As a retail cannabis business (or even a CBD business) you will be subject to collecting cannabis sales tax from your customers and remitting it to the local tax authority.
But what happens if you miscalculate sales tax and an auditor shows up to your place of business?
It can be a nerve-racking experience, going head to head with an auditor, so in this episode, Jim & Peter discuss:
- What to do in the event of a sales tax audit
- What to expect during the process
- Peter’s predictions for the next 12-24 months with cannabis taxes
- Learn how CannaTaxware can help your cannabis business
If you need help with cannabis sales tax, then please reach out to us at www.GreenGrowthCPAs.com/get-started or call 800-674-9050.
Transcript
Hey everyone, Jim Breese here from GreenGrowth CPAs and thank you for taking the time to join the third part of our three part series about sales tax. So in the previous two sessions we covered a few different things, the basics of sales tax and why it’s important that you actually accurately collect and calculate these sales tax as well as the distinction between origin base first destination-based States, and how those intricacies are going to really play into your CBD or cannabis business, especially if you’re a delivery company. A lot of helpful information. And today we’re going to hit, you know, what do you do when an audit actually happens from your local cannabis sales tax authority? So if you’re in California, expect these things to happen January, 2021 because they’re trying to build up more and more liability for these cannabis business operators and have to in a certain threshold. So lots of things come in here, lots of great discussion this afternoon, our special guests today and presenter Peter mantel. Thank you very much for coming on and doing these webinars for the community this past few weeks here. I’ve just been blown away by some of the things you’ve been sharing with us.
Thanks. So much. Pleasure to be here. So now we’re going to talk about the dreaded case of what do we do if we hear from an auditor. Now, first and foremost, you know, this is not unique to California. This is anywhere. Uh, there’s this sequence. So this portion of the sales tax conversation we’re going to have here is going to be any state, any and every state. And so you understand my background in this area. Um, we’ve been doing audit defense for upwards of 40 or 50 plus clients over the last three years. Uh, we started out in the eCommerce space and since then have expanded into now the cannabis space as well. A couple of things to keep in, in mind right out of the gate. First thing is that, um, you know what I’m saying? So we’re, you know, we get either an audit request and that can come through a couple of different avenues.
The state’s preference knowledge is you’re gonna mail it to you. Uh, and what’s going to happen is it’s going to be what they call the nexus questionnaire. So they may say, you know, Jane DOE, John DOE, we noticed that your business is, uh, uh, what do you call it, operating in our state and we feel like the, the numbers are off. We’d like to take a look under the books at some point. When can we meet with you? Um, that’s one where they’ll do it in, in the States preference Geraldine’s to mail. They’ll also follow up. They’ll have a, what they call, you know, some shit’s called a tax technician, or should they call, you know, on the analyst or support personnel. But they’ll also have people in a call center fall off in your business if they have that information. So, uh, and that stuff they can grab easily from, for example, your articles of incorporation if you’re incorporated in a state that’s public information.
So there’s a lot of ways that these individuals can go about getting that information. It’s not complicated. Give me an example of how aggressive a state can get. Um, we had, you know, using an eCommerce example, I apologize, but it’s a good example for you to understand. Uh, when States want to go after your money and they want to be aggressive, we saw CDT, DFA of California subpoena Amazon, which is a 10,000 pound gorilla into turning over all third party seller data. Uh, Amazon put up with nothing of a fight to say, Hey, we don’t want this to happen. But eventually they, they, uh, succeeded there. They, they gave in and uh, gave the data over to the state. And then in 2017 and 2018, the state of California then started randomly handing out nexus questionnaires to anyone and everyone, uh, because they could, because they have the data and they have the points to do something like that.
Now, how does this apply cheer to you as a retailer? Well, let’s just say as a hypothetical, you’re, you’re in the CBD market right now, which is not regulated and you’re mailing product into California and maybe you’re not located in California. Well guess what? You need to collect your a minute sales tax depending on the volume sales you have in that state with the CBD products. Um, you know, so there’s a lot of things con, you know, fit to take into account when you’re looking at evaluating this stuff. So let’s go into what you do. If you hear from the state, first and foremost, do not panic. Uh, and, and I, I’m going to repeat this again. Do not edit. Take it easy. Take a breath, drink a glass of water, whatever you gotta do. Calm down, walk away, come back in a couple minutes. Uh, the States want you to, they’re gonna use very strong rhetoric.
They’re gonna use very strong vocabulary. Uh, it’s going to sound very threatening. Uh, they’re giving you use words like lean, levy, uh, you know, criminal offense, blah, blah, blah, et cetera. This is all meant to scare you. And so one thing to understand and all this is that, um, you know, and I always say, um, you know, to anybody treat this as if a police officer shows up at your doorstep, uh, you know, he’s, he or she is fact-finding. They’re trying. They don’t have their cases. They’re showing them there. If they know what they want, they’re going to arrest you without questions. So oftentimes an auditor or any state representative, the first one they’re doing is they’re going to do facts on you. So I always say, and pardon my language, but keep your mouth shut. Don’t say anything. There’s nothing that you need to say at that moment to that person that they need to hear that can’t wait another week or two.
