California Excise Taxes on Cannabis: BioTrackTHC
Co-Authored by our friends at California Business Developers LLC, a practice area of the Andersen CPA firm! If you need tax planning, preparation assistance or help to understand which excise tax method is ideal for you, contact TaxPro@CaliforniaBusinessDevelopers.com.
When it comes to taxing cannabis and cannabis products in California, businesses will be required to add both excise and sales tax to the cost of their products in order to collect the proper cost per unit and remain compliant with the California Department of Tax and Fee Administration (CDTFA) guidelines. There are two different ways that businesses are able to display their excise tax calculations to the consumer; BioTrackTHC’s Dispensary POS System allows you to select the method that is preferred for your business. Failure to properly calculate and charge for excise taxes can result in your business losing money, so it’s important to understand how it works.
The good news is, our new tool in BioTrackTHC can automate your excise taxes for your entire inventory, and we can display the excise tax calculations in both methods! The bad news is the additional cost of cannabis and excise taxes will be passed onto the customers, requiring you to keep a higher price point to maintain consistent profit margins. However, don’t worry about losing customers due to increased costs, as every cannabis business in California has to charge these new excise taxes. While the new tax structure increases the cost of sale to the consumer, it does not create a disadvantage to your business.
The two ways that you can add excise tax to your inventory pricing in BioTrackTHC are before excise tax is applied (Pre Sales Tax Excise Tax Method (Display); or after excise tax has been applied (Post Sales Tax Excise Tax Method (Non-display). Below are examples of each; more examples are provided by the CDTFA and can be found here.
In these examples, we assume that your retail selling price to your customer is $100 and the sales tax rate is 7.25 percent (your actual sales tax rate may be different – please check with your local and state governments).
Example #1 – Pre Sales Tax Excise Tax Method (Display)
|Pre-Excise (Take-Home Value) / Customer-Facing Price||$100.00|
|Excise Tax $100 x 15%||$ 15.00|
|7.25% Sales Tax $115.00 x 7.25%||$ 8.34|
|Total Amount Due (out the door price) $115 + $8.34||$123.34|
Example # 2 – Post Sales Tax Excise Tax Method (Non-Display)
|Pre-Excise (Take-Home Value)||$100.00|
|Excise Tax – $100 x 15%||$ 15.00|
|Customer-Facing Price – $100+$15||$115.00|
|7.25% Sales Tax (calculated with excise tax)$115 x 7.25%||$ 8.34|
|Total Amount Due (out the door price) – $115 + $8.34||$123.34|
Both methods work just fine, but it depends if you would rather have your customers know what they’re paying up front, or if you’d rather display a lower price and have them sticker shocked when they’re hit with $20+ in taxes. Receipts will ultimately show the breakdown in costs, so the savvy consumer will quickly see through any pricing gimmicks, but it’s all about which approach is ideal for your business. For details on setting up your excise taxes in BioTrackTHC’s cannabis software, check out our customer documentation here. Our support team is happy to help with setup; however, our staff is not able to provide any recommendations or direction on which method is best for you. Our friends at California Business Developers would be happy to take your questions; email Bruce at TaxPro@CaliforniaBusinessDevelopers.com or Tom at Ops@CaliforniaBusinessDevelopers.com.
**Please note; we (BioTrackTHC), are not tax experts or consultants. Our team members are not able to provide direction on how you setup your excise taxes. However, this post shares some handy info that can help you decide how you want to setup your excise taxes. Once you decide which excise tax methodology you want to use at your business, our support staff is able to assist in setting it up. For recommendations on which excise tax methodology you should use at your business, we suggest that you consult with a knowledgeable tax professional.**
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