Pubdate: Tue, 26 May 2015
Source: San Diego Union Tribune (CA)
Copyright: 2015 Union-Tribune Publishing Co.
Note: Seldom prints LTEs from outside it's circulation area.
Author: Steven Greenhut


Sacramento - California authorities are notoriously creative when it 
comes to wringing as much tax revenue as possible out of the state's 
businesses, yet they are leaving money on the table because of their 
failure to come up with a simple way for medical-marijuana 
dispensaries to pay their tab.

Voters legalized this business 19 years ago with the passage of 
Proposition 215. But an uncertain federal legal status has 
complicated the matter since then. The state only collects a small 
percentage of the sales-and-use taxes these businesses owe, although 
a new program is attempting to address the imbalance.

"Because of federal law, people in the cannabis industry aren't 
allowed to have bank accounts," said George Runner, a Republican 
member of the Board of Equalization, a state tax-collection agency. 
"Cash-based businesses are very hard for the BOE to audit. If we 
can't analyze a bank account, we can't accurately audit a business."

Because of federal law, dispensaries risk having their assets seized 
if they put them in an account. The result is bizarre: "It's a huge 
safety risk to have dispensaries pay their taxes by carrying duffel 
bags into BOE offices with hundreds of thousands of dollars in cash," 
he added. Runner called on the federal government to legalize bank 
accounts, which is more important now that California has banned such 
cash payments.

Earlier this month, the board developed the "Cannabis Compliance 
Pilot Project" to determine the degree of noncompliance with tax 
rules, the amount of lost revenue and the volume of marijuana 
produced in the state. The agency will come up with strategies to 
hike tax compliance for growers, distributors and retailers.

The goal is to create "a living document that allows flexibility to 
adjust as new needs are identified, such as legislative and/or 
regulatory changes, along with ballot initiative(s) related to the 
cannabis industry." In plain English: The Board of Equalization 
expects voters to eventually legalize the recreational use of 
marijuana and wants a solid tax plan in place by then.

In 2012, Washington state voters passed an initiative legalizing the 
sale of recreational marijuana. Colorado voters also legalized pot in 
2012. Two legalization measures have been filed with the California 
attorney general's office for the November 2016 ballot. If enough 
signatures are gathered, we will see a statewide campaign here, too.

Runner is opposed to the legalization of marijuana for recreational 
uses, but his approach could create a boon for supporters, who can 
point to a tax bonanza for what some say is the state's largest cash 
crop. Other research suggests that common claim about the size of the 
industry is exaggerated, but it is a big industry with largely 
untapped tax potential. Tax proceeds have lagged predictions in 
Washington and Colorado, but that's likely the result of the same 
bank-account issue that's hobbling medical marijuana collections here.

The Board of Equalization's pilot project could come up with some 
realistic numbers that almost certainly will bring smiles to the 
faces of Department of Finance bean counters. (State officials might 
also want to analyze any cost savings if recreational marijuana use 
goes from a police matter to a taxable industry, given likely 
reductions in enforcement costs.)

Some California cities have passed rules essentially banning those 
dispensaries (by, say, requiring them to comply with federal laws, 
which don't allow their operation) - but they might have a change of 
heart if they see a tax benefit. Once the government figures out a 
way to tax a business, it's less likely to crush it.

It took nearly a decade after Proposition 215's passage before the 
state decided dispensaries were not illegal and implemented a 
sellers' registration policy to help encourage tax payments. The 
board says it even allowed "taxpayers to 'decline to state' the type 
of tangible personal property sold to reduce the risk of 
self-incrimination." But payments were rare.

It took another decade for the board to research ways to increase tax 
compliance from people who aren't allowed to pay by cash - but aren't 
allowed to have a bank account, either. Federal rules may be to 
blame, but it's hard to understand such slow progress given how many 
millions of dollars are at stake.
- ---
MAP posted-by: Jay Bergstrom