So never, ever disclosed anything. The first thing you do, you get your accountant, CPA, state, local tax expert, salt, whatever it is that represents your business on this matter. You get them on the line before you talk to anybody else. Not even family members, not friends, business partners. You get the accountant on that phone ASAP. That’s the first thing you do. Um, and then you know, you can, some people think that they’re, they’re good at what they do and they’ll try to handle it themselves. I have seen businesses get massacre by the state because they didn’t know the interstate workings. They know the laws. States start bullying the business. And before you know what the business gave way too much data over to the state and the state had more than sufficient to go after them. So again, uh, in this environment, data’s King, the state’s going to do everything within their power to pull it from you.
Your job is to get an expert that knows what data they should or should not submit. A, I’ll give you an example of how I’ve seen this workout. So when California, that e-commerce example, going to go back to that in California started auditing these different random retailers, uh, the States said, well, we want to see all transactions across the U S and in our audit defense, we always tell the state, no way not happening. That’s just not, that’s just not going to fly. Uh, we’ll give you California pertinent data, uh, which you are legally allowed to request. And we will supply and work with qual and collaborate and cooperate with that. But sales into, you know, if they’re not domiciled in California. So let’s say you’re a foreign retailers in state, uh, we’re not turning over anything other than what the state requires to make an assessment.
Sometimes the saints will ask to look at your financials, your P and L, um, you know, in cooperating may or may not make sense depending on what kind of benefit that fits offering you for a, so these are the kinds of things that you, you, you know, you want an expert to know what they’re doing and this environment to make sure this, it doesn’t take advantage of me. Well in the last for your, your, your national sales, they’ll, they’ll make it sound very routine and that it’s very normal. Don’t believe that, uh, that is, you know, they, the state has no oversight jurisdiction over sales outside of your home state for starters. Uh, and then secondly, uh, for any sale, you know, if you’re dominant solving California, that’s a bit different. But if you’re operating outside of the state, um, you know, then they have no jurisdiction.
So the big thing you’re going to see more and more of, especially if you’re doing eCommerce sales with CBD, uh, or as the market begins, continues to open up, you’re going to see what they call nexus questionnaires coming up from States eventually. So if you’re moving a certain volume of product in another state, which can be anywhere from $100,000 or 200 transactions, whichever comes first, that’s the average. Some States are differently fluctuate, but, um, you, you will then have responsibility to collect from it. And the States aren’t messing around in this room. Now the next piece, uh, makes sure that whoever, um, your, your hiring CPA or accountant or salt or state, local tax expert, it has prior audit defense experience. I mean, going, going in, I’m reminded by one of the commercials I recently see. Uh, the doctor walks in and say, how good are you?
And he says, well, I’m, I’m good. I’m just, I’m just, OK. Uh, and, and you know, the guy’s getting ready to go into surgery and he says, don’t worry, we’re gonna, we’re gonna work on this together. We’ll, we’ll overcome this. This is my first time back since I lost my license. Um, you don’t want to work with an accountant or somebody that is, you know, I’m just okay or I’ve, I’ve done audit defense, you know, once, once, a long time ago. I just need to rush off the Russ, blah, blah, blah. We’re talking about your business and your livelihood here. We’re talking about the state potentially putting Alina levy that follows you for the rest of your life, you know, and so to that degree, do not risk that on saving a couple bucks a year. This is an area where you get what you pay for.
And so don’t, don’t cut corners when it comes to this type of situation. Now the next thing, um, that we see a lot of is people go into full on panic mode and they’ll just completely disregard the, the, the letter they received. So in other words, they’ll say, Oh, I never got anything from CDC. If they, I don’t know what you’re talking this, this whole lot of things, uh, this is the first time I’m hearing about it. Well in this time environment, ignorance is not sufficient enough to be, um, sufficient grounds for the state’s ignore you. So in other words, the state doesn’t care whether you received it or not. They’re just gonna follow up and say, that’s your problem. If, if the mail carrier didn’t get it to you, we’ve sent multiple correspondences, you haven’t responded to any of them. Uh, not our problem.
And, and so the say to that degree, there’s been cases where, um, you know, the paper didn’t make it to, to the client count, uh, and the fades are famous for having incidents where something went awry and it didn’t make it for some reason, again, in this environment, uh, that won’t be sufficient grounds for you to say, I’ve made a Copa. Uh, the state is going to come after you in this one. We have other people too that are just like, I’m just gonna ignore because I don’t think the state’s has the right to come after me on this one. Uh, and so the way that all works then from there is that what the state’s gonna do in that kind of environment is first and foremost, they’re going to, uh, they’re going to send you warnings and say, look, you need to talk to us, uh, or else then if you continue to ignore them, then what the state starts to do is they start hitting you with what they call assessments.
So in this environment, they’re not going to wait for you to respond. They’re just going to start hitting you with a maximum amount, the state, Ken. So they’re going to say, okay, uh, you know, we still haven’t seen your books, so now we’re going to hit you with a couple thousand bucks in PNI this month alone and we’re gonna hit you with it again next month we’re going to go and retroactive to, to watch you. They’re going to hit you from left, right side, top, bottom, whatever they want to. Um, you know, and all of this is meant to get you to respond. Now ignore them when they hit you in the assessments. And guess what they do? They follow through with those assessments. So then they go to the banks, they go to anywhere you have assets and they lean 11 as assets wherever they can. So it’s not just enough that you know, so once they hit you with that assessment, until you respond and go through the audit process, that dollar amount they’re assessing you is what you owe.
