Cal. Code Regs. Tit. 18, § 3700 - Cannabis Excise and Cultivation Taxes
(a)
Definitions. For purposes of this chapter (Cannabis Tax Regulations, commencing
with Regulation 3700), the definitions of terms in part 14.5, Cannabis Tax,
(commencing with section 34010) of division 2 of the Revenue and Taxation Code
shall apply and the following terms are defined or further defined below.
(1) "California Cannabis Track-and-Trace
system" means the system all persons licensed pursuant to division 10
(commencing with section
26000)
of the Business and Professions Code are required to use to record the
inventory and movement of cannabis and cannabis products through the commercial
cannabis supply chain.
(2)
"Cannabis accessories" shall have the same meaning as set forth in section
11018.2
of the Health and Safety Code.
(3)
"Cannabis flowers" means the flowers of the plant Cannabis sativa L. that have
been harvested, dried, trimmed or untrimmed, and cured, and prior to any
processing whereby the plant material is transformed into a concentrate,
including, but not limited to, concentrated cannabis, or an edible or topical
product containing cannabis or concentrated cannabis and other ingredients. The
term "cannabis flowers" excludes leaves and stems removed from the cannabis
flowers prior to the cannabis flowers being transferred or sold.
(4) "Cannabis leaves" means all parts of the
plant Cannabis sativa L. other than cannabis flowers that are sold or
consumed.
(5) "Cultivator" means
all persons required to be licensed to cultivate cannabis pursuant to division
10 (commencing with section
26000)
of the Business and Professions Code, including a microbusiness that cultivates
cannabis as set forth in paragraph (3) of subdivision (a) of section
26070
of the Business and Professions Code.
(6) "Distributor" means a person required to
be licensed as a distributor pursuant to division 10 (commencing with section
26000)
of the Business and Professions Code, including a microbusiness that acts as a
licensed distributor as set forth in paragraph (3) of subdivision (a) of
section
26070
of the Business and Professions Code.
(7) "Fresh cannabis plant" means the flowers,
leaves, or a combination of adjoined flowers, leaves, stems, and stalk from the
plant Cannabis sativa L. that is either cut off just above the roots, or
otherwise removed from the plant.
To be considered "fresh cannabis plant," the flowers, leaves, or combination of adjoined flowers, leaves, stems, and stalk must be weighed within two hours of the plant being harvested and without any artificial drying such as increasing the ambient temperature of the room or any other form of drying, or curing and must be entered into the California Cannabis Track-and-Trace system, manifested, and invoiced as "fresh cannabis plant." If the California Cannabis Track-and-Trace system is not available, or a licensee is not required to record activity, the paper manifest or invoice shall indicate "fresh cannabis plant" is being sold or transferred.
(8) "Manufacturer" means a person required to
be licensed as a manufacturer pursuant to division 10 (commencing with section
26000)
of the Business and Professions Code, including a microbusiness that acts as a
licensed manufacturer as set forth in paragraph (3) of subdivision (a) of
section
26070
of the Business and Professions Code.
(9) "Ounce" means 28.35 grams.
(10) "Plant waste" means waste of the plant
Cannabis sativa L. that is managed pursuant to the cannabis waste management
provisions of chapter 1, division 8 of title 3 of the California Code of
Regulations.
(11) "Wholesale cost"
means:
(A) Prior to January 1, 2020, the
amount paid by the cannabis retailer for the cannabis or cannabis products,
including transportation charges. Discounts and trade allowances must be added
back when determining wholesale cost.
For purposes of this subdivision, "discounts or trade allowances" are price reductions, or allowances of any kind, whether stated or unstated, and include, without limitation, any price reduction applied to a supplier's price list. The discounts may be for prompt payment, payment in cash, bulk purchases, related-party transactions, or "preferred-customer" status.
(B) On and after
January 1, 2020, the amount paid by the cannabis retailer for the cannabis or
cannabis products, including transportation charges.
(b) Collection of Cultivation Tax
When Testing Requirement is Waived. For purposes of the cultivation tax imposed
on all harvested cannabis that enters the commercial market pursuant to section
34012
of the Revenue and Taxation Code, when the testing requirement is waived
pursuant to subdivision (1) of section
26070
of the Business and Professions Code, a distributor shall collect the
cultivation tax from cultivators when cannabis is transferred or sold to the
distributor.
