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Howto:Being Medically Legal and Paying Taxes

M

mj82

Member
I agree if you are involved with dispencing large amounts of medical marijuana in a state that has legalized it you should pay your taxes. The federal government is most likely already aware that your dispensary exists, if they want to raid you at any moment they can but if you are paying taxes and staying out of trouble they are less likely to raid you.

In california dispensaries have to pay sales taxed. Now that the AG said they wont go after dispensaries that dont violate state law they could easily come after you if you didnt pay your state taxes cause that would violating of state law.

You don't see it as often any more since most clubs pay taxes now bout a couple years ago it wasn't uncommon to see the IRS being present during dea raids of medical marijuana dispensaries and multiple club owners have been charged with evading federal taxes related to their marijuana dispensary.

The federal government doesn't want you dispensing marijuana but they hate you even more if you do it and dont pay your taxes on it. There have been multiple arrests in California by the federal government related to tax evasion and medical marijuana. They do will continue to arrest you if you dont pay your taxes on medical marijuana.
 
B

Blue Dot

FreedomFGHTR said:
In California those who operate dispensaries or growers who sell directly to patients for end use are supposed to pay sales tax. To do this a sellers permit is required from the Board of Equalization. The process is relatively easy and takes only a few hours (mostly waiting) to get done.
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Do you actually claim cannabis (MJ) as your sales product to the BOE??

Last time i was in a BOE cubicle the bitch was persistant on the specifics of what I sold, size, volume ,weight, expected yearly gross, etc.
 
S

scarred4life

Very useful info, Freedom Fighter! Your post makes me want to forgo the "upper middlemen" at the dispenseries and get a seller's licence.

Until that dream comes true, I do have a few quick questions you might be able to answer. First of all, do you need to include the federal id # of the coop or collective you sell to on the 1099MISC? I could see some places not wanting to disclose this info. If you do need to include the federal id # of your collective/coop, does that mean you need to file more than one 1099MISC if you vend to more than one group of patients?
 
S

scarred4life

Thanks again, Freedom Fighter!

I'll be sure to get a 1099MISC for all my reembursments. It will be interesting to see which coops/collectives will follow this procedure; it might be a good indication of whose bookkeeping is on the up and up.
 
surgexvb

surgexvb

Member
if you sell to clubs, what exactly are the SB420 reembursments you talk about? your expenses to produce the medicine? I took a look at SB420 and could not find anything about this.
 
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surgexvb

surgexvb

Member
so if one was to become a primary caregiver for a patient, grow the medicine, would they need to go through BOE for a sales tax permit to be re-imbursed for the medicine provided to said patient? but if you are credited by a coop for medicine you provide to the coop, you DO NOT need to get a sellers permit, correct?
 
surgexvb

surgexvb

Member
* Are engaged in business in California
* Intend to sell or lease tangible personal property that would ordinarily be subject to sales tax if sold at retail
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This is what confuses me. It seems if you sold to a coop OR a patient, these BOTH apply to you. Either way you are conducting business in CA, and either way you are selling something that "would ordinarily be subject to sales tax if sold at retail".

About paying sales tax on selling to clubs, have you ever used ones of these?

http://www.boe.ca.gov/pdf/boe230.pdf

This is a California Resale Certificate.

Heres some info I found on it

1. Why are resale certificates required?

If you purchase tangible personal property for resale, the transaction is not subject to sales or use tax provided the sale is properly documented. As a result, your supplier will ask you to provide a resale certificate as proof that the property was purchased for resale. As explained below, the certificate must be taken on a timely basis, and it must include certain specific information.

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2. What information must a resale certificate include?

The certificate may be in any form, such as a note, letter, or memorandum. However, the certificate must contain the following information:

* The name and address of the purchaser.
* The number of the seller's permit held by the purchaser (if the purchaser is not required to have a seller's permit, see note below).
* A description of the property to be purchased.
* A statement that the described property is being purchased for resale. The certificate must contain words that state the property will be resold or is for resale. The use of words such as nontaxable or exempt or similar terms is not acceptable.
* The date of the document.
* The signature of the purchaser or someone approved to act in his or her behalf.

