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 79-year-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.”
Ricardo Baca: 303-954-1394, rbaca@denverpost.com or twitter.com/bruvs
