If you follow along, you already know that the cannabis tax situation in legal states, is extreme. Companies are required to pay very high amounts, even as they compete with the black market; and many are financially incapable of doing so. This doesn’t always seem to matter to governments, which want their money, and don’t want to think about if an operator can survive or not. The newest example, is Santa Barbara County in California; which just instituted what it calls a ‘death penalty’ tax structure. According to this, companies must quickly pay up, or otherwise face license removal.
*This article contains the opinion of the writer on issues related to cannabis taxation, and specifically Santa Barbara and its recent addition of a death penalty tax provision.
Latest Santa Barbara death penalty tax laws
As per High Times, the new cannabis death penalty law in Santa Barbara was instituted on June 27th, 2023, by the Santa Barbara County Board of Supervisors. The approved measure is related to harsher penalties for companies not paying their taxes on time. Starting this August, the county of Santa Barbara can go after businesses that don’t (or haven’t yet) paid, and who haven’t filed paperwork within the 30-day grace period. Such operators are eligible to lose their licenses.
The new unanimously voted-in provision, is meant to strengthen and streamline the tax collection system with added penalties; to combat the growing number of operators who aren’t complying. Said Deputy County Executive Officer Brittany Odermann to the Board of Supervisors at the meeting, “It’s that severe. You are late. … You cannot renew.” This exemplifies the whole idea of ‘death penalty’ here. If a company doesn’t pay, it gets the death penalty of the business world.
Reportedly, in a previous meeting on June 6th, the county reported that 12 licensed operators had not paid their taxes by the April 30th deadline. Three of them did file, but did so late, between April 30th -June 6th. These quarterly tax payments are due four times a year. On the last days of January, April, July, and October.
The system does come with an automatic 30-day grace period. Let’s say a business is meant to pay by June 30th, well they automatically have until July 29th. The latter date is considered a delinquency date, but is still legally viable. The new parameters don’t do anything to change this grace period. The ‘death penalty’ part goes into effect after the 30-day grace period.
Does everyone in Santa Barbara agree with the death penalty for taxes?
A recent report by the cannabis consulting company Whitney Economics makes clear the tax situation is pretty bad for all cannabis operators; partly because of federal taxes levied in the form of no tax deductions for basic expenses. In their report they stipulate that only 24% of businesses reported turning a profit last year. Which brings up the question of how such companies are supposed to pay high taxes, when they’re on the edge of general survival.
Having said that, not everyone in Santa Barbara County thinks the new death penalty tax provision, is a great idea. Steve Lavagnino, the 5th District Supervisor, disagreed by saying, “This is not the way that we collect taxes in the county. I think we’ve gone from a kind of slap on the wrist to a death penalty. That would be like if you’re one day late on your TOT [transient occupancy tax], you have to shut your hotel down, or if you’re one day late on your property taxes, you gotta move out of your house.”
He makes a good point. How would this look if the same setup was applied to these other things. It implies the immediate loss of assets, companies, and even jobs; if a company/individual is having a hard time making payments. Lavagnino explained that when supervisors asked for more help, and the ability for harsher penalties; they didn’t do so with the intention of forcing businesses out. He said, “Our intention is to get somebody to pay the tax. I would hope that we could come up with something that is the intent of what we’re trying to do.”
1st District Supervisor Das Williams, generally agreed, and brought up some other points about allowing alternative methods. “This is a standard that, like, nobody else lives by. Is there any other option? … Can people essentially prepay their cannabis taxes to be out of this quarterly jeopardy? … If our goal is remedy and better collection, then why wouldn’t we allow people to pay their taxes ahead of time?”
The tax situation – realistically
This is not the first time Santa Barbara County has implemented policy that seemed to not serve the interest of the people. In fact, in 2020, a Santa Barbara Grand Jury (an oversight body for county agencies) was critical of the county’s cannabis regulatory laws. It said that board members allowed cannabis operators to essentially dictate the policy, with no thought to the end user. The oversight body got many requests about investigating the board on this point.
