One of the biggest topics our experts get asked about is California’s cannabis dispensary sales tax.
Despite – or maybe because of – what customers perceive to be high taxes, the state is projected to only collect half the amount that was expected this year.
Some experts say that customers are seeking to avoid tax rates by continuing to purchase cannabis in the illegal marketplace. Across the state, sales tax can range close to 50% in some municipalities.
Why are the tax rates for dispensaries so high?
Here’s a quick sales tax breakdown so you can help explain to customers what is going on.
Excise tax: 15%
Quick refresher on the cannabis excise tax: this tax gets charged to the retailer and paid to the distributor.
The excise tax is something you add to the price of the product: everything cannabis from flower to edibles, oils, lotions, and waxes must have the excise added into the price tag.
Usually, this tax is what gives customers sticker shock. But what people in California aren’t sure of is where this tax revenue is spent.
According to Governor Brown’s 2018-2019 budget, cannabis tax revenue goes toward a few key priorities:
Funding increases for K–12 schools and higher education
Financial support for working Californians and reducing rates of homelessness
Specific infrastructure, climate change, and one-time government spending projects
Shoring up California’s “rainy day fund.”
While the high price tag isn’t especially palatable at first glance, it can help improve your dispensary sales if customers know where their tax money is going.
State sales tax: 8-10%
California’s state sales tax varies depending on your local government rates. Usually, the sales tax rate is between 8-10%.
Sales tax gets charged on top of the sales price and the cannabis business tax. The state base sales tax is 7.25%.
You can find your local sales tax by putting your zip code into this database. Medical patients with a state-issued medical cannabis card do not have to pay sales tax.
Like excise tax, sales tax goes to the state’s general fund and into your municipality’s budget. The revenue helps support local transportation, social services, and public safety.
Cannabis business tax: 5-15%
Last but not least, city or county governments have the right to tax cannabis sales at their discretion.
These taxes can range anywhere between five and 15% and are charged at the point-of-sale. The funds typically go toward local needs and vary widely by municipality.
If these taxes seem high to you and your customers, not to worry: the trend in other states where cannabis is legal is to lower taxes as the supply increases.
California’s government may see these high tax rates as an impediment to eradicating the black market. Likewise, as production and supply increase, wholesale prices will decrease. As was the case in Colorado, Oregon, and Washington, lower wholesale prices allowed cannabis dispensaries to pass savings along to the customer. This stimulates more saving for cannabis consumers regardless of the tax rates.
For more on California’s cannabis excise and sales taxes, check out our comprehensive guide or get in touch with our experts by clicking below.