Colorado cannabis dispensaries are now facing another harsh penalty on top of not being able to open bank accounts or take out loans; they are being charged an additional fee for paying their taxes in cash rather than electronically filing.
The IRS has been working on an initiative since 2011 to get businesses to file taxes electronically instead of the old fashioned way. Anyone who has filed taxes personally knows it is much easier to do so online, but this unfortunately is not possible for most dispensaries, as they are still forced reluctantly into being cash-only business because of the lack of banks willing to take their business. The businesses that do not file online are charged a 10 percent additional penalty on their taxes. Currently, a dispensary in Colorado is suing the IRS over this issue, claiming discrimination.
According to Taxfoundation.org, the official stance of Wells Fargo on the issue of not banking with dispensaries is: “In view of the complex, inconsistent legal environment relating to medical marijuana dispensaries, Wells Fargo Regional Banking has opted not to bank these businesses… and we have advised all such businesses that bank with us that they will need to close their deposit accounts.”
Since many other banks agree with this stance, this makes it very difficult for banks to file taxes electronically, and AllGreen, the dispensary suing the IRS, has decided this is grounds for a law suit. According to a statement by their attorney, Rachel Gillette, “It was not that the taxpayer 'did not want' to make use of the EFTP System. Rather, the taxpayer is unable to secure a bank account due to the nature of its business. With no bank account and no access to banking services, the taxpayer is simply incapable of making’ the payments electronically.”
Since cannabis taxes are already unusually high due to the product being sold, clocking in at 2.9 percent general sales tax, 10 percent for the retail marijuana state sales tax, and 15 for retail excise tax, this makes the extra 10 percent addition even worse to handle.
According to taxfoundation.org, “The principle of horizontal equity states that entities with similar incomes should be taxes equally. While an alcohol retailer in Colorado may make the same amount in sales as a marijuana dispensary, the marijuana dispensary faces a higher tax burden simply because its income is held in cash not in an electronic account.”
In plain English, cannabis retailers are being taxed more just because they are cannabis retailers. This is thinly veiled in the guise of an extra tax for not filing electronically, but since the dispensaries cannot file electronically, this is catch-22 situation.
The site also adds that, “Furthermore, taxes should be stable and neutral, not arbitrarily applied to specific types of retailers. Additionally, they should be simple and convenient as possible for taxpayers to pay. If a marijuana retailer cannot get a bank account than electronic tax filing, places an undue burden on dispensaries.”
While it is not clear whether or not there are grounds for this dispensary to win its case against the federal government, it is clear that this tax is unfair. Penalizing businesses for not electronically filing does not seem to make sense, and it definitely seems to be going after the one group of businesses that does not have the choice to file this way even if they want to. With any luck, if banks do not accept cannabis business right away, this penalty will at the very least be done away with over the next few years, or an exception will be made for dispensaries and other businesses that are not able to e-file.