California, in general, has had a difficult time with all parts of its weed industry. From the get-go and to now, the strict regulation requirements put on operators, has been stifling at best. And this coupled with high taxes, and huge problems of overproduction; means operators are barely able to survive, if at all. Last year, the state finally restructured its tax setup, in hopes of alleviating pressure. Of course, it didn’t change the most deadly tax – the sin excise tax. And nearly a year after implementing new policies (which did do away with a cultivation tax); not much changed.
The new tax restructuring was clearly not enough. Rather than consider why, and further lower unnecessary taxes, and expensive regulatory requirements; California decided to skirt the realistic issue, and do what government’s love to do when can’t have – or don’t want – another option. They focus on corruption instead, and rooting it out; as if that’s the real issue.
In a March issue of the Los Angeles Times, it says “state officials are launching an audit aimed at curtailing bribery, conflicts of interest and other misdeeds.” So, no, the idea isn’t to institute workable and realistic regulation; but instead to go after operators who may have stepped out of line in an attempt to survive within the confines of an unworkable situation. Not everyone who does something shady, is a black market operator.
When any industry gets difficult, you can expect regular operators to make dicier moves, to survive. It’s a simple and basic concept of life, and the California cannabis industry embodies it. The new direction doesn’t take account of this simple and basic concept. Instead, “State auditors plan to identify six jurisdictions with licensed cannabis businesses and review criteria used to approve the permits, reviewing local governments that have been rocked by corruption allegations and others that appear to have fewer such problems.”
Canada is pulling similar measures
Canada is also getting frustrated with its own tax situation, which similarly involves legal companies unable to pay their excise taxes. I suppose it could be ‘unable’ or ‘unwilling,’ but it seems in this industry, the bigger issue is ‘unable.’ In May, Canada’s Revenue Agency, said it was going to start going after cannabis producers who’ve not paid their excise taxes. I could write 10 articles everyday about the Canadian weed industry tanking out; and this new policy sounds like a death rattle. A last ditch effort by the government to get whatever it can, since it never established a workable, long-term industry.
Along with going after the money, the Canadian government is using similar tactics to Santa Barbara County. It’s threatening ‘garnishment’ – where the government withholds money to pay a debt; liens for property or equipment – wherein the government takes these until all debts are paid; and further legal action for non-payers.
Canada is making these actions based on its excise tax laws. These state; “If a corporation fails to pay any duty or interest as and when required under this Act, the directors of the corporation at the time it was required to pay the duty or interest are jointly and severally or solidarily liable, together with the corporation, to pay the duty or interest and any interest that is payable on the duty or interest under this Act.”
Warnings went out to businesses via the CRA, like this one: “If you do not pay the full amount or respond to this letter within 14 days, we may enforce Cannabis Duty provisions of the Excise Act, 2001 without further notice.” The business that this letter was sent to prefers anonymity, as it does hope to work out its issues with the Canadian government.
As a reminder, the ‘excise tax’ spoken about, is not a regular tax. Excise taxes are taxes paid during the process of product production, from one business to another. The end user won’t see the tax at the register, as its embedded into the product cost. It’s not unusual to have excise taxes, but in the case of cannabis, the term ‘excise tax’ is actually synonymous with ‘sin tax.’
A sin tax is a much larger (sometimes massive), unnecessary tax that’s tacked onto products under the excuse that they can cause danger or societal harm. It’s here where governments tend to collect the most money, and its this tax that needs to be discussed most; especially when we talk about unfair tax laws, or companies unable to pay. Canada doesn’t want that conversation as evidenced by its own cannabis industry recovery considerations bulletin; for which it never established anything (thus far), and which doesn’t mention these sin taxes at all.
People often don’t pay taxes when they can’t. I mean, sometimes people don’t pay taxes because they don’t want to; but often its because they simply can’t. This whole topic is a great example of this idea. Santa Barbara and its new death penalty tax law might help with small amounts; but without realistically looking at the system and its functionality (I have yet to see this done in the cannabis industry); Santa Barbara should not expect anything to change.
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