Archive for Marijuana Taxes

Tax Issues For A Marijuana Business – Legal And Illegal


In recent years, the use of medical marijuana has been on the increase. Indeed, at least 24 states plus the District of Columbia have made medical marijuana legal with more likely to follow. Can the widespread sale of recreational marijuana be far behind? It is already legal for recreational use in four states plus DC. This is not about whether or not marijuana should be legal for medical or recreational use, it is about the tax hurdles faced by businesses that sell marijuana. Read more

Odd Tax Holiday In Colorado

Annette Nellen5

Several states have “sales tax holidays” where for a day or a few days specified during the year, there is no sales tax on specified items.  For example, it might be on children’s clothes or school supplies close to the time when school begins. Some states have them for guns and emergency preparedness items. The Federation of Tax Administrators maintains a list of these holidays in the states.

September 16, 2015, Colorado had a holiday on marijuana – but just the special 10% and 15% taxes (there are a lot of taxes on marijuana in Colorado). The reason is complicated and ties to the fact that when recreational sales became legal in Colorado and new taxes added, they raised more than allowed. HB15-1367 explains some of this (in 33 pages!). Read more

More On Marijuana Businesses And Tax Ethics

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With more states moving to allow recreational use of marijuana, we’ll see more tax practitioners asked by either new or existing clients if they will help them with the accounting, tax or legal needs of their marijuana business. Despite state actions, the production, sale and use of marijuana is a crime under federal law. Thus, for licensed practitioners, there is concern about ethical violations of helping someone commit a crime.

I’ve got an updated article on this topic in the Massachusetts Society of CPA’s Spring 2015 journal – here.  Also, more here.

I’d like to see states be more specific with these laws so far as helping attorneys and Read more

Taxable Income of A Marijuana Business

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Despite marijuana operations at the state level being legal at the state level since 1996 in California (and now many states), tax guidance has been sparse. A recent, non-binding Chief Counsel Advice memo sheds some light on how the UNICAP rules apply (or don’t apply), but more is needed.

I’ve got a short article in the AICPA Tax Insider today about the CCA and its meaning – here.

A few more observations beyond the article: While the CCA basically says that the UNICAP rules do not allow a seller of a controlled substance, such as marijuana, to treat more costs as inventoriable, there seems to still be some leeway for a producer. Producers Read more

Marijuana Dispensary Income Tax Guidance Update: IRS Memo 201504011


As many of you know who follow my tax musings via this blog, I recently led a team of people that shepherded a Marijuana Dispensary through the IRS Examination and Appeals functions. The dispensary in question was owned and operated by a taxpayer who in all regards was a good, honest, hard working, caring person that kept detailed records accounting for every penny.

By engaging a taxpayer with this profile up front I was able to challenge the nuanced understanding of IRC §280E – Expenditures in Connection with the Illegal Sale of Drugs, §263A – Capitalization & Inclusion of Inventory Costs of Certain Expenses & §471 – General Rules for Inventories inside the IRS without having to get bogged down with the drama of the taxpayer’s character and efficacy of intent as in the Olive Tax Court Case. Read more

Colorado Shocked With Pot Tax Revenue

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One of the main goals accomplished by legalizing marijuana in Colorado was the perceived increased revenue stream from state tax. Lawmakers strongly believed Colorado would benefit financially from the legalization of marijuana in its state. To their shock and dismay, the legalization has not been as profitable as lawmakers had hoped.