(c) Cultivation Tax.
For transactions made on and after January 1, 2018, the rate of the cultivation
tax applies as follows:
(1) Per dry-weight
ounce of cannabis flowers, and at a proportionate rate for any other
quantity.
(2) Per dry-weight ounce
of cannabis leaves, and at a proportionate rate for any other
quantity.
(3) Per ounce of fresh
cannabis plant, and at a proportionate rate for any other quantity.
(d) Cultivation Tax Invoicing
Requirements. A cultivator is liable for the cultivation tax imposed pursuant
to section
34012
of the Revenue and Taxation Code. A cultivator's liability for the cultivation
tax is not extinguished until the cultivation tax has been paid to the State,
except as otherwise provided in subdivision (h) of Revenue and Taxation Code
section
34012.
(1) The distributor shall provide to the
cultivator, or to the manufacturer if the cannabis was first sold or
transferred to a manufacturer, an invoice, receipt, or similar document that
identifies the licensee receiving the product, the originating cultivator,
associated unique identifier of the cannabis, the amount of cultivation tax,
and the weight and category of the cannabis. The weight and category of the
cannabis identified on the invoice shall equal the weight and category of the
cannabis entered into the California Cannabis Track-and-Trace system.
(2) The manufacturer shall provide to the
cultivator when a cultivator sells or transfers cannabis to a manufacturer, an
invoice, receipt, or similar document that identifies the licensee receiving
the product, the originating cultivator, the associated unique identifier of
the cannabis, the amount of cultivation tax, and the weight and category of the
cannabis. The weight and category of the cannabis identified on the invoice
shall equal the weight and category of the cannabis entered into the California
Cannabis Track-and-Trace system.
(3) The manufacturer shall include on the
invoice, receipt, or similar document to the distributor or the next party in
the transaction, the associated weight and category of the cannabis used to
produce the cannabis products. This associated cultivation tax and the weight
and category of the cannabis used to produce a cannabis product shall follow
the cannabis product from one party to the next until it reaches a distributor
for quality assurance review, as described in section
26110
of the Business and Professions Code.
(e) Remittance of Cultivation Tax. A
distributor who conducts the required quality assurance review before the
cannabis or cannabis products can be sold or transferred to a cannabis retailer
pursuant to section 5307, of chapter 2, division 42 of title 16 of the
California Code of Regulations, is responsible for the remittance of the
cultivation tax based on the weight and category of the cannabis that enters
the commercial market.
(f) Cannabis
Removed from a Cultivator's Premises is Presumed Sold.
(1) Unless the contrary is established, it
shall be presumed that all cannabis removed from the cultivator's premises,
except for plant waste, is sold and thereby taxable pursuant to section
34012
of the Revenue and Taxation Code.
(2) The presumption in subdivision (f)(1) may
be rebutted by a preponderance of the evidence demonstrating that the cannabis
was removed for purposes other than for entry into the commercial market.
Reasons for which cannabis may be removed and not subject to tax on that
removal include, but are not limited to, the following:
(A) Fire,
(B) Flood,
(C) Pest control,
(D) Processing by a cultivator, such as
trimming, drying, curing, grading, packaging, or labeling,
(E) Storage prior to the completion of, and
compliance with, the quality assurance review and testing, as required by
Business and Professions Code section
26110,
and
(F) Testing.
(g) Receipts for
Cannabis Excise Tax Paid to Cannabis Retailers. A purchaser of cannabis or
cannabis products is liable for the cannabis excise tax imposed pursuant to
section
34011
of the Revenue and Taxation Code. A purchaser's liability for the cannabis
excise tax is not extinguished until the cannabis excise tax has been paid to
the State, except as otherwise provided in subdivision (g)(2).
(1) Each cannabis retailer is required to
provide a purchaser of cannabis or cannabis products with an invoice, receipt,
or other document that includes a statement that reads: "The cannabis excise
taxes are included in the total amount of this invoice."
(2) An invoice, receipt, or other document
with the required statement set forth in subdivision (g)(1) obtained from the
cannabis retailer is sufficient to relieve the purchaser of the cannabis excise
tax imposed on the purchase of the cannabis or cannabis products.
