I asked California Department of Tax and Fee Administration a couple of questions about why cannabis tax collections are coming in low. At the end are the questions and the CDTFA’s helpful answers, from Paul Cambra.
My reactions: I. The producer or cultivation tax collected only $1.6 million in the first quarter because retailers some how brought untaxed products into inventory before the tax was effective on January 1. Retailers then sold that untaxed product in early 2018. The standard excise tax procedure for taxing jurisdictions is to apply a “floor stocks tax” to product that escaped tax as it came into inventory (and sits on the shelf or the floor). See https://www.ttb.gov/tax_audit/floor-stocks-tax-faqs-answer.shtml. California did not have a floor stocks tax, so had a short-term loophole. Its effect will soon disappear.
II. The 7.25% sales tax collected a lot compared to the 15% marijuana excise tax because the sales tax
1. includes pipes and t-shirts and so on;
2. is based on a real price, while the excise tax is often based on an artificial or phony price (the “average market price”) under California regs;
3. includes the 15% tax in the base (for an extra 1.0875% every time).