By way of brief background, Colorado enacted a pot tax in 2013. Specifically, on November 5, 2013, Colorado voters passed the pot tax. The tax operated similar to other sin taxes in that it came at a hefty rate. Recreational marijuana sales were subjected to a 25% tax which went into effect on January 1, 2014. Of the 25%, 15% will be tagged for public school construction projects and 10% was earmarked to funding enforcement regulation on the retail pot sales. This excise tax, which is similar to tobacco and cigarette taxes, is in Read more

Marijuana Businesses And Ethical Issues For Tax Practitioners

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In a post on 1/17/14 titled “Marijuana And The Tax Law“, I noted the significant tax dollars that Colorado was to generate from legalizing recreational use of marijuana. I also noted that for tax practitioners who assist these businesses (as well as those selling in other states for medicinal use), there are tax law issues (such as IRC Section 280E) and ethical considerations given that growing, cultivating, distributing and using marijuana is still a federal crime. CPAs and attorneys need to consider the rules of conduct applicable in their state.

I have a 4-page article on this topic in the Tax Talk feature of the Federal Bar’s July 2014 The Federal Lawyer. It is entitled, “Ethical Considerations When Your Potential Tax Client is a Marijuana Business.” I explain the issues CPAs and attorneys face in helping these Read more

Growing Marijuana Taxes In Colorado A Hit

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RECEIPTIf you are late to the party, Colorado has fully legalized marijuana and in the first five months of legal retail sales, Colorado has sold a staggering $90 million worth of marijuana. We thought you may find it interesting to discover there are plenty of taxes attached to these sales. We recently received this receipt to our offices outlining all the taxes on the purchase of marijuana in Colorado. The Colorado Department of Revenue announced that the state earned $35 million in taxes, licensing and other fees from July 1, 2013 to June 30, 2014. The state collected nearly $5 million in taxes this June, an increase from the previous month. Governor John Hickenlooper expects sales to reach $1 Billion in the first fiscal year of legal marijuana. He also expects around $114 Million in taxes during this year. Colorado is proof that marijuana sales can benefit the state and generate revenue. We would greatly appreciate your comments regarding the taxes associated with this purchase.

Marijuana And The Tax Law

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It’s unlikely anyone missed the news stories about marijuana sales becoming legal on January 1, 2014 in Colorado. The Huffington Post reported on January 8, 2014 that sales in the first week were about $5 million. That also generated a lot of tax revenue for the state because Proposition AA* that Colorado voters passed in November 2013 allows for a 15% excise tax when unprocessed retail marijuana is sold by a cultivation facility to a retailer AND a 10% sales tax (on top of the normal Colorado sales tax of 2.9%) when the retailer sells the marijuana. That proposition suggested that $70 million would be generated annually with the first $40 million to be used for public school capital construction. Additional revenues would be used to enforce regulations on the retail marijuana industry and the balance for other needs (apparently at the discretion of the Read more

Colorado Marijuana Distributors – Business Expenses And Taxes

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As many of you who follow me and/or this tax blog know I have been actively tracking a handful of select medical marijuana dispensaries in Colorado who have been denied the opportunity to deduct ordinary and necessary business expenses by the IRS when arriving at net income subject to income tax. One of the first things I learned is that this industry is messy in several regards and perhaps left to more courageous practitioners of the United States Tax Code. Along the journey I witnessed first hand what appears to be systematic profiling and haphazard application of the Internal Revenue Code (IRC) including threats of US Treasury Circular 230 violations against quality practitioners in search of the truth by overzealous IRS Examiners as they work towards a standard enforcement framework. Being Read more

Colorado Enacts Pot Tax

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Colorado clearly does not stick to the trends. Whether it is legalizing marijuana or attempting to get Northern Colorado to become the 51st state, Colorado has been all over the news during the past year. Recently, the state had on its ballot an interesting tax that stayed in line with Colorado’s unusual politics. Specifically, on November 5, 2013, Colorado voters passed the pot tax.

On its face, the tax appears to operate similar to somewhat steep excise tax. It appears that recreational marijuana sales will be subject to a 25% tax which goes into effect on January 1, 2014. Of the 25%, 15% will be allocated to public school construction projects and 10% will go to funding enforcement regulation on the retail pot sales. This excise tax, which is similar to tobacco and cigarette taxes, is in addition to 2.9% sales tax at the retail level. Read more