This installment of Tax and Vice will focus on a California Sales Tax and Cannabis Tax Case heard by the California Office of Tax Appeals. The OTA sided against the Taxpayer and ruled in favor of the CDTFA in Appeal of Sacramental Native American Church. The OTA’s opinion in the SNAC Case was not particularly innovative, but it did highlight the potential issues that California businesses may face when the CDTFA finds their records inadequate.
We will continue to provide our usual disclaimer for this blog series. We do not judge or condemn anyone who uses cannabis products. We do recognize that cannabis use can be problematic for certain people, and urge anyone who feels they might have a problem, to seek professional assistance. It is also important to note that the Federal Law prohibits possession, use or sale of cannabis.
The CDTFA methodology has serious flaws.
The CDTFA, among other things, assumed that every customer who entered the store made a sale. The CDTFA did not allow people to browse or accompany a friend who was making a purchase. The CDTFA didn’t observe customers directly making purchases, nor did they observe how many people left SNAC with SNAC products. The CDTFA counted the number of customers on a busy Friday for SNAC and other businesses. The CDTFA extrapolated an average based on observations made over a four-hour period to cover a two-year period. The OTA appears to acknowledge that the CDTFA’s method is not perfect but still sided with them because the taxpayer’s business records were poor.
A good Point of Sale (POS) System.
You should ensure that your business has a good POS system which records all sales. CDTFA is more likely to honor good POS information and less likely to use creative methods to uncover unreported sales.
Receipts of Nontaxable Sales
Keep receipts for all nontaxable transactions, such as wholesale transactions. Be sure to include all required information on the receipts. Receipts for wholesale transactions, for example, must include information like the CDTFA account numbers of the purchaser.
You Need to Add Up Your Numbers.
The CDTFA is aggressive in its pursuit of unreported sales. It is not necessary to feed this aggression by making obvious errors. The amount of sales reported in a sales tax report should match the information available to the CDTFA, such as 1099-Ks and income tax returns. If your credit card processor has issued a 1099K that reports $200,000 gross receipts in a particular period, then it is not a good idea to report gross receipts below $200,000 for the same period.
This article was written by Alla Tenina. Alla is one of the best tax attorneys in Los Angeles California, and the founder of Tenina Law. She has experience in bankruptcies, real estate planning, and complex tax matters. Click here for more information. The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend or endorse the contents of the third-party sites.