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Tax Time in California Still Makes Cannabis Growers Anxious

Painted cannabis leaf on the wall of dollars

California is still struggling to come up with a more efficient way to collect taxes from its legal cannabis industry. Its been three years since the legalization of recreational cannabis, and over two decades since the legalization of medical cannabis.

On tax day, you can almost hear the anxiety in the air as taxpayers line up to pay their taxes with boxes and bags stuffed full of cash.

The main issue with the cannabis taxation process in California is that things aren’t going to change until the federal laws concerning marijuana change. Until that time, banks will continue to take a strong stance against working with cannabis-related businesses.

That said, many municipalities in the state are making things a bit easier for cannabis growers and company owners to pay their taxes.

For example, the state has finally stationed tax collectors in the Emerald Triangle, the largest producers of cannabis in the United States. The new tax officials are located in Humboldt County and have the full support of state and local law.

In other words, this is massive for those situated in Humboldt, Mendocino, and Trinity counties. Beforehand, these folks had to drive for several hundred miles to pay taxes.

“It has been unacceptable that legal cannabis farmers have to drive up to five hours to pay their taxes or have a face-to-face with their regulatory agencies,” said Sen. Mike McGuire, a Democratic rep from Healdsburg. “This isn’t safe for the farmer, it isn’t safe for the public and it definitely isn’t a good way to do business.”

Furthermore, for the past few years, state tax offices in San Diego flat out turned away cannabis companies trying to pay their taxes stating that they weren’t well enough equipped for such excessive amounts of cash.

This persuaded state representatives in charge of taxes in the region to prohibit those operating in the cannabis industry from paying cash to the state in local tax offices.

“You have to think about hostage situations,” Diane Harkey, former Board of Equalization member, said at a meeting back in 2016 where she explained her reluctance to allow cannabis cash transactions at offices that she oversaw without first beefing up their security.

Jerome Horton, a colleague of Harkey’s, suggested that state employees working at these facilities receive combat pay for having to deal with the dangerous situation imposed on them by the large amounts of cash at hand.

State tax collectors were also suggested alternative methods of dealing with the excessive cash payments via such means as meeting with the taxpayers at banks and depositing the funds directly, however, the officials declined these arrangements due to fear of poor security.

Fiona Ma, ex-member of the Board of Equalization at the time, stated that the state did not lose money because of the setbacks.

“Everyone who was supposed to pay, paid,” Ma said. “They all knew they had to pay. They just had to hire more security or armored cars because they had to drive.”

The Board of Equalization and since then lost its power to allow such tax collection policies. Rather, its tax-related responsibilities have been transferred to the California Department of Tax and Fee Administration. The Department reports straight to the governor rather than a board with elected local officials.

The Department Director, Nicolas Madours has said that cannabis-related companies now have as many as 11 tax offices available to make payments at throughout the state. The facilities have been adequately secured, and to date no one has been harmed at any of the locations.

“We recognized that cash acceptance is going to be a big challenge and there were certain places in the state where cash was not accepted,” said Madours. “We need to make sure that all taxpayers no matter where they live in the state have access to service.”

However, state employees are obviously still nervous about working with such enormous amounts of cash and have asked for the locations not to be named publicly. Furthermore, companies much call and schedule a tax appoint, which occur under the watchful eye of armed security officers.

“We’re doing all that we can with law enforcement, retrofitting facilities to make sure we can keep people safe,” said Madour.

In May, multiple state departments plan to open new offices for the cannabis industry in Eureka, one of the busiest cannabis regions in California. These departments include the Department of Public Health State Water Resources Control Board, and the Bureau of Cannabis Control, among others. They will be located in the Eureka Times-Standard building.

As for the tax department already located in the area, they won’t be moving from their county-managed building to join the other state departments.

Gov. Newsom and his administration project that California will collect over half a billion dollars in cannabis-related taxes next year. And not all of it will be in cash.

Several prestigious cannabis companies have found ways to work with alternative financial institutions and credit unions in order to pay their taxes. Also, legislators are working around the clock to expand these sorts of opportunities to more of the cannabis industry. Just last week a new bill encouraging banks and credit unions to accept clients in the cannabis industry passed a committee in the Senate.

“The complication doesn’t necessarily come from the state. The complication still rests on the federal level because a lot of our businesses are still unable to bank,” said Carver of the Humboldt County Growers Alliance. She believes that the state has done a good job with the industry so far.

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