It is no secret that taxes are a big problem for the marijuana industry. Cannabis businesses are regularly hit by exorbitantly high tax bills on the federal, state, and local level, and often marijuana excise taxes are assessed on top of the standard business taxes. Some cannabis business owners have been fighting back, but usually to no avail. On August 30th, California lawmakers offered cannabis businesses a sliver of hope by passing Assembly Bill 567, which, if approved, would create a tax amnesty program for certain California collectives under the Medical Cannabis Tax Amnesty Act.
The Board of Equalization (BOE) is responsible for collecting sales tax owed on any sales of products to consumers in the state of California. Generally, sales of tangible personal property are taxable unless an exemption applies. The BOE has repeatedly declared that medical cannabis and cannabis-related products are included in tangible personal property subject to state sales taxes. In fact, the BOE has provided a guide for marijuana businesses on its website that explains how sales tax applies specifically to dispensaries and growers in California.
Still, the legislature admits in the bill that the uncertainty created by state and federal differences has left medical cannabis-related businesses with the fear that compliance with state tax laws could lead to federal prosecution. Thus, many of these businesses have been noncompliant since their inception, and would owe massive penalties and interest if they were to come into compliance.
According to BOE estimates, there are currently 1,623 medical marijuana dispensaries operating in California and two-thirds of cannabis businesses have not paid taxes due on their sales of marijuana to consumers. This estimate is based on the rate of unpaid taxes in other legal cannabis states, such as Colorado. In total, that would mean that California cannabis retailers owe the state about $106 million. Though the amnesty program would not forgive this debt in its entirety (and dont hold your breath that the state would ever do this), the program would waive all penalties applied to anyassessed tax liabilities.
At a penalty rate of 25 to 50 percent of the total tax liability, penalties can add up quickly, especially if a business hasnt paid its taxes over the course of several years. The amnesty program would take place over a six-month period in late 2017, from July 1, 2017 to December 31, 2017. Tax liabilities due before January 1, 2015 would qualify for amnesty under the program. Even with the penalty waiver, the BOE estimates that it will be able to collect between $27.4 million and $54.7 million in past due taxes.
In addition to the penalty waiver, the bill would also provide amnesty from criminal prosecution for tax evasion to any business thatcomes forward and pays its taxes (and interest) owed. However, for the businesses that do not step forward and take advantage of the amnesty program, the bill requires the Department of Consumer Affairs refuse to issue them a state cannabis license or ...
