With 33 states (and counting) now legalizing the sale of marijuana (medicinal
and/or recreational), the pot industry has made a lot of headway. But while it has
become somewhat commonplace for many individuals, for the federal
government, cannabis is still no different than cocaine or heroine. However, for
the states in which it is legal, businesses are required to pay federal taxes. In
fact, last year alone, the government took in approximately $4.7 billion in taxes
on almost $13 billion in revenue.
Since there is still so much controversy surrounding marijuana, many banks don’t
want to become involved. Therefore, when it comes to legal cannabis dispensary
owners and growers, customers are paying them in cash, their employees are
being paid in cash, and their taxes are – unsurprisingly – being paid in cash.
The Consequences of Cash Tax Payments
As it stands today, when a cannabis business pays its federal taxes, someone
from the company must schedule an appointment with the IRS in order to go into
its local office and make a cash deposit. In order to ensure that everything is
fairly accounted for, the IRS provides a secure space and two employees remain
inside of the room throughout the process.
But since it is approximately nine times more expensive to process paper returns,
than electronic returns, the federal government would obviously prefer for
businesses to pay their taxes electronically.
In 2014, the IRS was sued by a legal marijuana business for applying a 10
percent penalty to those legal marijuana businesses that paid their taxes in cash.
In 2015, the IRS revised its policy, removing the 10 percent penalty so long as
those businesses had made good faith attempts to open bank accounts.
Cannabis Businesses Being Shut Out from Banking Industry
Since opening a checking account in the cannabis industry generally costs
$3,000 – $5,000 per month, and you receive no lines of credit, mortgages, or
anything else besides the account itself, some people prefer to maintain a cash
basis; it’s not a full banking service as is.
While many believe that the federal legalization of cannabis is right around the
corner, it is difficult to fully imagine this so long as the government continues to
allow the industry to remain unmonitored by the banking industry. As long as it
remains underground, it continues to be difficult to both regulate and enforce.
Luckily, a third party non-profit has been set up under the IRS in order to care for
this issue. The Mitre Corporation, with a sub-agency of the IRS, has been
awarded almost $1.7 million to process large cash payments for processing the
federal taxes of cannabis businesses. It will be interesting to see if this resolves
any of the issues, such as cost, related to these cash payments. Only time will
Calculating Destiny, LLC Can Help
At Calculating Destiny, LLC, we are a team of knowledgeable and experienced
professionals that is dedicated to helping improve your business process – whether you
are selling legal marijuana or something else.
We work both on location and remotely, integrating into your existing team. Our ability
to accurately and compliantly run your business allows you and your team to have a
clear understanding of the challenges that may present themselves, how to overcome
them, and how to set and achieve tangible goals. Through internal audits, process
manuals, operations, and training & education, our number one goal is to help your
company grow – even if that means outgrowing our services.
To learn more about how we can help to put your business back on track for financial
success, schedule a free consultation by visiting us online or calling us at 215-674-3430