To create or edit taxes, go to Settings --> Taxes in Admin.
The tax functionality in Meadow allows you to configure taxes in a number of complex ways. Before making ANY changes to taxes, we strongly advise speaking to your accountant and/or a tax attorney. Taxes can be complicated and getting them wrong consequential.
A good place to start when trying to understand California's cannabis taxes is the "Tax Guide for Cannabis Businesses" provided by CDTFA (the state's tax agency).
Local Tax
Under current California law, every jurisdiction (city and/or county) can set their own cannabis taxes. Some of them (like LA) differentiate between adult use and medical sales (10% and 5%, respectively); others (like San Jose) do not (10% for both types); and some haven't set a tax (but probably will).
Get familiar with the details of your local tax law: does it differentiate between adult use, medical and MMIC sales? How is it calculated? When is it due?
Excise Tax
The excise tax calculation is changing starting January 1, 2023
The excise tax calculation is changing from 26.25% of the wholesale cost to 15% of the retail sale price.
The excise tax will also compound local taxes and apply to any fees on an order (such as delivery or payment fees).
The excise tax continues to be compounded by sales tax.
Read more about the change here. Excise taxes are also covered in our excise tax guide..
Sales Tax
Sales tax is due on retail sales everywhere in the state. The state provides a tool to look up your local sales tax rate. It applies to both adult use and medical sales, and is only exempted for medical customers who hold a county-issued cannabis card (MMIC). Even with a cannabis card, non-cannabis products (like accessories) are still taxed.
The state tax collection agency (CDTFA) put together a tax guide for cannabis businesses that provides clear and authoritative instructions on state taxes.
If you sell a product for less than 50% of the wholesale cost, the sales tax rate is charged on the wholesale cost as "use tax," which the CDTFA covers here.
Setting Up a Tax in Meadow
Every tax you create will have the following properties:
Name
Medical Rate
Adult Use Rate
Tax Exemption with MMIC?
Tax Includes Other Tax(es)?
State Sales and Use Tax?
Exempt Product Categories
Non-Exempt Product Categories
The first three are straightforward enough: each tax has a name and can be set to different rates depending on whether a transaction is medical or adult use.
The state gives a sales tax exemption for MMIC holders purchasing cannabis products. Some local taxes may also exempt MMIC holders.
In California, sales tax compounds local taxes. That's right, you are taxed on taxes. For this reason, sales tax should be calculated by including local taxes:
$100 product (before tax)
+ 10% local tax = $110
+ 10% state tax = $121
The "state sales and use tax" Y/N toggle helps you calculate and track use tax, which is due on any product sold to a customer for less than 50% of the wholesale cost paid by the retailer. Learn more about use tax from CDTFA under "Discounted Sales."
Lastly, it is important to make sure you neither tax nor exempt products from taxes incorrectly.
Remember: sales tax always applies to accessories, even with an MMIC.
Accessories are exempt from many local cannabis taxes. Check your local taxes.
Tax amounts can be found on the Orders, Taxes and Purchase Orders reports.
Cannabis taxes are complicated. Consult with tax professionals such as a CPA or tax attorney when setting up your taxes or if you have questions.
Tax Inclusive Pricing
Once you've set up your taxes, you can decide whether you want all your taxes to be included in the product prices or not.
To enable this, set "Taxes included in the price of products (Applies after January 1, 2023)" to "Yes."
Taxes Included in price of products means that the price displayed on your menu is the grand total after taxes. For example, if a $110 product includes taxes, and the tax rate is 10%, then the pre-tax subtotal is $100 and $10 in taxes are due (making up the $110 price). If taxes are not included in the price, that product would be $110 + 10% = $121 and $11 in tax would be due.
Examples
The examples below show a possible local tax, excise tax and sales tax set up:
Example 1: Sales Tax
Example 2: Local Tax
Example 3: Three tiers of compounding local, excise and sales taxes
Local Tax
In this example, the local tax is set up to apply in the first tier, at a rate of 10% for adult use orders and 5% for medical orders; accessories are set to be excluded from this tax, but it is not exemptible (meaning customers with an MMIC would still pay this tax on cannabis products).
Excise Tax
In this example, the excise tax is set up to apply in the second tier, compounding the local tax, at a rate of 15% for adult use and medical orders. Accessories are set to be excluded from this tax, but it is not exemptible (meaning customers with an MMIC would still pay this tax on cannabis products). By selecting "excise tax" from the type dropdown, this tax will also apply to any fees on the order (such as delivery fees or payment fees).
Sales Tax
In this example, the sales tax is set up in the third tier, compounding both the local tax and the excise tax, at a rate of 10% for adult use and medical orders. It is set as the use tax (meaning it is applied in reporting when a product is sold for 50% or less than cost) and as exemptible (for customers with an MMIC), but will always apply to accessories (a non-exempt category to which sales tax always applies).
With these tax settings, a $100 cannabis product would come to a total of $139.15.
This can be calculated as ((($100 * 1.1) * 1.15) * 1.1)