First Things First
Cannabis is not tax-free, in fact, it’s the opposite. Cannabis taxes in California came along with legal adult use in California back in 2018. Cannabis products are subject to multiple taxes, some of which can add up to more than 40% of the retail price.
Here’s a breakdown of the different cannabis taxes in California that consumers need to be aware of when buying cannabis.
State Retail Sales Tax
The state retail sales tax applies to all retail sales of tangible goods in California, including cannabis products. As of April 2021, the sales tax rate is 7.25%, but local governments can add their own sales tax (which we talk about in the next paragraph) on top of that. This means that the actual sales tax rate can vary depending on where you buy your cannabis.
Local Sales Tax
In addition to the state retail sales tax, local governments can also impose their own sales tax on cannabis products. These taxes can range from 1% to 9.75%, depending on the city or county. For example, San Francisco has a local sales tax of 8.5%, while Oakland has a local sales tax of 10.25%. Consumers should check the local tax rate or ask your budtender for the out-the-door price when buying cannabis to avoid any surprises at the register.
Cannabis Excise Tax
Another cannabis tax in California is the cannabis excise tax is a tax. This happens on the sale of cannabis products and went into effect on January 1, 2018. This tax is in addition to the state retail sales tax and any local sales tax.
The excise tax rate is 15% of the average market price of the cannabis product, which is determined by the wholesale cost plus a markup. For example, if the average market price of an ounce of cannabis is $200, the excise tax would be $30. This is the third cannabis tax in California.
In 2023, the law changed for cannabis taxes in California, now the customer now has to pay for the excise tax during the final purchase. Some dispensaries were covering the cost but now the law states the purchaser must pay the tax.
Local Cannabis Business Tax
Local governments can also impose a fourth tax on cannabis in California on businesses operating within their jurisdiction. This tax is separate from the state and local sales taxes and the cannabis excise tax. The tax rate varies depending on the city or county, and can be based on gross receipts or square footage. This tax is typically paid by the cannabis business, not the consumer, but it can still affect the retail price of cannabis products.
Final Thoughts
Cannabis taxes in California can be complicated, but they are an important part of the state’s regulatory framework. Consumers should be aware of the different taxes when buying cannabis products to avoid any surprises at the register.
Additionally, it’s important to remember that cannabis taxes in California can vary depending on where you buy your cannabis, so it’s always a good idea to check the local tax rate. By understanding cannabis taxes in California, consumers can make informed decisions about their purchases and support the legal cannabis industry in the state.
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