Marijuana sales in California to be legal, and taxed, in 2018
- Sales Tax News
- Nov 17, 2017 | Gail Cole
California expects to start reaping tax revenue once the retail sale of recreational (nonmedical) marijuana begins on Jan. 1, 2018. Voters approved legalizing pot in November of 2016.
A cultivation tax will apply to all harvested cannabis that enters the commercial market. The rate will be $9.25 per dry-weight ounce of cannabis flowers and $2.75 per dry-weight ounce of cannabis leaves. This tax will be paid by cannabis cultivators to either their distributor or manufacturer.
In addition, an excise tax of 15 percent, collected by the retailer at the time of sale and remitted to the cannabis distributor, will apply to the purchase of cannabis and cannabis products. State and local sales taxes will also apply (voters in seven cities approved local taxes during the November election).
All told, California state and local taxes on recreational marijuana could reach 45 percent. This, according to Fitch Ratings, could “encourage black market sales and limit potential local government revenues from this new market.”
Revenue from cannabis sales in Colorado and Washington, the first two states in the nation to legalize the recreational sale of marijuana, has “exceeded estimates measurably.” Yet states have to walk a thin line: If taxes are too low, they won’t raise the promised revenue. If they’re too high, they could strengthen the black market. As Fitch notes, “Colorado, Washington and Oregon each lowered their cannabis taxes following legalization to address black market competition. … However, future tax cuts may be politically challenging to implement.”
For more information, see the California Department of Tax and Fee and Administration Tax Guide for Cannabis Businesses, which explains the responsibilities of cultivators, distributors, manufacturers, and retailers.