HOW TO STOP WORRYING AND LEARN TO LOVE CALIFORNIA SALES AND USE TAX
This post is not intended as legal advice, but for informational purposes only. Always consult an attorney if you have questions regarding the legality of your situation.
Fear of Filing?
Medical marijuana has become legal to produce and distribute in California, and we’re fast on our way to legalizing the recreational use of marijuana, and yet many legitimate businesses in the cannabis industry are fearful of filing paperwork, don’t know what their rights are, or are unaware of what their obligations are to the local and state governments. The BOE stated just today they are going to start cracking down on dispensaries who don’t pay their taxes. Here are a few tips and why it’s better to be in compliance rather than not, even as the laws and regulations are in flux.
Sellers Permits and Sales Tax
According to the State Board of Equalization (BOE), you are required to obtain a Seller’s Permit when you are engaged in business in California and intend to sell or lease tangible personal property (a physical item). The BOE has officially stated that sales tax should be charged when selling marijuana and marijuana products (https://www.boe.ca.gov/news/pdf/173.pdf). While many businesses may be hesitant to file paperwork indicating they are selling marijuana products, the BOE has also said it allow you to file for a Seller’s Permit without telling them what products you’re selling. Pretty convenient at the moment, isn’t it? Depending on the state you’re in and what your business is selling, sales tax may or may not be applicable.
The BOE also states, “If you sell medical marijuana, your sales in California are subject to tax and you are required to hold a seller’s permit. If you do not obtain a seller’s permit prior to the date the first tax return is due, you are subject to penalty and interest charges. Persons who make sales without a seller’s permit are also generally subject to an eight-year look-back period,” (http://www.boe.ca.gov/news/pdf/l245.pdf). This means they can go back through eight years of your sales to calculate sales tax. If you haven’t kept good records on where your customers live, many states may estimate what they think is owed, and this can be very expensive.
On a federal level, the IRS requires that you claim all of your income when you file income taxes, even if it’s from an illegal source (http://money.cnn.com/2013/02/28/news/economy/illegal-income-tax/). Since marijuana has not been decriminalized on a federal level, it will still be considered as coming from an illegal source for federal tax purposes. According to Stephen Moskowitz, a San Francisco tax attorney, the IRS doesn’t require any details on the return beyond an approximation of how much you made. Whether or not this is a tip-off to the federal government that you are engaging in a business they might not approve of is debatable. There are laws that cover income tax filings requiring they be kept confidential in some cases (https://www.law.cornell.edu/uscode/text/26/6103). Of course there also seem to be loopholes to section 6103, such as obtaining information from a witness interviewed in an audit investigation, and Moskowitz believes that the IRS still reports information on illegal activities to other agencies. (http://money.cnn.com/2013/02/28/news/economy/illegal-income-tax/).
Bottom line is, if you do want to help protect yourself, you can file for a Seller’s Permit online at https://efile.boe.ca.gov/ereg/index.boe. Depending on your sales, you may have to file and remit sales tax on a monthly, quarterly or yearly basis. For more help understanding when you need to file, when you need to charge sales tax or what you need to charge sales tax on, feel free to contact me at firstname.lastname@example.org.
We partner with a few law firms in the area if you need any legal advice and we are well-equipped to help with forms and requirements for your local and state level business needs (including business formation and product development).
Huffington Post Articles on Cannabis and Tax in the News
Forbes Advice for Federal Taxes
The Right Way for Online Sellers to Collect Sales Tax in California
California cracks down on dispensaries that evade taxes