On New Year’s Day, 2020, state taxes on legal marijuana will increase both at the retail and wholesale levels, the California Department of Tax and Fee Administration has announced. The marijuana mark-up rate from wholesale to retail has been set at 80% as of Jan. 1, and cultivation taxes will increase moderately as well.
Excise Tax and Mark-Up Rate
The CDTFA analyzes statewide market data to determine the average mark-up rate between the wholesale cost and the retail selling price of cannabis and cannabis products every six months, and it has increased it to 80% from the current 60%. This mark-up rate is important in determining excise taxes owed, which are set at 15% of the retail selling price. The agency applies the excise tax based on the average market price of the cannabis or cannabis products sold in a retail sale. The mark-up rate is used when calculating the average market price to determine the cannabis excise tax due in an arm’s length transaction. In such a transaction, the average market price is the retailer’s wholesale cost of the cannabis or cannabis products, plus the mark-up rate determined by the CDTFA.
Cultivation Tax Rates
The CDTFA also announced higher tax rates for cultivators, as per law, that requires them to reflect an adjustment for inflation. The below rates apply to cannabis that a cultivator sells or transfers to a manufacturer or distributor as of Jan. 1, 2020.
Cultivators’ New Tax Rates
- 1 oz. of flower: $9.65, up 4.3% from the current $9.25.
- 1 oz. of leaves: $2.87, up 4.3% from the current $2.75.
- 1 oz. of fresh marijuana plant material: $1.35, up 4.6% from the current $1.29.
Cultivators will have to reflect these rates in their quarterly and annual tax returns.
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