And that assessment will continue to aggregate and grow until you eventually response in state. Uh, so they’ll just keep hitting you, hitting you, any, any you going into your counts, taking the money, just continuously slamming you until you respond to them and eventually work with them on neurotic. Um, so the state has a means to make you or compel you to comply. Uh, and so don’t, you know, that’s why we’re saying do not ignore, do not disregard, do not pretend it didn’t happen. Everything, you know, again, go to point, bullet point number three, make sure the expert has a prior experience and knows what they’re doing and make sure you get an expert. So you went through those two key bolts, get an expert to support you and make sure that expert knows what they’re doing.
Yeah. Maybe one thing you brought up. Uh, I think in a previous video or one of our conversations that, you know, California, I believe it’s California, has auditors in other States. You know, you’re not just sitting, you know, Oh, off I’m in New York. Like there’s, they’re 2000 miles away from me. Don’t worry about it. They have an office like in New York that they’ll just pull up to here to your plate, plays a business if you really try to avoid them enough.
Yup. And, and it, I mean, I, we’ve worked with the New York office. We’ve worked with the Illinois office, we worked with the Texas office for California. These are all divisions of California. So California is so hyper aggressive. They’ve deliberately put their own personnel in these other States, so the right in our backyard and they can show up at your doorstep.
So the next thing we’re gonna do then is we’re going to discuss, um, you know, okay. The Cedars has contacted you. You got your expert up and running, uh, he or she is preparing their case and what needs to happen, how this all plays out. Uh, so then, you know, as, as a, um, as a retailer, as the person being protected by this, uh, by, by your representative, what does this mean, what to expect from the overall process because this is extremely terrifying for business owner. This stuff is where you feel out of control. You don’t feel like you know the situation. And so for many business owners that, you know, they’re just punish tripping because don’t know what to expect. So now we’re going to go over, you know, if this happens, you have your representative, we’re going to educate you on to know what to look for, uh, you know, from your protection, from your, from your CPA or from your salt.
Um, and then also, you know, as the profit goes on, what should you be expecting as part of this process? So first and foremost, um, whoever’s representing you should always be getting a POA or power of attorney in advance. Uh, and the reason is that once you get the POA or power of attorney, um, now there’s a shield or intermediary between you and the state. This means that the state no longer has a grounds to, to come to you directly. They have to go through the representative that you have authorized, uh, enact to cooperate with the same behalf of your business. So the first thing there is now you’ve shielded yourself. If the state, if in the environment you have a power of attorney in place and the state is trying to circumvent your, your power of attorney, your, your representative, and they’re going directly to you, even after you’ve spoken with state multiple times, this is grounds for you to go action state, uh, because they, they’re not allowed to legally.
So in other words, if they keep trying to come after you to get you to give up the information cause you’re counting those better and they’re hammering you and they’re leaning on you, um, you know, continually, first and foremost, my CPA or my accounting or whoever it is, has power of attorney. Please take up any and all matters up with this individual. Do not say anything to them. They know better. And also lets your accountant know because if they’re doing that, uh, you know, in my environment, in my experience, I’ve had a couple of cases where that happened and I was on the line with what they call soup or whoever, supervisor, um, within whatever organization. And you can bet the bank I was writing Holy hell and the entire state because they were doing something unethical and illegal. So, uh, there’s, there’s ways to handle that.
Again, POS is critical. A power of attorney. Get the accountant in front, get whoever it is in between you and the state. Next thing is the party that represents you is going to need you to disclose any and all transactional data from day one. Uh, you have to have is in record somewhere. They have to have some means to get the same information. If you will hold that information from your phone counting, you have set yourself up to failure because what’s going to happen, these auditors are not dumb. They’re very smart and they’ve been taught tactics to look for what to look for and when they’re going to look to match it up with different financial statements and other items. And if you can’t match it up, they know there’s a Delta, then they’re going to dig even deeper into your, into your information. So now you’ve made a bad situation worse.
Then they can go in, they’ll say, okay, the, the, the, uh, the client is not cooperating. Treat them as a hostile client. Um, that’s when they can just say, I’m going to show up. That’s when they can have the right at that point to show up at your office with your accountant or whoever and just go through all your records at that point paper. Anything that can get their hands on. So you know, you really, the more cooperative you are up front and the more data you can give to your representative, your accountant or CPA or salt state level context work, um, their job is to protect you. That’s what you’re paying them to do. Don’t withhold anything. They’re going to walk you through it. Um, you know, on our team we have two actually TFA auditors. Um, and they’ll, they’ll be the first to tell you, you know, keep your mouth shut.
