FAQ: California Excise & Sales Tax Solutions

Was this article helpful?
2 out of 2 found this helpful

Beginning January 1, 2018, California imposed a 15 percent excise tax on purchases of cannabis and cannabis products.  Distributors are required to collect this tax when they sell your products. 

But what about the sale of products you purchased before 2018?  What if you produce products under a micro business license and never buy from a distributor?  

This guide will offer explanation and guidance on this tax issue. 


**DISCLAIMER**

Green Bits is not responsible for what tax amounts are collected or how it is collected. This guide is for the purpose of supplying the knowledge necessary for charging the correct taxes at your business. If you have specific questions on what is owed, we recommend reaching out directly to your tax specialist.  

What do you mean by Taxes on "Standard" Products?

For most items in most shops, starting in January 2018, the Excise Tax is paid at the point of purchase from your vender

Below is an excerpt from the CA Tax Guide for Cannabis Businesses:

Currently, in California, distributors are required to calculate and collect the cannabis excise tax from you on cannabis or cannabis products that they sell or transfer to you. When you sell cannabis or cannabis products, you are required to collect the cannabis excise tax from your customer. The easiest way is to include the cannabis excise tax that you paid to your distributor in the selling price to your customer. You are not required to itemize the amount of cannabis excise tax collected from your customer on the receipt; however, you must include the following statement on the invoice or receipt:

"The cannabis excise taxes are included in the total amount of the invoice."

 

What will this look like for inventory purchased after January 1, 2018?

Let's try a quick breakdown.

Let's say we are buying 50 boxes of gummies from Good Gummy Co. They are selling them to you for $10 per box, so your initial package cost is $500

  • Good Gummy Co needs to collect the excise tax, and California state wants 15% of the Average Market Price (currently calculated as 60% mark up over the cost of goods). 
  • The $500 plus the 60% mark up becomes $800, and the 15% is calculated from this value, in this case $120. 
  • So you would pay your distributer $620 for the gummies.  
Good Gummy Co Invoice Excise Taxes Formula Excise Tax Cost of Goods (Excise + Invoice)
$500 ($500 * 1.6) * .15
$120
$620

  

How do I add Excise Tax in Green Bits for this inventory?

Add it directly to your Base Price.

For all products where you have paid your Excise Tax directly to the vendor, add it directly to your Base Price when you're setting up pricing on each product.  


You are not required to itemize the amount of cannabis excise tax collected from your customer on the receipt; however, you must include the following statement on the invoice or receipt:

"The cannabis excise taxes are included in the total amount of the invoice."

You can edit the language on your receipt on the Receipts page in your Back Office. 


If you want to utilize reporting such as our Profit Reports, be sure to add it to your Cost of Goods. 

When you receive the manifest into Green Bits, we want to calculate the price per unit of the total amount paid to the distributor, so in this case, we would divide $620 by the 50 boxes and input $12.40 for our cost per unit.

So, with the excise tax properly folded into our cost of goods and base price, we only need to set up our sales tax. Here's a guide on setting up taxes normally.

What products are taxed differently?

Collecting the Excise tax on products at the point of sale is necessary for pre-2018 products ("legacy products") and for products processed under a vertically integrated license (ie - if you are a micro business and make your own products). 

Collecting this tax is a little bit complicated, due to the fact that your sales tax must be calculated off of the sales price AND the excise tax amount (source: CA Tax Guide for Retail Cannabis Business). If you haven't found the best way to calculate this, we have a solution.

How do I calculate taxes on "Legacy" or vertical integration sourced products?

There are two situations in which you will need to collect the excise tax on the retail selling price: 

  1. The first is on inventory acquired before 2018 and sold after January 1, 2018
  2. The second is on non-arm's length transactions. An example of a non-arm's length transaction would be a business that is both a distributor and retailer of their cannabis product or a microbusiness engaging in those activities.

These items have not yet had an excise tax paid on them, as so we must collect it at the point of sale. However, we still must collect sales tax, and the sales tax needs to be based on the combined price of goods and excise tax collected

Since taxing taxes is a bit irregular, we are going to have to do some clever math. 

Let's see what that looks like...

Price of Goods Excise on Goods Combined Goods and Excise Sales Tax (9.25%) Tender Total
$80 $12 $92 $8.51 $100.51

However, currently there no way to tax a tax in Green Bits with the Default Tax Settings. 

