannabis products to a retailer in an arm's length transaction before January 1, 2023, for $1,500 plus a $100 transportation charge. You allow the retailer a 25 percent discount if the retailer pays you when the cannabis products are delivered. The retailer earns the 25 percent discount of $375 ($1,500 × 25%), reducing the cost to $1,125 ($1,500 - $375).

The retailer's wholesale cost used to calculate the average market price in an arm's length transaction is $1,225, calculated as follows:

The average market price and the cannabis excise tax due are calculated as follows:

For this transaction, you collect $321.56 in cannabis excise tax from the retailer plus the wholesale cost of $1,225.00 for the cannabis products and transportation charge.

Effective January 1, 2020, the wholesale cost is the amount paid by the retailer for the cannabis or cannabis products, including any transportation charges. Prior to January 1, 2020, wholesale cost is the amount paid by the retailer, including transportation charges, and adding back in any discounts or trade allowances.

*This example assumes a mark-up rate of 75 percent. The applicable rate is the rate in effect at the time of the transaction. The historical mark-up rates can be found on our website located on the Special Taxes and Fees Rates Page, under Cannabis Taxes.

In determining the mark-up, we examine transactions recorded in the California Cannabis Track-and-Trace (CCTT) system. Wholesale costs and retail selling prices listed in the CCTT from over 15 million individual transactions are used to calculate the mark-up. Transactions with data errors and from vertically integrated businesses (i.e., nonarm’s length transactions) were removed from the calculation. Retail selling prices are assumed to include the cannabis excise tax and are adjusted accordingly. To calculate the mark-up, we use the following formula:

Below is an example of how the mark-up calculation works when the actual sales data shows that the average mark-up between wholesale and retail prices is 75 percent. A cannabis retailer purchases cannabis from a distributor for $50. In this example, the distributor will calculate the 15% cannabis excise tax due from the retailer as follows:

The distributor will collect $13.13 in cannabis excise tax from the cannabis retailer and remit that tax payment to us.

The example below provides a sample scenario and guidance on how to determine the average market price in an arm's length transaction:

Example – You are a distributor and you sell before January 1, 2023, one pound of cannabis flowers for $1, 000 to a retailer and charge a $300 transportation fee. The wholesale cost paid by the retailer to you is $1,300 ($1, 000 + $300).

To determine the average market price, take the wholesale cost and add the mark-up. This example assumes a 75 percent mark-up. You must use the mark-up rate in effect at the time of sale. Historical mark-up rates can be found on our Special Taxes and Fees Rates Page, under Cannabis Taxes.

The cannabis excise tax due from the retailer to the distributor on this transaction is $341.25 (15% × $2,275). See the Excise Tax Computation topic below for more information.

When a microbusiness, authorized to cultivate and/or manufacture, 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 and/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 from the retail sale. Gross receipts include all charges related to the retailer's sales, such as labor, service, certain transportation charges, and any local business taxes listed on the receipt to the retailer's customer. For example, when the retailer delivers cannabis or cannabis products to its customers using its own vehicles and there is no explicit written agreement executed prior to the delivery that passes title to the purchaser before delivery, the charge for that delivery is included in the gross receipts subject to the cannabis excise tax. Additionally, if the retailer adds a separate amount to its customers' invoices or receipts to cover a cannabis business tax required by its 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:

Example – A microbusiness (which is licensed to be a cultivator, distributor, manufacturer, and retailer) grows cannabis flowers 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 retail 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 must be calculated and for the current rate.

You must provide an invoice, receipt, or other similar document to the cannabis retailer that identifies:

• The retailer's name, as the licensee receiving the product.
• Your name.
• The associated unique identifier for the cannabis or cannabis product.
• The amount of cannabis excise tax.
• The date of sale or transfer.

If you sell or transfer cannabis or cannabis products to another distributor, before January 1, 2023, you are not required to collect the cannabis excise tax from the distributor. You should document the transaction with an invoice or other similar documentation that identifies that the sale or transfer is from one licensed distributor to another and includes:

• The selling or transferring distributor's name and license number,
• The purchasing or receiving distributor's name and license number, and
• A statement that no cannabis excise tax was collected.

If 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.

If you, as a distributor, sell cannabis or cannabis products before January 1, 2023, to a cannbis retailer and transfer the cannabis or cannabis products to another distributor for transportation to that retailer, or if you receive cannabis or cannabis products from another distributor for transportation to a cannabis retailer, you should document the transaction such as with a shipping manifest or invoice, and include:

• The transferring distributor's name and license number,
• The receiving distributor's name and license number,
• A statement indicating that the transaction between the distributors is for transportation services only and
• A statement indicating which distributor has collected or who will collect the cannabis excise tax from the cannabis retailer, and report and pay it to us.

