Pot CEOs Protest Tax and Banking Issues by Paying Taxes in Cash
As of this moment, 19 states have legalized medical marijuana. Moreover, four states and the District of Columbia have legalized adult possession of at least small amounts of marijuana. While cultivation and sales are still strictly regulated in most places, there’s a lot of money to be made in legalized pot — but no effective rules on how that money is taxed.
In fact, the question of how to deal with marijuana money is exceedingly hard to answer at the moment, since marijuana is still illegal under federal law. As you may have heard, most banks refuse to do business with the marijuana industry for fear of being federally prosecuted for money laundering. Since marijuana can’t be sold across state lines, it isn’t part interstate commerce so it doesn’t get uniform rules from state to state. According to the CEO of a Terra Tech, a marijuana business operating in two states, there’s no uniformity in state or even municipal tax rules. As a result, he’s forced to hire accountants and tax lawyers who can help them comply with each separate set of rules.
On top of all that, cannabis purveyors still owe federal taxes even though marijuana sales violate federal law.Instead of filing like other taxpayers, however, income from marijuana must be listed as “expenditures in connection with the illegal sale of drugs” under section 280E of the tax code, which is extremely costly for businesses.
“Medical cannabis businesses are not able to deduct standard expenses like payroll, supplies and professional services,” said Terra Tech’s CEO. “The net effect of this is effective tax rates of more than 50% in some situations.”
Business owners haul their bags of cash down to the IRS on Tax Day
“My clients are lining up at the IRS office,” explained one Colorado CPA on April 15. “Cash is the only way they can pay.”
The CPA, who has been preparing tax returns for cannabis businesses since 2009, organized the effort with his clients in a push for reform. He called it “challenging is when a CEO finds him or herself in tax brackets of 70% to 80% or even higher.”
On Tax Day, a line of armored trucks filled with bags of money pulled up at the IRS field office in Denver so cannabis businesses could pay their taxes in cash. It made for a pretty effective protest.
Source:MainStreet, “Pot CEOs Lined Up to Pay Thousands Of Dollars In Income Tax in Cash,” Juliette Fairley, April 20, 2015