The Board of Equalization does not furnish resale certificate forms. However, certificates are available in many office supply and stationery stores (you should ensure that the certificates are designed to provide the required information noted above). The Board-approved form is reproduced in Regulation 1668, Resale Certificates.

Note: Some businesses are not required to hold a seller's permit (for example, a business may not make sales in this state or it may sell property whose sale is not subject to sales tax when sold at retail). If you are selling to a purchaser who is not required to hold a seller's permit but who wishes to make a purchase using a resale certificate, the purchaser must indicate on the certificate that he or she does not hold a seller's permit and why a permit is not required.

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3. What are my responsibilities as a buyer using a resale certificate?

You should not use a resale certificate if there is any question whether you will resell the property. If you are purchasing a combination of items where some are for resale and others are taxable (for personal use, for example), you must clearly indicate to the vendor which items are being purchased for resale.

There may be times when you are not sure whether the items you are purchasing are for resale or for personal use. In such cases, you should pay sales tax reimbursement or use tax to the supplier. If, at a later date, you resell the item before making use of it, you can take a deduction on the tax return on which you report the sale.

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4. Do I need to submit a resale certificate each time I make a purchase?

No. If you make several purchases from one vendor, you may file one resale certificate with that vendor to keep on file. If purchase orders are used, in the part of the resale certificate where you describe the property being purchased, you may enter "See purchase order." When you make purchases from that vendor, you must then clearly indicate on the purchase order which items are being purchased for resale. The Board assumes that items not marked for resale are being sold to you at retail and are therefore subject to tax.

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5. What are my responsibilities as a seller accepting a resale certificate?

As a seller, you should always note the general character of the purchaser's business. If the nature of the business is such that the property purchased would not normally be resold, you should question the use of the certificate.

For example, a resale certificate describing the business as a service station should not be accepted for the purchase of a sofa or similar item not regularly sold by service stations. If the purchaser insists that the item is to be resold, you should ask for a resale certificate stating that the specific property is being purchased for resale in the regular course of business. If the purchaser is unwilling to provide one, you should consider the sale as taxable.

You should not accept the certificate if you know or have reason to believe the property is being purchased for other than resale.

You are required to take a resale certificate in a timely fashion. That is, it must be taken:

* Before you bill the purchaser for the property, or
* At any time within your normal billing and payment cycle, or
* At any time prior to delivery of the property to the purchaser

You must retain the resale certificates you accept from others to substantiate claims that a sale was for resale and therefore not subject to tax.

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6. Can I find out if a seller's permit number is current?

Yes. If another seller has given you a resale certificate to make a purchase for resale, you can verify the seller's permit number using the Board's online Seller's Permit Verification feature or by calling toll-free at 888-225-5263.

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7. Are there any penalties for the illegal use of a resale certificate?

Yes. If you give a resale certificate to purchase property that you know at the time will not be resold in the regular course of business, you will be liable for:

* The amount of tax that would be due had the certificate not been used
* Interest payments on the tax due

In addition, you may have your seller's permit canceled and may be required to pay:

* A penalty of 10 percent of the tax or $500, whichever is greater, for each purchase made for personal gain or to evade payment of tax, and/or
* A 25 percent penalty for fraud or intent to evade the tax

It is a misdemeanor to issue a resale certificate to a seller to evade payment of tax. Each offense is punishable by a fine of $1,000 to $5,000 or imprisonment for up to one year in the county jail, or both.
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surgexvb

surgexvb

Member
Thanks for your responses FreedomFGHTR. I will have to research this further.

When I read this........

If you purchase tangible personal property for resale, the transaction is not subject to sales or use tax provided the sale is properly documented. As a result, your supplier will ask you to provide a resale certificate as proof that the property was purchased for resale. As explained below, the certificate must be taken on a timely basis, and it must include certain specific information.
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You are required to obtain a seller’s permit if you are engaged in business in California and intend to make sales or leases that are subject to tax.
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It made me think that the purpose of the California Resale Certificate was to PROVE to the state that the transaction between you and the collective is not subject to sales or use taxes, which seems especially important if you DO NOT have a sellers license, since you are required to have one if you are conducting transactions that are subject to sales tax. opinions?
 