In the absence of such documentation, both distributors may be jointly liable for any unpaid cannabis excise tax they were required to collect from the cannabis retailer on the retail sale of the cannabis or cannabis products.

Example 1 – The retailer purchased five pounds of cannabis flowers for $7,500 and 50 cannabis candy bars for $300 in an arm's length transaction occurring before January 1, 2023, and sells the cannabis flowers and cannabis candy bars at retail before January 1, 2023. The average market price in the case of an arm's length transaction is the wholesale cost of the cannabis plus a mark-up. This example assumes a 75 percent mark-up. You must use the mark-up rate in effect at the time of sale. The current mark-up can be found on our Special Taxes and Fees Rates Page, under Cannabis Taxes.

The distributor is responsible for reporting and paying the $2,106 cannabis excise tax to us on their cannabis tax return. The distributor is not responsible for verifying the retail selling price of the cannabis. For retail sales of cannabis or cannabis products before January 1, 2023, the cannabis excise tax is based on the average market price. In an arm's length transaction, the average market price is not based on the retailer's gross receipts from the retail sale.

Example 2 – The cannabis retailer, which is part of a microbusiness that also holds a distributor license, sells four pounds of cannabis flowers for $9,600 and 25 cannabis candy bars for $500 to their customers (the consumer) before January 1, 2023. This is considered a nonarm's length transaction because the microbusiness supplied its own cannabis and cannabis products for retail sale. The average market price in the case of a nonarm's length transaction is the cannabis retailer's gross receipts from the retail sale.

The microbusiness is responsible for reporting and paying the $1,515 cannabis excise tax to us on their cannabis tax return.

As the distributor:

• You should not collect the cannabis excise tax on cannabis trade samples you provided to a cannabis retailer.
• You should provide documentation to cannabis retailers which you provide cannabis trade samples indicating that no cannabis excise tax was collected and maintain copies for your records.
• You should maintain records to document the cannabis trade samples provided to retailers without collection the cannabis excise tax, but you are not required to report trade samples provided to cannabis retailers to CDTFA on its cannabis tax return.
• You should provide or use the cannabis trade samples as required by Department of Cannabis Control (DCC). Please visit DCC's website for additional information regarding cannabis trade sample requirements.

Documenting receipt or transfer of cannabis trade samples:

• The following information should be included on documentation, such as a letter, invoice, note, or preprinted form, between you and the licensee providing cannabis trade samples to you or receiving cannabis trade samples from you:
  1. A statement indicating that cultivation tax or cannabis excise tax, as applicable, was not collected on cannabis trade samples.
  2. The date the cannabis trade samples were provided or received,
  3. Your business name,
  4. Your CDTFA seller's permit number and cannabis tax account number (if applicable),
  5. Your DCC cannabis license number,
  6. The name, license type, and DCC cannabis license number of the licensee providing or receiving the cannabis trade samples,
  7. The description and unique identifier of the cannabis trade samples, and
  8. The name and license number of the transporting distributor, if it was not you or the licensee providing or receiving the trade samples.
• The documentation should be consistent with the information recorded in the CCTT system regarding the transfer of trade samples to or from you.
• A cannabis licensee may use a written certification that the cannabis or cannabis products were provided or received for use as trade samples.

Taxes may be due for cannabis trade samples when:

• A cannabis licensee who receives cannabis or cannabis products as trade samples and later sells the cannabis or cannabis products is liable for cannabis excise tax and, if applicable, cultivation tax along with applicable penalties and interest on the cannabis or cannabis products sold.
• A cannabis licensee who 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.

You must report the cultivation tax due for any cannabis or cannabis product that entered the commercial market during your reporting period prior to July 1, 2022, and pay the amount due. You must separately report the total weight in ounces of medicinal and adult-use harvested cannabis that entered the commercial market by category (flowers, leaves, or fresh cannabis plant) on your cannabis tax return.

Additionally, you must report the cannabis excise tax due for any cannabis or cannabis products sold or transferred to a cannabis retailer during your reporting period, through the reporting period ending December 31, 2022, and pay the amount due. This is required whether or not the cannabis retailer has already sold the cannabis or cannabis products at retail, or whether or not you have collected full payment from the retailer. For assistance filing your cannabis tax return, please view or Online Filing Instructions.

When you, the distributor, collect excess cannabis excise tax from a cannabis retailer that collected the excess tax from the customer, an invoice, receipt, or other similar document must be provided to the retailer with the following information:

1. Date of the invoice, receipt, or similar document,
2. Name of distributor,
3. Name of cannabis retailer,
4. The seller's permit number of the retailer,
5. The amount of excess cannabis excise tax collected, and
6. The seller's permit number held by the distributor or a statement that the distributor does not have a seller's permit.