(3) A cannabis retailer may separately state
a charge for the cannabis excise tax when the cannabis or cannabis products are
sold to a purchaser and the separately stated charge shall be equal to the
cannabis excise tax required to be paid to a distributor pursuant to section
34011
of the Revenue and Taxation Code.
(h) Excess Cannabis Excise Tax Collected by a
Cannabis Retailer.
(1) Definition. When an
amount represented by a cannabis retailer to a customer as constituting
cannabis excise tax is computed upon an amount that is not taxable or is in
excess of the taxable amount and is actually paid by the customer to the
cannabis retailer, the amount so paid is excess cannabis excise tax collected.
Excess cannabis excise tax is charged when tax is computed on a transaction
which is not subject to cannabis excise tax, when cannabis excise tax is
computed on an amount in excess of the amount subject to cannabis excise tax,
when cannabis excise tax is computed using a tax rate higher than the rate
imposed by law, and when mathematical or clerical errors result in an
overstatement of the cannabis excise tax on an invoice, receipt, or similar
document.
(2) Procedure Upon the
Determination of Excess Cannabis Excise Tax Collected. Whenever the Department
determines that a person has collected excess cannabis excise tax, the person
will be afforded an opportunity to refund the excess cannabis excise tax
collection to the customers from whom they were collected.
(3) Evidence Sufficient to Establish that
Excess Cannabis Excise Tax Amounts Have Been or Will Be Returned to the
Customer.
(A) If a person already has refunded
to each customer amounts collected as excess cannabis excise tax due, this may
be evidenced by any type of record that can be verified by audit such as:
1. Receipts or cancelled checks.
2. Books of account showing that credit has
been allowed the customer as an offset against an existing indebtedness owed by
the customer to the person.
(B) If a person has not already made excess
cannabis excise tax refunds to each customer but desires to do so rather than
incur an obligation to the state, the person must:
1. Inform in writing each customer from whom
an excess cannabis excise tax amount was collected that the excess cannabis
excise tax amount collected will be refunded to the customer or that, at the
customer's option, the customer will be credited with such amount,
and
2. The person must obtain and
retain for verification by the Department an acknowledgement from the customer
that the customer has received notice of the amount of indebtedness of the
person to the customer.
(C) In the event a cannabis retailer is
unable to make such refunds to a customer, the cannabis retailer shall remit
the excess cannabis excise tax to a distributor pursuant to paragraph 4 of this
subdivision.
(4)
Cannabis Retailer's Remittance of Excess Cannabis Excise Tax to a Distributor.
(A) Once a cannabis retailer determines that
it has collected excess cannabis excise tax and is unable to make a refund to
the customer, and has not previously paid the excess cannabis excise tax to a
distributor, the cannabis retailer shall remit the excess cannabis excise tax
to a distributor licensed pursuant to division 10 (commencing with section
26000)
of the Business and Professions Code.
(B) Upon a cannabis retailer's remittance of
the excess cannabis excise tax to a distributor, as set forth in subdivision
(h)(4)(A), a distributor shall provide the cannabis retailer with an invoice,
receipt, or other similar document that contains all of the following:
1. Date of execution of the invoice, receipt,
or other similar document,
2. Name
of the distributor,
3. Name of the
cannabis retailer,
4. The amount of
excess cannabis excise tax,
5. The
number of the seller's permit held by the cannabis retailer, and
6. The number of the seller's permit held by
the distributor. If the distributor is not required to hold a seller's permit
because the distributor makes no sales, the distributor must include a
statement to that effect on the receipt in lieu of a seller's permit
number.
(5)
Distributor's Reporting and Remittance of the Excess Cannabis Excise Tax. A
distributor shall report and remit the excess cannabis excise tax collected
from the cannabis retailer pursuant to subdivision (h)(4) with the
distributor's first return subsequent to receiving the excess cannabis excise
tax from the cannabis retailer.
(6)
The excess cannabis excise tax provisions in subdivisions (h)(1) through (5)
are superseded by the provisions in Regulation 3703 and no longer operative on
and after January 30, 2023.
(i) Cannabis or Cannabis Products Sold with
Cannabis Accessories. A cannabis excise tax shall be imposed upon purchasers of
cannabis or cannabis products sold in this state at the rate of 15 percent of
the average market price of any retail sale by a cannabis retailer. Unless as
otherwise provided below, the cannabis excise tax does not apply to cannabis
accessories.
