When marijuana was legalized in Colorado, complications set in due to the fact the drug is still illegal under federal law. Even though pot is legal in Colorado, it’s still a technical federal crime to sell marijuana.
Advocates for the legalization of marijuana are suing to halt state and local government from collecting certain taxes on the sales of the weed. There is a real concern that businesses paying taxes on the marijuana sales would, at the same time, be incriminating themselves at a federal level.
People in the weed industry are apprehensive that by paying taxes, those taxes would be the very evidence they are admitting to committing a federal crime. Once they pay those taxes, their records are open and leave them in a vulnerable position.
On the other hand, the government always wants their share of all monies earned. If the Colorado weed businesses don’t pay their taxes (in this case income and employment taxes), they’re committing criminal tax evasion.
Another Catch-22 is when the federal governments collects (or seizes) money from a ‘criminal enterprise’ (such as marijuana sales) that is considered “money laundering”.
The Justice Department notified the two states (Colorado and Washington) that legalized recreational marijuana they would look the other way for now and would defer its right to challenge the legalization laws at this time. And what does the ‘for now’ mean except add more confusion to the situation? The feds could change their policy next week, or next month and go after the businesses who did pay their federal taxes and criminally charge them with selling an illegal drug.
The lawsuit, filed on behalf of six individuals contends that requiring those involved in Colorado’s weed industry to pay taxes will incriminate them. There are currently 120 licensed recreational dispensaries in Colorado.
Colorado reported that for July, retail marijuana sales tax brought in $2.47 million. Colorado has placed a 15% excise tax, a 10% special sales tax and a 2.9% sales tax on the weed and has collected $20 million in taxes alone so far this year. If these numbers increase, as expected, Colorado could see $200 million this year from the taxes, fees and licenses, bringing a boon to the state’s treasury. The attraction of these tax revenues are not lost on the feds who want their piece of the pie too.
The irony of this dilemma is the federal government wants to collect taxes on an illegal substance under federal law.
Tyler Murray, LL.M., of the Gantenbein Law Firm, is a skilled tax attorney, located in Denver and serving all of Colorado. Along with being a licensed lawyer, Tyler Murray has a Masters in Law in Tax. If you are facing a tax audit, Denver tax audit lawyer Tyler Murray can represent you in your tax audit defense, tax appeal or repayment plan. If you have a marijuana tax issue, received a Notice of Deficiency letter from the I.R.S., would like to file a tax appeal, or other tax issue, or need professional assistance with your Colorado tax planning, contact experienced Denver tax attorney Tyler Murray at (303) 618-2122 for a one-hour consultation where he will discuss your situation and go over all your options with you.
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