Setting the Bar Higher: Excise Tax Management
On New Year’s Eve, the team at Treez took our first step towards becoming the industry leader in excise tax management by converting every one of our stand-alone retailers’ price and cost structure to have the arm’s length excise tax baked into their pricing. While the rest of the POS providers took the easy route of tacking 15% on the subtotal, we set out to save our operators money. Since the beginning of the year, the average operator utilizing the arm’s length calculation we provided saved approximately 3% — amounting to nearly $1M — making Treez retailers the most competitively priced operations in the state.
Overcoming Unforeseen Inventory Obstacles
With the initial regulations lacking some clarity on how pre-Jan. 1 inventory would be impacted by excise tax, many operators began stockpiling product to avoid paying ancillary fees. Those who didn’t stockpile products found themselves in a situation where they were forced to continue making purchases from existing supply chain vendors, who may have been ill-prepared for the new tax collection protocol. Time for our second action in the excise tax realm.
In the first days of January, we added a toggle in our invoicing module allowing operators to indicate whether the excise taxes had been paid to a distributor at the time of purchase or not. In a moment of leadership, we decided between the lesser of two evils. We chose to provide retailers with a means to continue purchasing inventory from their existing supply chain while logging every purchase and sale in a way that ensured the state would receive excise tax on all products — pre-paid to a vendor or not. This is an ongoing issue and only time will tell how the state handles transitional period violations.
Customized Tax Solutions
As the state begun clarifying how the excise taxes are to be collected for both arm’s length and non-arm’s length transactions, it was apparent there were unseen levels of complexity required to deliver the most favorable tax calculation to our retailers. The CDTFA introduced mandatory compounding of taxes before final calculation of sales tax. Cities levied their own municipal business tax, some on cannabis products only and some on all transactions. To make matters worse, many cities have since further defined their stance on compounding, further convoluting the issue. Meanwhile, counties across the state are gearing up to vote on countywide taxes later in the year, adding another layer of complexity to an already cloudy understanding. To address the nuances of each municipality, we took feedback from across the board and began formulating a global solution.
This led us to introduce our third, and most groundbreaking action yet, a self-service tax module that offers retailers the ability to organize and compound taxes to an infinite level of complexity. Not only that, but we created a system to classify distributors as arm’s length or non-arm’s length, gave micro businesses and vertically integrated business the opportunity to calculate both types of excise tax calculations in a single transaction, and provided retailers with the ability to break arm’s length excise tax out of the price and display it below the subtotal. In addition, we designed our module to incorporate the sales tax exemption quirks surrounding the CA medical marijuana identification card (MMIC) and provided the ability for each layer of tax to be levied on cannabis, non-cannabis, or all products. The cherry on top, however, is our master tax calculator, which gives our eCommerce users a correct tally of sales tax by district based on the final delivery destination. Delivery operations have notoriously been the worst offenders when it comes to tax compliance, and this tax calculator finally gives them the tool needed to automate the calculation of all taxes down to the district.
With excise tax under our belt, we’ve begun working on another higher level issue with compliance: Customer Privacy. Following the attack on Sweetleaf for allowing loopers to violate daily limits, there’s a new push to solve the purchase limit requirement while respecting customer privacy in the adult-use era. So sit tight because our best is yet to come.
Continued From: Why Enforcing California’s Cannabis Excise Tax is Proving Harder Than Expected [Part 1]