Don’t say anything. Uh, you know, and, and you know, they’ve also had experience we’ve all had experienced with the state, tried to bully, you know, we pushed them back and then all of a sudden the state realizes they weren’t going to be able to get their way. So again, I mean this is critical, but the other thing we can do too is depending on the category that your product is in and may not be somebody that sells sex. So it might be, you know, food may be exempt or reduced and there may be unique types of laws in relationship to the product that you’re selling. And so you might be able to get savings. That’s what the, that’s what the representative’s job is to do on your behalf when you’re doing audit. The fit is to save you as the client, as much money as possible from having to pay to the state.
Now any monies that you do pay to state and backwards sales tax. Also just as an FYI, is pox deductible. Um, so in the future, make sure if you, if you do get any amounts that you owe to the state and then she would count for it in your future firearms. Now the, the penalties and fines are not sell stocks are not tax adaptable, those are full amount. But if you paid back in sales tax to stay for something out of your businesses expenses, then you can reduce that from me and some tax statements as well. Offset that. So some things remembering that from, um, next thing is, so we, you’ve gotten your accountant the information, they’ve been able to review it. Uh, they have compiled it and they’d have them put it together in a fashion and format them steak. And then, except with the expectation, you’re putting the lowest amount possible in at the time of the, um, uh, you know, based off of the state requirements.
Uh, so what then happens is that it’s going to go to the state, it’s going to go to the auditor, depending how busy an auditor is, uh, will dictate how long it takes for them to come back with a response in the state environment. Uh, don’t be surprised if an audit takes upwards of six months to a year. That’s not abnormal. A lot of people freak out to say, okay, we’re an audit. Where’s my response? Where’s my results, you know, three months into it. And why haven’t I, you know, well, why hasn’t the state responded? Well, the state loves the drag their heels and they love to do it because they get to talk up that interest as it takes longer and longer. So they’re getting extra money out of this by, by taking longer. So it’s in their best interest to take their time.
Uh, the other thing, she was right now, a lot of States are inundated because they’re finding these new niches to go after, uh, which I’ve never gone after before. And so they’re doing it in mass and you know, they’re limited in resources from an auditor perspective as well. So that means that one auditor may have upwards of 10, 20 accounts they’re auditing at any given time, so they’re going to be slow to respond. Um, I mean, we started audit defense for 15 plus clients on the California side in January of this year and we haven’t completely, we’ve only completed one out of the 15, not because we hadn’t submitted the data prior and not because anything was being hung up on our side. It’s just because the date the state is that inundated, uh, and they’re, they’re very slow to respond. So, uh, just understand that the timelines for these types of things, um, can take upwards of a year depending on the state and the resources the state has at their disposal.
Um, eventually at some point, once they’ve completed their audit process, the state is then going to come back with their findings with an assessment. Now, one of the things that we always try to do in this process, many States if you cooperate and work with them, uh, in many cases they’re willing to reduce the fines and penalties depending on how you cooperate in the state. Uh, and so that is part of the reason why you don’t want to make this very complicated and why a good accountant will in their way. Because you know, removing some of that penalties and interest will save you a lot of money, but you’re going to pay for that account. Uh, the, these are things you know not to take lightly, but if you’re, if you’re being rude to the state, if you are telling the state to pound sand, if you’re doing anything that the state would interpret as hostile, they will not give you anything.
They’ll throw their boat full book issues. Matter of fact, not only will they throw the book at you, they’ll go searching for other areas that can get you, and there’s a lot of gray lines in the business world that gives the state’s openings to go after different types of taxes. So if they want to get creative because you, you’ve took them off, they will get creative. They have no problem doing that. Um, and so that’s where it’s our job. You know, that makes our job a bit more complicated too as well because at that point, uh, now we’re having to finagle the state to get him to come back down to earth. Um, we generally have a lot of very good relationships, uh, at the auditor, director level of many different States. But you know, if a client has done enough to, to frustrate an auditor and the auditor is properly documented, there’s only so much we can do to cause at the end of the day, the state has complete power and has a law behind them.
So, uh, you know, cooperating and working with them is critical. Uh, when a state don’t know, you know, once we supply the data, let’s say after the year Mark, they’ve, they’ve come up with an assessment, the state’s going to mail that assessment to you. So they’re going to come to you and say, here’s our findings. Your, your owed amount is X, uh, interest and penalties or Y and Z. A total is going to be whatever. Uh, and so then you got point, you’re expecting to pay that amount in the state. Most States understand that the hitch, you want a big enough amount, you’re not going to be able to pay it in a lump sum. So a lot of the States will grant your, offer you the capability or the ability to do a what we call timid plan. And that’s ideally, mostly it’s an average Walker up to 11 or 12, one in the plane under extreme circumstances they may offer greater than, but the downside to doing a payment plan, if you can avoid it, is during the timeframe that you’re on that payment plan, you’re actually accumulating more interest that you’re going to have to pay.
Uh, so during that timeline it’s going to cost you a little bit more. But the whole objective of this is keep your liquidity because you need that to buy inventory or whatever audio. And so their whole objective is, okay, we get it. So you know, let’s just say hypothetical. You owe $12,000 to the state, um, there might be $1,000 a month versus a lump sum allowing you to keep that extra money for operational expenses, et cetera. So, uh, you know, the States will cooperate from a painted plan perspective. Um, you know, if you request that most cases and you’ve been cooperating with the state, they’ll be pretty reasonable. And also that, that is pretty much everything I wanted to, to cover in relationship to what to do when, uh, if you receive an audit and how to handle the audit and what you should be doing going forward. Uh, so I’ll turn it back over to you, Jim, for, for the Q and a portion if that’s okay.
