If you haven't been paying your cannabis taxes due to uncertainties about changing California laws regarding canna-businesses, you're not alone. There are many businesses that have not paid taxes on their sales of marijuana. However, California state, county, and local governments, as well as, the IRS still expect for these payments to be made.
If you are worried about the back taxes that your business owes, you should know that you still have time to get your business in order before the provisions of the California Medical Marijuana Regulation and Safety Act go into effect in 2018.
The Medical Cannabis Regulation Safety Act gives counties the authority to levy a tax on the cultivation, dispensing, production, processing, and distribution of medical cannabis. It also sets up the divisions that will be tasked with regulating licenses and permits for canna-businesses, as well as, establishes a fund for the state treasury to receive fees and penalties that are assessed under the act. There may also be a chance that you can get the penalties and interest on your tax liabilities reduced under certain circumstances.
Here are the steps that you need to follow to catch up on your cannabis taxes and some potential options for lowering the amount of penalties and interest that you may owe.
File Your Taxes
If you have not filed your income tax returns in addition to not paying the taxes that you owe, you should start by filing your tax returns as soon as possible. You'll need to file your taxes on the original forms for each tax year which you should be able to obtain by searching the IRS website and the California Franchise Tax Board website.
For California sales tax, if you haven't registered with the California Board of Equalization, you will need to do so before you can make any tax payments. For county and local taxes, you will need to contact the tax agencies in the jurisdictions in which your business operates.
Request Installment Agreements
You should also arrange installment agreements if you can't pay the full amounts upfront but you can pay it over time. Installment agreements do not reduce the amounts that you will owe. However, it can help to prevent further collection actions from being taken against you as long as you make your installment payments on time.
Ways to Mitigate Penalties and Interest
If you don't pay your taxes, the debt only continues to accumulate interest and penalties as it remains unpaid each month. However, under certain conditions the IRS may be willing to waive or reduce these additional charges if you have a good reason for not making the payments on time.
If the reason why you didn't pay your taxes is due to a circumstance that it is outside of your control, such as imprisonment, a natural disaster or fire that resulted in the destruction of your records, you may be entitled to abatement according to the IRS. You may also be able to get some relief if the employee responsible for making the tax payments quit. The Franchise Tax Board offers a similar tax abatement program that you can apply to here.
However, if the reason why you did not pay is because you simply did not have the funds, the IRS is not going to wave your penalties and interest because the responsibility to set aside the necessary amounts for the payment of taxes is on you.
Assembly Bill 567 Vetoed by Governor Brown
When it comes to California state, county, and local taxes, there are no specific programs available to help you avoid penalties and interest given that Assembly Bill 567 was vetoed by Governor Brown in September 2016.
This was a bill designed to create a tax amnesty program for some California collectives under the Medical Cannabis Tax Amnesty Act to allow businesses to temporarily avoid a 25-50% penalty on the unpaid tax liabilities incurred before January 1, 2015. Governor Brown vetoed the bill because he felt it was proposed prematurely given that the regulations that link enforcement to licenses for cannabis businesses do not go into effect until 2018.