The distributor must report the excess cannabis excise tax that a cannabis retailer paid to the distributor on the first return after receiving the excess cannabis excise tax from the retailer. The amount of excess cannabis excise tax collected from the retailer is reported on the electronic cannabis tax return in the box that is designated for excess cannabis excise tax collected. This box is for use only when a cannabis retailer collects excess cannabis excise tax from its customer, cannot return the excess amount back to its customer, and pays the excess amount to the distributor.

When you report a credit on this line, we may request that you provide documentation that supports this credit. Documentation may include but is not limited to invoices that show excess cannabis excise tax was collected from the retailer and credit invoices that list the excess cannabis excise tax as being returned to the retailer because the retailer returned the excess amount back to its customer. This line is not to be used to correct reporting errors on prior cannabis tax returns. When you have any reporting errors, please amend the return that contains the reporting error.

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

As a distributor, you are required to collect the 15 percent cannabis excise tax from cannabis retailers on cannabis or cannabis products that you sell or transfer before January 1, 2023, to the cannabis retailer. The cannabis excise tax does not apply to cannabis or cannabis products that you sell or transfer to a cannabis retailer that are subsequently stolen from the retailer. If the retailer paid you the cannabis excise tax and the associated cannabis or cannabis products are subsequently stolen from the retailer, the retailer can request a refund from you for the cannabis excise tax paid to you. For your records and for any claim for refund you file, you should obtain documentation from the retailer that supports loss due to theft. Acceptable forms of documentation may include police reports and/or insurance claims. You must provide the cannabis retailer with a receipt or similar document that indicates the amount of cannabis excise tax returned.

For cannabis excise tax that you reported and paid to us and subsequently returned to the cannabis retailer due to theft, you may submit a claim for refund for the excess cannabis excise tax you paid to us and later returned to the cannabis retailer. You will need to provide us the documentation supporting the loss that the retailer provided.

The 15 percent cannabis excise tax is due on all retail sales of cannabis or cannabis products. There is no exemption or deduction of the cannabis excise tax due to theft of cash.

Cannabis accessories such as vaping devices or batteries sold in preassembled units may include cannabis or cannabis products. If you are a cannabis distributor who sells these preassembled units with cannabis or cannabis products, or other cannabis accessories, you may separately list the cannabis retailer's cost of the cannabis or cannabis products on your invoice to the retailer to apply the cannabis excise tax to the cannabis or cannabis products only. If you choose to separately state the cost of the cannabis or cannabis product from any cannabis accessories, you must maintain the supporting documentation used to establish the individual cost of the cannabis or cannabis products and the cannabis accessories.

However, when cannabis or cannabis products are sold or transferred with cannabis accessories to a cannabis retailer, and you do not separately state the sales price of the cannabis or cannabis products from the cannabis accessory, the cannabis accessory shall be included in the calculation of the average market price when determining the cannabis excise tax due.

You may file a claim for refund using our online services. To submit a claim for refund, simply login 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. Simply 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, including proof that the amount requested has been refunded to the cultivator who paid it, before we process the claim for refund.

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.

If you have collected any amount of cannabis excise tax in excess of the amount due from a cannabis retailer, you may refund the excess tax directly to the retailer. This may occur if you used the incorrect wholesale cost or mark-up rate when calculating the amount of excise tax due from a cannabis retailer in an arm's length transaction. You may claim a credit for that amount of cannabis excise tax that was collected in excess, remitted to us, and returned to the cannabis retailer on a future quarterly tax return (provided the credit is claimed on a return no later than three years from the date of the overpayment). We may request documentation to support the credit that is claimed on the return. Examples of documentation that are acceptable include, but are not limited to, a copy of the receipt or invoice listing the amount of cannabis excise tax collected and subsequently returned to the cannabis retailer, along with the retailer's acknowledgement that the excess tax collected was returned to them.

Additionally, cannabis retailers that you sell or transfer cannabis or cannabis products to may request from you a refund of the cannabis excise tax you collected if the cannabis or cannabis products were never sold at retail (for example, if the product is destroyed or given away for free to a qualified medicinal cannabis patient), or the retailer's product was returned by their customers and a refund of the sale was given. To obtain a refund, go to our online services page as described above. You will be required to submit documentation to support that you refunded to the cannabis retailer the amount being claimed and, if applicable, the retailer refunded the excise excess tax to the customer that paid it.

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.

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.

• 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 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.

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.

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.

• 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.

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.

• 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.

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.

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.

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.

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).

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.

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.

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.

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.

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.

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.

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.

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.

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

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.”

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.

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.

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.

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.

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:

“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.

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).

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:

Sales tax computation:

Sales delivered in the city of Woodland

Excise tax calculation:

Sales tax computation:

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

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.

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.