Yeah. If anybody has any questions, please let us know. Drop some questions in the chat here. This has been a very, very eyeopening experience here. You know, I think one of the things that stands out to me about the audit portion is that the state is going to drag their feet. Yeah. Just to, to build up that penalties and interest and higher and higher and higher law, allow those things to grow up even further. Um, then, you know, than it actually is, you know, so be very, very diligent in getting this done faster than later, you know, get somebody engaged, get this stuff moving as fast as you can. Yup. So Sharon is asking, what is the average audit cost
that will vary by the CPA firm or entity organization that you’re working with? Um, it’s, you know, the, the average really is, is it starts around the $2,000 Mark for audit defense, um, or BDS and then it’s kind of based off the size of your business. Um, some companies will do, I flat rate, we only do flat. We don’t like, um, uh, we, we, we don’t like doing contingency or, uh, any type of, uh, we’re, we’re, we’re charging hourly because the Hutcherson point for clients is that you just really don’t know, um, you know, what’s expected from a cost perspective. So we’d much rather have transparent pricing upfront. Uh, so that then you can build into that. Um, Sharon also asks us to use his timeframe, six months, one year to complete. Um, the question like how long is the overall entire process room?
Yeah, I mean it’s, so what’s your, you said typically when, when is the timeline for these audits?
So ideally from when they reach out to your, until when you can, um, then to the closure of the audit. Um, okay. So, Oh yeah, so Sharon said the entire process. So yes, the answer’s that, um, ideally the average art of the offense takes between year and a half. Uh, some States are much quicker on their audits, uh, where we’ve seen some pretty, pretty prompt her. And so far on the audit side, I would say, uh, let’s see here. Let me think out loud. Uh, we’ve seen a pretty good response rate from Tennessee. Touches is pretty on their ball when it comes to audit. Um, Florida’s pretty prompt to respond. Uh, let’s see here. Uh, Wisconsin, Illinois, they’re pretty on their games as well. So, um, what I would say is in those environments for, for since that on their games, um, you know, the turnaround times for all those six months, uh, still have in California right now.
And in date, I would say anything less than a year would surprise me. Um, just because of how busy they currently are as a state. So, uh, I would say, uh, on, on the bigger States like California, expect it to be a year plus on a smaller States, um, expected to be, or some of the other States you can expect it to be roughly within six months. Um, now the next question Sharon asked was one of the accounting fund, uh, are amazing, have backed up, uh, for every transaction, a cost of goods that’s critical. Um, sharing, you just saved yourself a bunch of money because, uh, now somebody doesn’t have to go hunt it down. Um, if you have that data readily available that reduce your, you’re gonna reduce your cost because now you’re not going to have to use, um, you know, your, your, your accounting isn’t gonna have to comb through all your data to find everything [inaudible] necessary.
So, um, to that degree, um, that will definitely save you money. The other thing too is, you know, if you’re properly meticulous and keeping your books, uh, you’re not leaving any loopholes. The state auditors are trained to look for, um, deltas, the train to look for weird, weird options they’re trying to look for in your personnel. And you, if you’re talking to them, they’re trained to look for pressure points. So like if they ask you a question and you respond on the set question, they’re going to dig in deeper, similar to what a police officer with you. Uh, so you know that these are things that they’re trained to do. So the thing is that, you know, the more data you throw at them, uh, the less questions they have. Um, and then it’s, you know, it’s, here’s everything that you’re, you know, that you’ve required us to turnover.
Here’s all the data points, here’s everything you, and generally when we work with somebody in audit defense capacity, we have a questionnaire they need to fill out prior, what are the, when the platforms you sell through, what are the channels that you use, et cetera. Um, you know, everything and anything that we can figure out, we’re going to ask that. We’re going to look into those things to take that into account. But I wish this sharing, if you can keep concise records, you’re going to find yourself very hoppy and you’re also going to save yourself a lot of money and a lot of pain in the future. And then one individual says they use a QuickBooks online attached a backup to every transaction, which is perfect. That’s beautiful. That’s exactly what you wanna do. Um, and not only do you want to keep these transactions when you want to keep them up to, um, you know, I would suggest eight to 10 years, which is a bit overkill, but here’s why, uh, you know, so if we take California as a hypothetical, uh, the, uh, you know, the, the, the de minimus look back here for California’s cases, eight years.
