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Cash crop: State will have to get creative to collect medical marijuana taxes

The Journal Record

August 13, 2018

OKLAHOMA CITY – Oklahoma’s tax officials are preparing to work with a cash-only industry, but they and observers said they won’t have to reinvent the wheel. They’ll just have to rethink it.

When voters approved State Question 788, the medical marijuana proposal, they authorized a 7 percent tax on its sales to pay for the industry’s regulatory office. It will also be subject to standard state and local sales taxes.

That will be more difficult for this industry than just about any other. Marijuana remains illegal at the federal level, rendering most bank services unusable. Banks secured by the Federal Deposit Insurance Corp. are essentially banned from serving marijuana-related businesses. Dispensaries tend to be cash-only organizations.

Over the past decade or so, tax collections have become predominantly electronic, said Oklahoma Tax Commission spokeswoman Paula Ross. The department has mechanisms in place to collect large cash remittances, but the agency will likely have to implement new security measures to do so.

Security such as safes and guards already exist for cash operations, she said, but as the burgeoning medical marijuana industry grows, demand will likely call for further investment in those services.

“We use law enforcement for now, but we are going to be a work in progress as far as transferring in and out of the building,” she said.

Officials have been meeting weekly to address any issues that arise, such as the need to create tax forms for the industry. They have also put out a bid for armored truck services to deliver the cash payments.

This is normal for states adjusting to medical marijuana legislation, said Veranda Smith, the deputy director of the Federation of Tax Administrators. That organization assists all 50 states’ tax agencies with services such as training and representation before policymakers.

Oklahoma officials have come to the federation’s training sessions on this specific topic, and they’ve been contacting several organizations to ask for help.

“I can guarantee you that this has not surprised the folks at the Oklahoma Tax Commission,” she said. “I suspect they’ve had this on their radar for quite some time.”

Like Ross, she said cash payments are nothing new. Before credit cards and online banking became so prevalent, that was the standard. However, agencies have been moving more toward digital collections and away from cash. This level of cash contributions poses security concerns and the industry itself poses legal concerns.

“You don’t have to reinvent the wheel, but it’s definitely a new wheel,” Smith said. “It’s more complicated than it was before. Safety is job No. 1, safety of the taxpayers making the payments, safety of the people accepting them.”

She said that in any state, there is a finite number of dispensary owners and that generally tax agencies have worked with them individually to ensure their safety. In California, for example, tax officials organized private meeting locations for the tax payments.

That hasn’t been necessary in every state. Many states don’t levy taxes on medications. North Dakota’s medical marijuana laws exempted cannabis, said Jennifer Raab, the public information officer for the state’s department of revenue.

“It is considered a prescription only, and those are not taxed in our state,” she said.

Todd Peffermin is a partner at BKD CPAs & Advisors, and he focuses on tax, construction and real estate. He said state taxes would be simple compared to federal. The federal government tends to require electronic payments. But even if it makes the same exception Oklahoma does, dispensary owners will likely face some problems.

“How you’re going to physically remit those taxes is going to be a challenge, in my opinion,” he said.

Concrete logistics aren’t the only issue that will be unique to the marijuana industry. Because it is still illegal federally, cannabis companies won’t enjoy the same business exemptions that others do. The U.S. tax code forbids deductions and credits for businesses trafficking controlled substances.

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