When a transaction is only set up with the excise and sales tax, both taxes are calculating only the price of goods and ignore each other. 

This looks something like this...

Price of Goods Excise Tax (Inclusive) Sales Tax (9.25%) Tender Total Uncaptured Sales Tax
$80 $12 $7.40 $99.40 $1.11

If Green Bits can't by Default tax a tax, how can I set this up properly? 

To calculate the correct total we need a formula that works with how taxes function in Green Bits today. 

Since the Excise tax won't be considered part of the base price of goods, we need to create a separate sales tax that calculates the adjusted tax amount on only the required product types. 


To help, we have created a Sales Tax Correction Formula: 

  1. We know the excise is always 15% of the cost of goods.  
  2. So, we can calculate our missing tax amount by calculating what the excise amount would be just for the sales tax.  The calculation we use is (Sales Tax * 1.15).  
  3. Using our example rate of 9.25%, that looks like (9.25 * 1.15), which comes to 10.6375%

Your Legacy Product should be taxed at 10.6375%

However, you already have a Sales Tax on all of your products for 9.25%, so you will only need to create a separate sales tax that calculates the difference between these two numbers

Here is the new calculation we used: (Sales Tax * 1.15) - Sales Tax.

  • Using our example rate of 9.25%, that looks like (9.25 * 1.15)- 9.25, which comes to 1.3875, simplified to 1.388%.

Let's see what that looks like...

Price of Goods Excise Tax Sales Tax (9.25%) Sales Tax Correction (1.388%) Total Tender
$80 $12 $7.40 $1.11 $100.51

^^ The Sales Tax Correction formula will help you include the previously Uncaptured Sales Tax. 

So now that we can calculate the correction tax and add it to any product types we are required to charge the excise tax on.
 

How do I create unique product types for legacy or integrated products?

Taxes in Green Bits are assigned by product type. This allows you to set up taxes en masse rather than for every product. So the first step to setting up a tax for a group of items is to make a Product Type different from your other products.

To create a new Product Type:

  1. Go to the Inventory tab.
  2. Select Product Type.
  3. Select Add Product Type.

4. Name your new product type. In the example, I have named my new product "Legacy Flower" as this will be all my flower purchased before 2018.

5. Complete the other fields, ensuring you select that the product is marijuana and select the correct limit type.

Reassign your Legacy Products/Integrated Products to your new Product Type

In order to tax your legacy or integrated products, you must reassign these products to a new product. 

  1. Return to the Product page (Inventory > Products) 
  2. Select an appropriate product to change. 
  3. Open the Product Type drop-down
  4. Select the new desired type. 

Please Note -  if you have inventory for a product that is from 2018 as well as pre-2018 product, you will need to reassign the pre-2018 packages to a new product (See: Changing Product Associations)

Continue this process until you have all your pre-2018 and/or vertically integrated products on the legacy product types.

How do I set up a sales tax correction in Green Bits?

Note: This should only be applied to product types that were purchased before 2018 or produced within your vertical integration.

Before we begin, it is important that you don't delete a tax. If you delete a tax rate, historical sales numbers and taxes collected will be removed from your Green Bits reports.

Instead, you'll want to schedule a new rate on your existing tax. If you are wanting to remove a tax, schedule it to end, but do not delete a tax.

How to set up a Sales Tax Correction for your Legacy and Integrated Products:

  1. Go to the Location Settings page of your Back Office by clicking the cog icon in the top right.
  2. Select Taxes on the navigation bar on the left
  3. Select Add New Tax Type.

4. Select continue when the prompt comes up.

5. Name the new tax, I used State Tax Adjustment.  

6. Next, choose the product types you want this tax to apply to. This should be the same products you are applying the excise tax.

7. Use the Sales Tax Correction Formula and input the correction tax rate. (Sales Tax * 1.15) - Sales Tax, in our example it was 1.3875. Back Office will round it to the nearest thousandth. This is fine.

8. Save your new tax rate by scrolling back to the top and selecting Save. Now we are capturing the full sales tax liability.

What will this look like on my receipts?

Each tax will display on the receipts.  Here are a couple samples of what your receipts will look like, including a sample showing discounts.


Without discounts: 


  Here is an example including discounts: 

Have more questions? Submit a request

0 Comments

Please sign in to leave a comment.