(1) When cannabis or cannabis
products are sold or transferred with cannabis accessories (e.g., vape
cartridges) to a cannabis retailer, and a distributor separately states the
price of the cannabis or cannabis products from the cannabis accessories, the
cannabis excise tax applies to the average market price of the cannabis or
cannabis products, and not to the separately stated charge for the cannabis
accessories.
(A) A distributor that makes a
sales price segregation must maintain supporting documentation used to
establish the individual cost of the cannabis or cannabis products and the
cannabis accessories.
(B) Charges
will be regarded as separately stated only if they are separately set forth in
the invoice, receipt, or other document issued to the purchaser
contemporaneously with the sale. The fact that the charges can be computed from
other records will not suffice as a separate statement.
(2) When cannabis or cannabis products are
sold or transferred with cannabis accessories (e.g., vape cartridges) to a
cannabis retailer, and a distributor does not separately state the sales price
of the cannabis or cannabis products from the cannabis accessories, the cost of
the cannabis accessories shall be included in the average market price to which
the cannabis excise tax applies.
(3) Subdivision (i) is inoperative on and
after January 1, 2023.
(j) Reporting the Cannabis Excise Tax. A
distributor shall report and remit the cannabis excise tax due with the return
for the quarterly period in which the distributor sells or transfers the
cannabis or cannabis products to a cannabis retailer.
(1) A person that holds both a cannabis
retailer license and a distributor license, or a microbusiness that is
authorized to act as a distributor, is subject to the same cannabis excise tax
collection and reporting requirements as a person that holds only a distributor
license.
(2) A distributor that
sells or transfers cannabis or cannabis products to another distributor is not
responsible for collecting the cannabis excise tax from the other
distributor.
(3) Transactions
between two distributors shall document that no cannabis excise tax was
collected or remitted on the invoice between the two distributors.
Documentation shall identify the selling distributor, the selling distributor's
license number, the purchasing distributor, and the purchasing distributor's
license number. When the transaction is between a distributor and a
microbusiness acting as a distributor, the documentation shall indicate that
the microbusiness is acting as a distributor.
(4) The distributor or microbusiness that
sells or transfers cannabis or cannabis products to a cannabis retailer is
responsible for collecting the cannabis excise tax from the cannabis retailer
based on the average market price of the cannabis or cannabis products supplied
to the cannabis retailer.
(k) Penalties.
(1) Penalty for Unpaid Taxes. In addition to
any other penalty imposed pursuant to the Fee Collection Procedures Law
(commencing with section
55001
of the Revenue and Taxation Code) or any other penalty provided by law, a
penalty of 50 percent of the amount of the unpaid cannabis excise tax or
cannabis cultivation tax shall be added to the cannabis excise tax and
cultivation tax not paid in whole or in part within the time required pursuant
to sections
34015
and
55041.1
of the Revenue and Taxation Code.
(2) Relief from Penalty for Reasonable Cause.
If the Department finds that a person's failure to make a payment of the
cannabis excise tax or cannabis cultivation tax is due to reasonable cause and
circumstances beyond the person's control, and occurred notwithstanding the
exercise of ordinary care and the absence of willful neglect, the person may be
relieved of the penalty provided by subdivision (k)(1) for such failure.
Any person seeking to be relieved of the penalty shall file with the Department a statement under penalty of perjury setting forth the facts upon which the claim for relief is based.
Notes
Note: Authority cited: Section 15570.40(b), Government Code; and Section 34013, Revenue and Taxation Code. Reference: Sections 34010, 34011, 34012, 34013, 34015, 55041.1 and 55044, Revenue and Taxation Code; Section 11018.2, Health and Safety Code; and Section 15570.40(b), Government Code.
Note: Authority cited: Section 15570.40(b), Government Code; and Section 34013, Revenue and Taxation Code. Reference: Sections 34010, 34011, 34012, 34013, 34015, 55041.1 and 55044, Revenue and Taxation Code; Section 11018.2, Health and Safety Code; and Section 15570.40(b), Government Code.
2. Repealer and new section filed 9-4-2019; operative
3. New subsection (h)(6) filed 1-30-2023 as an emergency; operative
4. New subsection (i)(3) filed 12-15-2023 as an emergency; operative
5. Certificate of Compliance as to 1-30-2023 order transmitted to OAL 11-21-2024 and filed
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