[Webinar Replay] Taxation in the Cannabis Industry
Mar 6, 2020
Tax firm Ryan LLC recently hosted a webinar with VS of counsel, Jordan Wellington. During the webinar, they discussed 280E, best practices for indirect taxes, what to do when the taxman comes calling, and what the cannabis industry can do to prevent and reduce over-taxation.
Indirect taxes present many issues for cannabis businesses.
- Sales & Use – legalized cannabis states such as Colorado and Washington have collected billions of dollars in sales taxes
- Excise – legalized cannabis states have collected millions of dollars in excise taxes
- Property – zoning has resulted in inflated property valuations for cannabis industry properties
- Employment – there is a lot of double-dipping in payroll and employment taxes when mergers or acquisitions happen
State & Local Tax Complexities
Currently, there is different tax treatment of cannabis businesses in different states and municipalities, which, as you can imagine, creates a lot of headaches. In most states, one of the contingencies to renew your marijuana business license is that you must pay your taxes in a timely manner. This situation is uncommon in most other industries.
Also, while sales tax is consistent among most states, other special marijuana taxes, such as excise taxes, are often also added at the point of sale. Unfortunately, some states even go as far as to tax nearly everything throughout the cannabis supply chain. Looking ahead, cultivation and manufacturing excise taxes are likely to be another area of concern and consideration for lawmakers.
What to do When the Taxing Authorities Come Calling
Governments are always looking for revenue streams, so there’s a good chance that they are auditing cannabis business more than other businesses.
Here are some things you can to do to make things easier in case of an audit:
- Plan and prepare upfront— it will save a lot of headaches
- Never ignore a government notice
- Play nice when interacting with the taxing authority
- Understand your data and what the jurisdiction is looking for
- Don’t give them more than they ask for
- Understand your appeal rights
- If possible, don’t pay the assessment right away if you plan to file a protest
- Tell the taxing authority when you will pay them and how much
- Know your refund opportunities
Working for Fair Tax Treatment
As stated above, governments are always looking for revenue streams. That’s why the cannabis industry should stay on the offense! Engaging at the political level is extremely important and will help prevent policymakers from looking at the cannabis industry as a massive “piggy bank.”
In addition to other taxation issues, 280E reform has become a very challenging issue on the federal level. While it is an issue with bipartisan support, it hasn’t moved forward. It has, however, been incorporated into the STATES Act and the MORE Act.
On the bright side, some tax reform is happening at the state level— just look at California. The state had many problems with their cannabis regulatory structure and rollout, and there are still issues with high taxes for cannabis businesses and consumers; however, the state recently introduced a bill that will provide some tax relief for California cannabis businesses.