Is the IRS Ready for Cash Payments from Cannabis Businesses?

Is the IRS Ready for Cash Payments from Cannabis Businesses?

The federal prohibition of cannabis creates many problems for those who work in state-legal cannabis industries around the country, whether they are part of a medical or adult use market. One of the biggest problems affecting all cannabis businesses is a lack of banking services – less than 30% of all businesses working in the legal marijuana industry are actually able to obtain a bank account of any kind – which leaves the majority of the industry dealing in cash only.

Since the IRS is required to take any form of legal tender, this generally means that come tax time, they are sifting their way through extremely large sums of cash from these businesses. In the past, not as many medical cannabis businesses would file taxes due to the conflict with state and federal laws, but as the years have gone by more and more have been complying with all state laws and filing their taxes – a way to prove the legitimacy of the growing industry.

Unfortunately, these businesses can be taxed at up to 70% because they can’t take normal tax cuts – like writing off expenses – that normal businesses would. This has led to more cash than ever coming into the IRS, especially in states with legally operating recreational dispensaries like Colorado, Washington, Oregon and Alaska. In Oregon alone, there has already been $43 million paid in cash to the IRS, who doesn’t have the manpower needed to quickly and efficiently count all the money.

In response to this they have set up two locations – one in Denver, Colorado and one in Seattle, Washington – where they will be specifically counting cash tax payments made by cannabis businesses in these states. These locations opened up on April 10th and will remain open through the 18th, the last day the IRS is receiving on-time payments for this year’s taxes. Unfortunately, this will not be enough to cover all the businesses, and only makes a significant difference in the states where these locations have been set up.

“I’m happy about anything that smoothes relations with the IRS, but practically speaking, this doesn’t really do anything,”

said Todd Arkley, a Seattle-based accountant and board member of The Cannabis Alliance.

“It’s nice that the IRS is opening this window, but it’s more of a gesture to me than anything.”

Along with setting up these money counting locations, the IRS has also partnered with OfficialPayments.com and a company called PayNearMe to allow both businesses and individuals to make cash payments to the IRS at some 7-Eleven locations in 34 states. Sadly these payments can only be made in increments of up to $1,000 per day – and in the amounts that some cannabis businesses owe the IRS it could take years to make the full payment for a single tax year. So while they are working to try and find a solution, this particular solution is only really helpful to smaller businesses and individuals.

Hopefully, the IRS sees a new found importance for banking services in the cannabis industry. These businesses are already going above and beyond to comply with their state’s regulations, and even pay extremely high federal income taxes – so the least the government could do is allow these businesses access to banks, which would not only make the industry safer all around, but would benefit them as well.

 

Originally published: The Marijuana Times

Marijuana Tax for the Homeless Makes Los Angeles Ballot

Marijuana Tax for the Homeless Makes Los Angeles Ballot

Los Angeles has a homeless epidemic highlighted by downtown’s ‘skid row.’ Marijuana may soon help ease this epidemic.

On Tuesday, the Los Angeles Board of Supervisors voted 3-2 to approve a ballot measure that would see medical marijuana tax proceeds go towards the homeless. This proposed tax would aid Los Angeles’ approved nearly $2 billion housing project to help cope with a 12% increase in homelessness the last two years.

The proposed tax would put a

“10% levy on the gross receipts of businesses that produce or distribute marijuana and related products.”

The tax would purportedly generate roughly $130 million a year in tax dollars that would directly go towards helping get the homeless of the streets and into treatment facilities and low-income housing. The measure’s approval needs a 2/3 vote in favor of the tax, so it’s definitely no sure thing.

Detractors of this proposal believe the measure will hurt patients since it will see dispensary prices rise. However, it’s hard to place a moral argument about using cannabis taxes to benefit the less fortunate.

Moreover, California’s upcoming legalization vote this fall truly holds the key to whether or not this tax even matters. The legal medical marijuana alone only would attribute $13 million a year in tax dollars–so legal marijuana would be the biggest donor to the cause.

The state will not be able to collect taxes on that pending legal industry till 2018.

Bernie Canter

Are Legal Cannabis Retailers Being Over Taxed?

Are Legal Cannabis Retailers Being Over Taxed?

In Denver, with the recent legalization of marijuana, it seems as if dispensary owners would be rejoicing. Instead, many of them are complaining and throwing up their hands in frustration because of outdated tax laws that eat deeply into their profits.

Many marijuana businesses are paying up to 70 percent of their profits to the Internal Revenue Service (IRS). Because of an old law that was put in place to keep criminal drug dealers from reducing their tax liability to profit off the government, many pot shop owners are unable to deduct regular business expenses. Normal business expenses like rent, utilities, payroll salaries and business supplies are among the deductions that cannabis business owners are unable to take advantage of because of the convoluted and somewhat discriminatory laws and stereotypes about marijuana.

Part of the problem lies in a law that was passed in 1982 by Congress. This law was created after a convicted drug dealer filed a claim in tax court that he should be able to write off many of his operational expenses, such as his phone, travel, and packaging. The IRS, still to this day, prohibits credits and deductions to businesses that illegally traffic in drugs. Unfortunately, this includes legal marijuana businesses.

Rachel Gillette, executive director of the Colorado chapter of the National Organization for the Reform of Marijuana Laws (NORML) said,

“There’s no reason that they should be taxed out of existence by the federal government.”

Gillette recently represented a business owner who was levied an $866,000 tax bill, which was more than half of the business owner’s profits for the prior year. She and the business owner are still in negotiations with tax officials.

In the 23 states that allow the sale and use of medical and recreational marijuana, there are some laws where possession is still considered a federal crime. As a result, many dispensary owners cannot even open bank accounts with any funds that come from their businesses. When it is time to file taxes, owners can either pay what the IRS says they owe or try to get around the laws and risk getting audited. Of course, marijuana shop owners can take their chances and attempt to fight the IRS in court, however, very few have been successful.

Colorado and several other states have made recent changes at the state level to allow marijuana business owners to deduct their expenses on their state tax returns. However, there is still a lot of work that needs to be done to create federal legislation to rectify the discrepancies in federal tax law that pertain to marijuana dispensaries.

There is still a lot of criticism and opposition to the legalization and sale of marijuana. That opposition is delaying crucial progress that would keep hard working business owners operational. In the meantime, some dispensary shop owners are being taxed out of business.

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