What Every Cannabis Business Needs To Know About IRS Form 8300

By Dean Guske, CPA

I have received a number of emails and phone calls over the past couple of days regarding the article posted in MJ Biz Daily on Tuesday.  I was actually contacted last week by the author who wanted to know if I was seeing any audit activity in Washington and Oregon in this regard and I indicated that I had not.  He was curious as to why there was so much activity in Colorado around this issue as well.  It’s my understanding that there are quite a few IRS audits in progress in Colorado and that activity has been going on for a while.  I think this is due in part to several cannabis businesses there not following 280E when filing their federal income tax returns.  280E is unfair but unfortunately it’s the law we have to deal with for now.  At some point this will be behind us.

The 8300 audits were news to me and so far seem to be concentrated in Colorado.  My thought is that because of all the other audit activity in Colorado that this is just a follow on audit to make sure these businesses are compliant with ALL reporting requirements.

I have include a copy of Form 8300 with instructions here for your reference. I have also attached an overview of the penalties associated with not filing the form as well.

The bottom line is this.  If you any person in a trade or business receives a payment of $10,000 or more in any single transaction or series of transactions they are required to file a form 8300 within 15 days of receiving the cash.  Please note that a “person” includes an individual, a company, a corporation, a partnership, an association, a trust, or an estate.  You should also be aware that “cash”  includes cashier’s checks, money orders, bank drafts and traveler’s checks.

In addition to filing Form 8300 with the IRS, companies need to furnish a written statement to each person whose name is required to be included in the Form 8300 by January 31 of the year following the transaction. This statement must include the name, address, contact person, and telephone number of the business filing Form 8300, the aggregate amount of reportable cash the business was required to report to the IRS from the person receiving the statement, and that the business provided this information to the IRS.

Filing form 8300 isn’t something anyone should be afraid of. Not filing the form is much worse.  If you have any questions or need any additional information, please feel free to call..

 

Have a great weekend.

IRS Position On 502 Excise Taxes – “Don’t Count Excise Tax Amount As Income”

WASHINGTON: Dean Guske, CPA to many marijuana businesses in Washington State (and around the country),  and his firm, Guske & Company, have been taking the position with their clients since the beginning of the year that the 502 excise taxes DO NOT have to be counted as income when 502 Cannabis businesses file their federal income taxes.  Instead, the excise tax is a reduction from the net income.

This is in direct contradiction to what most people in the industry have thought was the position of the IRS – that the full amount taken in from sales would be counted as income before the excise taxes were paid to the Washington State Department of Revenue, and therefore would double tax the businesses by having to pay tax on income they didn’t get to keep.

But a new memo issued by the IRS today confirms Guske’s position, concluding that: “A taxpayer who paid the State of Washington marijuana excise tax should treat the expenditure as a reduction in the amount realized on the sale of the property.”

You can read the full memo here.

Washington CPA: Update on 25% Marijuana Excise Tax

By Dean G. Guske, CPA

Over the last several weeks, there has been quite a bit of discussion about how to apply the 25% excise tax to your sales. I have read a few emails that have been forwarded to me for interpretation and have had some conversations with clients about what to do. I’m writing this to all of you in Washington’s legal marijuana industry as a courtesy and to clarify the issue from my perspective and give you my opinion of how the tax should be calculated.  This primarily applies to producers and processors, however there are some implications to retailers, and I have some comments on some strategies being considered by them.

At this point, the LCB is still working to get all of their interpretations out to license holders.

RCW 69.5 0.535 reads in relevant part as follows:

1.    There is levied and collected a marijuana excise tax equal to 25% of the selling price on each wholesale sale in this state of marijuana by a licensed marijuana producer to a licensed marijuana processor or another licensed marijuana producer. This tax is the obligation of the licensed marijuana producer.

2.    There is levied and collected a marijuana excise tax equal to 25% of the selling price on each wholesale sale in this state of marijuana concentrates, usable marijuana, and marijuana infused products by a licensed marijuana processor to a licensed marijuana retailer. This tax is the obligation of the licensed marijuana processor.

3.    There is levied and collected a marijuana excise tax equal to 25% of the selling price on each retail sale in the state of marijuana concentrates, usable marijuana, and marijuana infused products. This tax is the obligation of licensed marijuana retailer is separate and in addition to general state and local sales and use taxes that apply to retail sales of tangible personal property, and is part of the total retail price to which general state and local sales and use taxes apply.

 This is all simple and straightforward on the face of it. However, all of you are very clever entrepreneurs and you want to arrange your business transactions in a way that minimizes the impact of this tax on your business.  I obviously agree.