So if you’re looking at an eight year lookback period, um, you need to be able to supply data to going all the way back to eight years. So, you know, I know in many cases like that from an IRS perspective, I think it’s five to seven years. Um, but from a state perspective, you want to be able to handle, um, and minimum, you know, they’re doing this like bacteria. So you have all that data there. Uh, anything greater than eight year look back, period. The state has no claim to make a, they can, it’s against their loss. So, um, you know, so it varies state by state, but the record should always, um, at least be for the length of the lookout. Curiously, you can go,
yeah, we saw a case actually that came up, uh, where they think the bacteria was three years for the IRS for um, can just the materiality of it wasn’t that big, but at any rate they, I initiated the audit by sending the letter within like I think three or four days of that three year thing and then allow them to, in the audit went for like I think four to five years. It allowed them to kind of like go way, way back when you’re looking at the relative date of the judgment and the final appeal and everything like that. It was like eight or seven years was like a huge amount. So uh, they just needed to kind of like, you know, light that wick and then it can stay like kind of like keep that timeframe and continue to go back to it. So that’s one of the reasons it’s also keep these records and it’s data like it’s a a hundred dollars a year to hold this data somewhere. Like don’t just like let it go. Like all I want. I just want to clean my file folders out, clean, keep this stuff for a long time, you know,
and completely and, and, and you know, just to understand the psychology of an auditor, uh, their training, their job is to get as much money as they can to the state. And the auditor’s been consistently tried to work as much as they can in the gray area because that’s where they have a lot of control. So, you know, the, the reason why you do eight years is they may say, yeah, we only need to do a four year look back, but the auditor can change their mind at any given time. And, and they have a law on their side. Um, you know that you may supply them with the correct data. The auditor says this and the other thing, or they find a discrepancy or Delta, they’re going to do things to try to, you know, push, pull and get you off your, off your gallons to see if they can’t go and dig up some extra revenue.
That’s their job. That’s what they’re paid to do. Um, otherwise, if they’re just an order taker, they, you know, they hire waiters or waitresses from the restaurants. Uh, the, their whole objective here is to find someone that knows the, find the pressure points and to really go after and find extra revenue and wherever they can carve it out. Uh, and so, you know, our job is to do the opposite is to keep them at Bay. Uh, so one person commented and said, yup, thanks. That year seems like a good idea. So I mean, again, what Jim had said, it doesn’t cost anything to, uh, you know, a hundred bucks a year or whatever just to store it or you have your own, you know, a hard drive that you, that you keep it all on, you know, you keep with you. Um, make sure that it’s something that, that, you know, will be fireproof for damage or, you know, a act of God for us as well. Um, you know, if anything happens, again, if you lose the data, the state doesn’t care why or whatever excuse you have, they just, they’re going to come out you to handle one way or another.
That’s it. So if there’s any more questions, jump into the chat here and then, uh, yeah. Anything else that you’d like to share with us? Any kind of hot tips? I’ll take some things, you know, what do you think’s going to happen over the next 10, 12 months? And in cannabis for tax wise, it’s for salt taxes and things of that nature. Do you see any kind of increases generally across the board? Um, you know, give us your hot takes on a few things here.
So we’re, we’re now starting to see the Northeast legalized, uh, New Jersey recently. Uh, I don’t think new York’s very far behind. Um, actually my home state of Virginia most likely will be decriminalizing this year as we’ve gone blue. Uh, and they’ve already put in the docket. Funny story, uh, on Virginia. Uh, you know, it was originally red state and, uh, one of the big things here is the, the second amendment gun rights. Well, uh, the two bills that were announced in 2021 was to, to put harsher shifter laws on the gun side. And then the other one was to decriminalize marijuana. And the funny thing is the entire state’s in an uproar, fighting left and right over, um, you know, the gun rights, but nobody’s saying a single word about the legalization and decriminalization, cannabis in Virginia, which is an excellent side. Um, where I’m going with this is I think, you know, Virginia is probably, um, you know, two to three years out from, from legalizing, potentially recreational, I think, um, you know, Minnesota is showing the sign to legalize and they did some analysis recently of the constituency and they found greater than 50% of the voter base is excited or interested around legalization and recreational marijuana.
Um, so the city’s already begun to do their due diligence and then a key, some of the key officers of the cinnamon instead of also said, we’ve already implemented the plan, uh, that as soon as becomes legalized to put up all the infrastructures from, uh, technology to, uh, data tracking to hospitals, et cetera, all the medical, everything, all that set up. So I would say Minnesota is starting to get there, you know, quite frankly, I think within the next three to five years, uh, you know, I may be crazy, but I at minimum 80% plus of the States will be, um, legally and medicinal and then potentially recreational as well.
Well, I think 33 of 50 now, right there. 32 or three. It’s a lot.
Yeah. And I mean, big key, big key win on the East was miss Florida, um, getting Florida because that’s kind of the, the doorstep into the Southeast. So, uh, see Florida go onboard really, really helps push things along. Uh, Oklahoma’s just been booming. They’re just printing money right now in the town of his shop. Yeah. Um, I think California has a problem and, and I think that, um, you know, someone actually brought this up because of the black market in California because of the taxes. So I think this is a case of a broke state. They’re looking for the simplest low hanging fruit, um, to get their revenue. I actually honestly think that they’re, they’re shooting themselves in the foot and that, you know, miss ms finish recording a year from now and see if I’m right. But I actually think they’ll repeal the rates, uh, in, in 2021.
