Cannabis Tax Collection in Cash Overwhelms IRS

November 19, 2018

It’s an established practice that businesses pay their taxes through checks or electronic means to relevant revenue collectors. However, statewide cannabis businesses have to go the old-fashioned way to pay their federal taxes. Cannabis businesses have to schedule an in-person appointment with the local IRS bureau to submit their taxes in hard cash. Representatives carrying cash are shown to a secure room where two IRS agents are already present. The representatives then proceed to count hundreds and thousands of dollars of their tax payments to the agency in front of the agents.

This grueling exercise has become a thing of regularity for cannabis businesses, which are mostly deprived of regular banking services because of stringent federal laws on the legality of marijuana. Even though efforts are being made at the state and local levels to provide regular financial services to legal cannabis entities, a recent report suggests that 70 percent of all statewide cannabis businesses are still operating without banking services. Whether its customers’ payments, employee salaries or tax payments, the majority of cannabis businesses are still dealing in cash.

IRS is also Feeling the Brunt

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Dealing in hard cash has caused significant inconvenience to both customers and businesses. Consumers can’t shop for legal cannabis with handiness through POS transactions. On the other hand, businesses can’t deposit their income in banks and thus have to stock bundles of hard cash, leaving them vulnerable to robberies and break-ins.

The problems faced by customers and businesses are well-known and extensively documented. But interestingly, the cash problem is also causing a major nuisance for the federal tax agency, IRA. It has become considerably ‘taxing’ for the IRA to collect millions and billions of cannabis taxes in cash.

According to official figures from last year, statewide cannabis businesses paid more than $4.5 billion in the names of different taxes, and all of that in cash. So, how is the IRS managing such humongous tax collection in cash? As per the latest news reports, a Virginia-based company Mitre Corporation has secured a $1.7 million contract from the IRA to count cannabis tax payments involving large cash sums. Financial experts working with the industry are of the opinion that this million-dollar contract doesn’t just entail counting the cash. The company might also be providing the federal agency the expertise for processing the billions of cash payments within its system.

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Before a cannabis business won the lawsuit against IRA in 2014, the federal agency used to impose a penalty of 10 percent on all those businesses paying their taxes in cash. After the court’s ruling, the IRS has removed the penalty but still strongly advise cannabis businesses to find a banking channel for tax payments.

Even banks (only a few of them) offering their services to cannabis businesses, they prefer to keep them bare-minimum. Like regular ventures, cannabis proprietors couldn’t get merchant services. They are also not eligible to secure credit lines or mortgages. This unwelcoming attitude pushes cannabis businesses to remain underground and keep on dealing in cash.

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