According to Rick Fortin, Marijuana Tax Unit Supervisor at the LCB, packaging is required by law and needs to be included in the price of the product which would therefore be subject to the 25% excise tax. In other words, the LCB will not allow you to separately state your packaging and avoid paying excise tax on any amount that you separately state on your invoice. In my opinion, this is a logical interpretation.  I know this won’t make you happy, but unless you want to litigate the point, I wouldn’t recommend stating this separately on your invoices to reduce your excise taxes.  As for delivery, transportation and other service fees, it is my understanding that the LCB is still formulating their interpretation and position. It’s also my understanding that they are consulting with the Department of Revenue (DOR) and the Atty. Gen.’s office in order to clarify what should be included in the selling price subject to the excise tax.

I think the fact that the LCB is consulting with the Department of Revenue on these issues means that it may not bode well for separating service and delivery charges with respect to the LCB excise tax. I say this only because when computing sales tax, shipments that consist of taxable tangible personal property and delivery charges, those delivery charges are included in the sales price and are therefore subject to sales tax. I’m not sure where the LCB will come down on this, but my guess is that they may try to follow the DOR rule on sales taxes. Monkey see, monkey do.

Okay, where do we go from here? The LCB has made their position clear with respect to packaging costs. Therefore, I do not recommend separately stating those costs on your invoice with an expectation of avoiding excise tax for the packaging portion of your sale. With respect to service and delivery charges, my recommendation is as follows. If you are going to separately state service and delivery charges prior to the LCB’s official ruling don’t be overly aggressive until we get some additional clarification from them. I don’t want you to put yourself in a position where you will be required to amend returns, pay substantial amounts of additional tax and potentially some penalties. I know this is frustrating but the downside could be more so.

I have also had some discussions with a few retailers recently asking if they can avoid some excise tax by a selling ”kits”. For instance, selling a gram of cannabis at a minimal amount over the wholesale price if they also purchase a pack of rolling papers that have been generously marked up. (Again, the entrepreneur’s mind at work!) A strict reading of the excise tax law seems to allow this strategy. However, if we take a look at the RCW that addresses “bundled transactions” for sales tax purposes, there may be some pushback from the LCB on this kind of strategy. Again, my recommendation is to not get overly aggressive with this strategy.

As always, if you want to discuss this in more detail and how it applies directly to your business please give me a call or shoot me an email at dean@deanguske.com

CCSE Hosts Banking, Taxes & 280E Industry Panel On July 24th

WASHINGTON: Federal tax code 280E is the single largest hurdle for any entrepreneur attempting to create a sustainable Cannabis business. Although the sale of marijuana is legal in several states, it remains illegal under federal law, and Revenue Code 280E bans most deductions and tax credits given to businesses selling Schedule I and II controlled substances, which includes marijuana.Under current tax law, Section 280E allows marijuana businesses to deduct only their cost of goods sold  all other normal and ordinary business expenses are rejected by the IRS, including marketing, training, transportation, etc. So where does this leave you, as a legitimate business owner? Is it possible to succeed under these restrictions? The answer is yes, but it requires education and creativity.

The Coalition for Cannabis Standards and Ethics (CCSE), a 501(c)(6) nonprofit, will be hosting a panel discussion on financial issues affecting the Washington cannabis industry on Thursday, July 24th from 5:30pm – 7:30pm, followed by a one-hour mixer.  The panel will be held at the Armory Loft #3, inside the Center House at the Seattle Center.The panel includes some of the brightest minds tackling the 280E issue today in order to help you succeed and gain the knowledge required to overcome this daunting obstacle in the Cannabis industry. The discussion will focus on 280e and inventory accounting, best practices for managing the finances of a cannabis business, as well as access to banking. It will be sure to be a very interesting and lively discussion!Members of the panel include:

Dean Guske, CPA

Dean has over 26 years experience in the areas of taxation, accounting, and business consultation.  In addition, he has become the leading expert in Washington state regarding the proper filing of tax returns for the cannabis industry.  He regularly speaks to CPAs and industry leaders regarding IRC 280e and its impact on federal tax returns.

John Davis
John is the CEO of Northwest Patient Resource Center, serves as the Executive Director of the CCSE, and is also on the Board of Directors of both Seattle Hempfest and the National Cannabis Industry Association.  John is a longtime entrepreneur and drug policy activist.

Carmella Houston
Carmella is the Vice President of Business Services at Salal Credit Union, which is currently beta testing with licensed I-502 businesses in Western Washington.  Carmella started the Business Banking division at Salal CU three years ago.  Carmella has more than 20 years of banking experience including: regulatory oversight, commercial real estate lending, construction and business lending.

Todd Arkley, CPA (moderator)
Todd started Arkley Accounting Group in order to focus on small businesses and the cannabis industry.  He has over 13 years experience in private industry, in roles ranging from controller to CFO.  His current clients include both medical and 502-licensed businesses, as well as ancillary businesses supporting the cannabis industry.  Todd currently serves as Treasurer on the CCSE Board of Directors.