Pubdate: Tue, 23 Dec 2014
Source: Denver Post (CO)
Copyright: 2014 The Denver Post Corp
Contact:  http://www.denverpost.com/
Details: http://www.mapinc.org/media/122
Author: Ricardo Baca

CASH BACK TO POT SHOPS

More Than $500,000 in Vendor Fee Rebates Is a Sales-Tax Reward.

Colorado's cannabis shops, on the hook for higher taxes than 
traditional retailers, are nonetheless reaping more than half a 
million dollars in rebated sales-tax revenue in 2014 thanks to timely 
payment to the tax man.

The refunded money from the state's so-called vendor fee, a 
79year-old agreement the state made with its businesses, suggests the 
state's marijuana businesses are achieving an important goal, that of 
becoming more establishment, despite the extra hurdles they face in 
the marketplace.

The majority of states with a statewide sales tax have an equivalent 
to Colorado's vendor fee, which rewards all businesses (not just pot 
shops) for the prompt payment of taxes by letting them keep a 
percentage of them each month. Colorado's vendor fee, which allows 
businesses to keep 3.3 percent of the 2.9 percent state sales tax, 
dates to 1935- though it has been reduced or temporarily eliminated 
at various times since then.

Medical and recreational marijuana stores throughout the state have 
already kept more than $447,000 of their sales taxes from Jan. 1 to 
Oct. 31, according to Denver Post estimates. If marijuana sales 
trends continue throughout November and December - months for which 
the Colorado Department of Revenue has not yet calculated tax numbers 
for cannabis sales - the state's 400-plus shops will end up keeping 
around $575,000 in sales tax. (State forecasters Monday said general 
fund revenue could grow almost 9 percent for the fiscal year 2014-15.)

"The sales-tax system is somewhat burdensome for businesses to comply 
with," said Democratic state Sen. Pat Steadman. "The vendor fee 
provides them with some sort of compensation."

Colorado's vendor fee was 2.2 percent before July 2014, when it 
returned to its normal 3.3 percent rate.

Colorado pot shops aren't getting rich off their vendor fees, but the 
charges are a potent incentive to remit sales taxes in a timely 
manner, according to Mitch Woolhiser, owner of Northern Lights 
Cannabis Company in Edgewater. Woolhiser recently finished his 
November taxes and remembers keeping around $200 in the form of his 
monthly vendor fee.

"It's an example of a government program that sort of works and isn't 
a complete disaster," Woolhiser said. "If you file on time and 
collect the fee, it adds up over time."

Tax deductions

Woolhiser said the fee is a welcome respite, especially given the 
lack of tax breaks for marijuana businesses that pay 
higher-than-average federal tax rates because of IRS Code 280E, which 
denies deductions to those trafficking in illegal drugs. While legal 
pot's reach in the U.S. is legitimately expanding, the IRS has said 
its federal scheduling won't allow for normalized tax deductions.

"The process of paying taxes in the marijuana business is a little 
more laborious as well because we actually have to physically travel 
there," said Woolhiser, who pays his taxes in cannabis-scented cash 
for lack of a bank account. "Luckily, my shop isn't too far from the 
(Department of Revenue), so I can do it without too much of a hassle. 
But when I have to file five separate returns, spending two to three 
hours each month just doing this, it can be a lot."

Reimbursement

While some mom-and-pop stores, Northern Lights included, handle this 
kind of accounting in-house, others contract the work out. Either 
way, the businesses are spending time and money to collect and remit 
these sales taxes to the state of Colorado, and they deserve the 
modest reimbursement the vendor fee allows, according to Christopher 
Howes, a lobbyist and the president of the Colorado Retail Council.

"It's an important fee that the retailers use to offset their 
accounting and management of the state's sales tax," said Howes. 
"It's no joy to collect the sales tax for the state of Colorado, but 
we do it. It's a small fee that attempts to make up the more than 
millions of dollars that goes toward collecting it."

When Howes was asked about the state's legal marijuana businesses' 
access to the vendor fee, he said, "As long as the state says they're 
a legal business, they should be allowed what other businesses get."

Northern Lights' Woolhiser recognizes why the vendor fee might look 
like a questionable gift from the state to the businesses, but he 
insists that it makes sense and that it helps small businesses.

"I can see where some people might say the state should get all of it 
and that it's a privilege to do business in the state," said 
Woolhiser. "But we pay plenty of other fees for that privilege."

He added that it's a smarter, gentler alternative to what ultimately 
could lead to time and money spent in collections: "Instead of using 
a stick, they're using a carrot."

Steadman agrees: "It's a courtesy. But (these businesses) are 
important partners in our tax-collection system. We make them collect 
the tax at their point of sale. They're doing a little bit of work by 
being the tax man, the collector for the state with every transaction they do.

"It's more work for them."
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MAP posted-by: Jay Bergstrom