I think they’ll have a down year in 2020 because of the fact that the, the excise tax is getting so expensive. Um, there’s a lot of competition in the black market right now. Uh, and so as a direct result of that, I think the state’s going to hurt. They’re going to try to strong arm as their first tactic. So they’re gonna, they’re gonna come in and they’re going to hammer everyone they can. But the problem is they’re going to happen, yes. An infrastructure for law enforcement for the black market that’s gonna cost them a lot of money to do, um, dedicating departments to that kind of stuff. Um, cause this isn’t going to be a federal thing. So it’s what we, DEA send internal, uh, or ATF or anything of that nature. So, um, what the state’s going to have to do. Eventually they’re going to come to terms with the fact that they have no way to enforce this, this rate hike, uh, in the sense of, uh, being able to keep, you know, to keep the buyers from going outside of the proper channels. So what I would say is in the case of California, I think you’ll see a drop a little bit this year in sales because of their size tops, reason. Um, but I see them in 2021 coming to a realization or the damage is dead, and then repealing that and probably dropping it back down to the 2019 amount and then potentially we’ll see where it goes from. They have to analyze it further.
Yeah. Yeah. Or Sharon in here, she’s losing clients that have black market and CA, which is very, yes, an obvious thing. Is this happening? If you’re in the, if you’re in the industry, it’s very obvious that this is happening in the Detroit right here. The Oklahoma clients revenue are dropping because there’s too many dispensaries. You don’t know what goes on. It’s going on in Oklahoma. You pretty much have to be a resident for two years. I have $2,500 and a pulse and they will get you a license in six weeks and then you can become a cannabis business operator. So everybody is running to kind of grab their little piece of land and become a cannabis business, dispensary processor cultivator and anything of the like. Um, so yeah, that competition is surely pushing the revenue per business down, but the state is just amazingly grabbing a bunch of money right now.
I mean, they’re kind of austere in the development. And one of the things that we wrote in a blog amount of blogging, a printed article is going to be in the Oklahoma Gazette and a, I think next month is going to be, you know, one of the trends we’ve seen for Oklahoma is that their big operators are coming in and kind of getting ready for like a national legalization, you know, the, the labor is cheaper there. So licensing is cheaper there, it’s faster and the people cost is cheaper land, everything is cheaper. Uh, you’re going to see a lot of processors go down there. Their cultivators go down there and then export to all of the different States. Especially there’s a bill in the Senate now for States that are recreational, can have interstate commerce potentially, um, that could open up a whole whole nother thing, you know. So I think there’s, you see a lot of businesses going out to these cheaper States in the middle of the country. Um, so they’re all gonna start playing their parts. I’ll start playing their role. Uh, go ahead.
If I could chime in on the Oklahoma funds, a couple of things to consider there. Sharon. Uh, first and foremost, if there’s a boom, uh, that’s not necessarily a bad thing. What probably will eventually STEM from this is if Oklahoma can prove themselves to put together a good product, you’ll start to see what they call Canada’s tourism come. And so you’ll see people from outside of the state come in, uh, and start partaking from there because it’s a simple route, especially if the taxes are much cheaper. There is closer to the East coast. Uh, there’s a lot of variables. And metrics there to account for what I would strongly advise you to do. Oftentimes when you see an over flooded market, you’ve got a lot of people that may or may not know what they’re doing, uh, in that market. And so one thing that you need to do is make sure all of your claims are fully compliant for better, for worse.
Uh, and the issue is that, um, you know, what’ll happen is a lot of people start to feel safe with a situation because they’re just doing this all on mass. And so they, they, you know, they haven’t heard any audit requests or anything like that, so they think they’re good to go. Um, and so, you know, what’ll happen is, you know, you’ll see Oklahoma crack down in the next year or two, uh, which is par for the course. They’re getting it all set up and then they’re going to evaluate and see who’s legitimizing, who’s not. So the key thing for your clients in Oklahoma, what I would say is a state of course, the, um, you know, you need to make sure that you have no loose ends because when the state starts hammering on people and, and you know, there’s an old saying when there’s flooding the streets by, um, what that means is that, you know, with, with, when the auditors are coming out and you start hammering people in the businesses and start closing down all your code and tell that did everything by the book, there’ll be sitting very pretty.
And as they close their competition around them, there’ll be gobbling up all the extra consumer base. So I would say, I would say on the Oklahoma market side, at least the two components, there will be one. If they start to produce good product and it continues to commune reputation, you’ll see cannabis stores and from there, so you’ll see an increase in, in acquisition. And the second thing is that it’s not irregular when a market is flooded for the state to come in and clean out house and, uh, only sustain or keep the entities that have been fully compliant. And so that, that from my perspective would be beneficial as long as your clientele are able to hold the course
and sit. And then she, uh, Sharon also asks what’s going on in Arizona? Uh, it’s up for recreational legal zation in 2020. I don’t think it’ll be any problem. I think they hit like a 48%. Oh, there was like very, very close in the, uh, 16 election. They’ve got medical now. Uh, you’re seeing big players come in, uh, and kind of just getting ready for the infrastructure. Like it’s only a matter of time. The dominoes are gonna fall for every state. Uh, I mean, once Texas really opens up, it’s over. I mean, everything’s going to go, uh, it’s going to be a kind of a wild race. But yeah, we’ve got some clients that are kind of moving a fair amount of capital into Arizona right now and being just, we’re just waiting, you know, they know it’s coming. There’s like the land of sun, you know, they can start to go and do green infrastructure. Land is cheaper. It’s going to be a lot, a lot of uh, opportunities, especially in the South. Say we should have a webinar with you too, which looks foreign crooked for our business owners.