BobbleheadJed

BobbleheadJed

Member
surgexvb said:
Thanks for your responses FreedomFGHTR. I will have to research this further.

When I read this........






It made me think that the purpose of the California Resale Certificate was to PROVE to the state that the transaction between you and the collective is not subject to sales or use taxes, which seems especially important if you DO NOT have a sellers license, since you are required to have one if you are conducting transactions that are subject to sales tax. opinions?
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My take is that there is no taxable transaction between you and the collective, because YOU are the collective. As a member, its like you are an employee producing a product they will later sell in their store. Only its more of a free lance, independent contractor, 1099 type employee.

However, the transaction between the collective and their other member that receives what you have sown is a taxable transaction since they are the end user.

It is not taxed coming and going. That's European, mostly. Only the last transaction has to pay the sales tax.
 
F

Four2Zero

Great thread.

I agree only the dispensary (retail) seller needs to collect sales tax.

I havent ever had excess meds for the coop yet but intend to share for reimbursement soon. I want to dot my i's and cross my t's tho. It makes alot of sense to pay taxes on your profit. Im wondering about my federal taxes though as far as the 1099 is 100% income as far as the IRS is concerned. You have to file business expenses to get your cost out. I want to write off my business expenses such as my grow room electricity, and other normal home based business write offs.. like a percentage of internet connection cost etc.. Is that what people are doing?

Thanks for all the information too.

peace,
F2Z :rasta:
 
B

Blue Dot

Four2Zero said:
Im wondering about my federal taxes though as far as the 1099 is 100% income as far as the IRS is concerned. You have to file business expenses to get your cost out. I want to write off my business expenses such as my grow room electricity, and other normal home based business write offs.. like a percentage of internet connection cost etc..
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I'm pretty sure that with a fed 1099 you have to report "ill gotten gains" but the reverse is not true that you then also get to write off the expenses associated with generating those ill gotten gains.
 
Pythagllio

Pythagllio

Patient Grower
Veteran
Blue Dot said:
I'm pretty sure that with a fed 1099 you have to report "ill gotten gains" but the reverse is not true that you then also get to write off the expenses associated with generating those ill gotten gains.
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All the 1099 is going to say is that you were paid a sum of money. No need to use the 'ill got gains' line. Invoice the dispensary for the components involved and add a consultation or delivery fee on top of that to add up to gross revenue, and put it all on schedule C.

Sample invoice;

Electricty: $500
Nutrients: $500
Equipment depreciation charge: $500
Consultation fee: $500

Invoice total: $2000
1099-MISC = $2000

The first 3 are equal to your actual expenses, and are legitimately deductible. You pay tax on your profit of $500. This also allows the dispensary owner to deduct these costs legally, since he isn't trying to deduct the purchase price of cannabis, which is not an allowable deduction.

Get a real tax pro on your side. They are worth their weight in gold.
 
F

Four2Zero

Thanks Pythagllio. Makes sense to me. It sure makes sense in terms of actually being a reimbersement. Plus I dont like the idea of putting a weight on the invoice.
 
SativaDreams

SativaDreams

Member
FreedomFGHTR said:
That would be correct!
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Awesome information guys, finally I am figuring out that it would be possible to make a living running such a 'business.' I didn't think these people devote 60 hours of their week to a business that pays none of their bills!

Thirty grams smoked September,
April, June and November.
After February’s harvest's done,
The other months smoke thirty one :):joint:
 
surgexvb

surgexvb

Member
Pythagllio said:
Electricty: $500
Nutrients: $500
Equipment depreciation charge: $500
Consultation fee: $500

Invoice total: $2000
1099-MISC = $2000
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i understand these are just rough numbers for ease math, but how exactly do you show your cost of nutes or electricity? Wouldn't you have to provide receipts for the nutes/equipment and electricity bills if they audit you? Do you actually put itemized lists of what you claim on schedule C or just generalize it all to "Nutrients" and a cost?
 
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