As reported by Sophie Peel of the Willamette Week, on Could 16, Governor Kotek issued a directive to the OLCC to make state tax compliance a requirement for the company to concern or renew hashish retail licenses. This new tax coverage is a direct results of the political fallout from the La Mota scandal, which led to the resignation of the Secretary of State, Shemia Fagan. This tax coverage could have a huge effect on the Oregon marijuana business and the modifications are coming fast! As early as June 15, 2023 – for a brief rule and a everlasting rule by this fall.
How does the marijuana gross sales tax work?
Oregon is considerably distinctive in that it solely taxes marijuana on the level of sale to a retail buyer. So producers, wholesalers, and processors don’t accumulate or pay gross sales tax. As a substitute, dispensaries accumulate as much as a twenty % gross sales tax (17 % state + 3 % native) for every marijuana merchandise offered. The gross sales tax is usually, if not all the time, included within the marketed worth and never added on on the register. It’s invisible to the shopper for all intents and functions.
Right here’s a simple instance: A dispensary that has $1 million in gross sales owes $200,000 in gross sales taxes. When a dispensary collects the gross sales tax it holds the cash in belief for the state. And later remits the collected gross sales tax to the Oregon Division of Income (“ODR”). The very best observe is to silo the gross sales tax proceeds from different income. In observe, nonetheless, we see many retailers commingle their gross sales tax proceeds and fail to remit the suitable quantities to the ODR. Typically we see dispensaries and their house owners merely pocket the tax proceeds and fall into monumental arrears. (This may be precisely what La Mota was doing – they owe no less than $592,000 in unpaid taxes going again to 2016).
To date the OLCC has taken little or no motion towards dispensaries who fall into arrears on their gross sales tax remittances.
What’s the new tax compliance coverage?
The essential directive from Gov. Kotek is that dispensaries who aren’t paying their taxes can’t get their license renewed. No license = shut up store. Precisely how her directive will work in observe is unknown. What Gov. Kotek has completed is inform the OLCC to get busy rulemaking. And busy they’re. On Could 16, the identical day Gove. Kotek issued her directive, the Government Director of the OLCC, Craig Prins, introduced plans “to have draft language to the fee for a brief rule by June 15 and to undertake a everlasting rule by August or September.” Right here’s a link to an FAQ that describes a few of what the business might even see.
Why is the brand new tax compliance rule an enormous deal?
The ODR experiences that about 9% of hashish retailers haven’t absolutely paid their taxes. That will not seem to be a lot, however we suspect this new tax compliance coverage could have vital ramifications and result in the closure of many dispensaries. In accordance with sources on the OLCC, retailers should pay ALL state taxes – private, employment, transit, point-of-sale, or be in fee plan with a view to high quality for a license renewal.
Does this imply traders/house owners should show they’ve paid all “private” taxes? We don’t know. This appears drastic. And why would holding present on employment and transit taxes be required for retail shops however not processors or producers or wholesalers? Or, for that matter, liquor shops and bars?
How will this tax compliance rule work throughout the number of enterprise constructions discovered within the hashish business? We don’t know.
What occurs if I can’t pay all of my taxes by my renewal date? We don’t know for positive, however the ODR FAQ (linked above) signifies that if a fee plan is in place on the time of renewal date then the enterprise is compliant for functions of renewal.
If one among my entities falls behind on taxes, can my different entities renew? We don’t know. Homeowners of a number of dispensaries sometimes arrange completely different entities for every location (e.g. La Mota). If one generally owned enterprise is just not compliant, will the OLCC refuse to resume each commonly-owned enterprise? Wait and see.
What occurs if I promote my enterprise and previous to licensure let the client handle the enterprise however they don’t pay the taxes? We’ve seen this many occasions up to now. Sometimes the ODR goes after the present house owners and/or administrators and/or officers, no matter any services or management agreement or different contract that makes the client accountable for tax remittances. I’d not count on any modifications right here.
We will envision numerous dispensaries working into bother and doubtlessly closing. A lot is determined by how the OLCC drafts and implements this rule and, presumably, the political developments within the meantime. Keep tuned for updates.