I can, I can have you on that one. Yeah. You and I, Jim, we can just tackle all the world’s problems.
A faculty that’ll be like, I got an eight hours long in a marathon podcast again. Yeah, exactly. It would be a intense one. I mean a what kind of Ryan that out here. I think one of the things that I’d like the legacy players are really kind of feeling the pressure of big business come in and they think they can pull fast ones. But we’re, you know, I want people to understand you’re not building a Cornerstore, you’re not building, you know, a house to kind of like hang out and sell cannabis out of your building a legitimate pharmacy here. It’s a very highly regulated industry. There’s a lot of laws, a lot of regulations. There’s a lot of fees that come along with this. So I know we get a question all the time, like, why does it cost so much to start a cannabis business?
You know, it’s like starting an airline, you know, why aren’t you complaining about how much does it cost to start an airline or how much it costs to started automaker? Uh, these are, those are even better businesses to be in, essentially with the amount of profits that could be in, Oh, well airlines, but surely the audio industry or any other business, it’s very expensive to start most businesses. But this one’s got its eyes on it. People think there’s a green rush. It’s a green drip. You know, there’s not like a ton of money coming into the pockets of the business owners. There’s a lot of venture capital coming in. There’s a lot of media hoopla around it, but I don’t see that that actually maps properly or, um, congruently to the business results that are actually, we’re seeing for owners that are not coming with a lot of experience and they’re like, you have, you make one mistake in cannabis, it gets exploited and expanded out so quickly. One or two that harvest is for a cultivator could mean the end of your business. You know, you’d make one bad tax mistake, you don’t remit your excise tax, you get a 50% penalty as a distribution business. Good luck. Like you’re pretty much over with. It’s, it’s, it’s that cut throat in the industry right now. So I mean that’s, I don’t take on,
yeah, I’ll give you two points to look for on the, on a crooked fraud side too as well. First thing is whenever you buy anything cannabis and you’re not, you have a medicinal card. So you’re, you buy recreational from an area that everywhere itself, stocks. So if they’re not charging sales socks, they’re not registered with the government. It’s a local entity right out of the gate that tells you what she needs to know for certain. That’s the first thing. The second thing is, um, ideally the business has a name that’s incorporated. You can always look up the business, an LLC and a corporation that’s public domain, public information. So you can always look them up and see what they are. Um, you know, when you look it up and it’s gonna identify based off of what they call it, any ICS code, uh, that Dick case and type of business it is, um, that’s what the, how the state can figure out what you’re doing. So they’re going to evaluate, you know, what you’ll see is in his, you know, Jane Doe’s dispensary LLC and then in a NRCS code zero 55 or whatever, um, that tells you, you know, when you look at the categorization, it’s a retailer. It’s a brick and mortar retailer. So yes, their, their, their rendition or the state, they’re legitimately there. And then when you can see if they’re charging sales tax or recreation a lot, I’ll tell you, those are the two things that might have the gate and tell you everything you need to know.
That’s it. Well Peter, thank you very much for your time today. It’s been a great past three weeks sharing all of this information. You’ve got a wealth of knowledge and I’m sure there’ll be many more presentations between us to over 2020 and going forward as can be a long, good longterm relationship. I appreciate, uh, everything that you share with us in the community this week and past your weeks.
My pleasure. Thank you for letting me be here. Great group of people, great questions and it was a lot of fun doing this.
Yeah. Well, one last thing here, I’m just going to put this last slide up. So GreenGrowthcpas.com. Yeah, absolutely. Actually, we, we, we just had an amazing, um, week last week out in, in MJ Biz Con where we were partnering with a lot of the, uh, point of sale systems and other such a Incruse including Microsoft Rashad’s us too on this space. So Canon tops where an automation, uh, shell stop solution. So really what we’re looking at here is that, um, you know, to be able to figure out the calculations of where you’re shipping to, especially if you’re doing delivery based sales and other such. Um, that’s where we come into play. We have the rates, there’s over 14,000 sales tax jurisdictions in the U S we have the rates for all 14,000. Uh, we connect or have any point of sale system, whatever you’re using. And so you’re able to do an automatic rates call and the time of the transaction. So you have the real time data.
And the second thing we do, we automate your filing structure with the state as well. So whenever the state dictates your filing frequency, when you need to remit to the state, um, this software will remit directly for you and your behalf. So you don’t actually have to go and fill out a, you know, five page form, uh, every quarter. That’ll take an entire day to do. So. Really what our software does is it streamlines the sales tax calculations and then automates filings. Especially if you have a business that’s operating multi-state. We really make life a lot easier. And then for other businesses, um, this is an automated software, so that leaves the, removes a lot of error and a lot of problems. So, um, you know, this is really where our niche is and we’ve been working with a lot of people.
