Keeping Up with Tax Compliance for Cannabusinesses by Simon Gumma, CPA, CGMA

1. Keeping Up With
Tax Compliance
For
Cannabusinesses
Presented By
Simon Gumma, CPA, CGMA

2. -PrincipalandFounderofGUMMACOPC
-CertifiedPublicAccountantandChartered
GlobalManagementAccountant
-Bachelor’sDegreeinAccountingInformation
Management fromDavenportUniversity
-MemberoftheAmericanInstituteofCertified
PublicAccountantsandtheMichigan
AssociationofCertifiedPublicAccountants
Simon Gumma, CPA, CGMA

3. 1. Payroll Compliance
2. Income and Sales
Tax Compliance
3.Apportionment
4. 280E
Topics to Cover

4. Payroll Compliance

5. Employee vs. Independent Contractor
(IRS Publication 15)
Independent Contractor
 Doctors, lawyers, accountants, other professionals who are in an
independent trade or profession are generally considered independent
contractors
 Subject to self-employment tax
 Completes a W-9 form and receives a 1099

6. Employee vs. Independent Contractor
(IRS Publication 15)
Employee
 You are not an independent contractor if you perform services that can be controlled
by an employer (what will be done, how, when, where it will be done)
 Employer has the legal right to control the details of services performed
 Completes W-4 forms and receives a W-2

7. Three Categories
Provide Evidence
of the Degree of
Control and
Independence
BEHAVIORAL
 Does the company control or have the right to control
what the worker does and how the job is done?
FINANCIAL
 Are the business aspects of the workers job
controlled by the payer (i.e. how the worker is paid,
are expenses reimbursed, who provides
tools/supplies etc.)?
Employee vs. Independent Contractor
(IRS Publication 15)
TYPE OF RELATIONSHIP
 Are there written contracts or employee type benefits
(i.e. pension, insurance, PTO, etc.) and will the
relationship continue?

8. Not Sure?
File Form SS-8 Determination of Worker Status
 May take up to 6 months to get a determination

9. Payroll Taxes –
Federal, State, and
Local

10. Payroll Taxes – Federal, State, and Local
Federal Payroll Taxes
 Paid electronically through EFTPS monthly or bi-weekly
 Can pay in cash at the IRS office in Detroit (must make appointment)
 Must file quarterly Form 941 tax return
 Must file annual Form 940 tax return
US Internal Revenue Service
in Detroit
 500 Woodward Ave
 Hours: M-F, 8 AM – 4:30 PM

11. Payroll Taxes – Federal, State, and Local
State Payroll Taxes
 Paid electronically through MTO (due on or before the 20th of each month)
 Can pay in cash at a local SOM Treasury office (recommend to call for an
appointment)
 Must file a monthly SUW tax return
 Must file an annual SUW tax return
 Must file and pay quarterly unemployment (SUTA) tax return through MIWAM

12. Payroll Taxes – Federal, State, and Local
Local Payroll Taxes
 24 Michigan cities levy income tax

13. Payroll Taxes – Federal, State, and Local
1% on residents and .5% on non-residents
 Albion
 Battle Creek
 Benton Harbor
 Big Rapids
 East Lansing
 Flint
 Grayling
 Hamtramck
 Hudson
 Ionia
 Jackson
 Lansing
 Lapeer
 Muskegon
 Muskegon Heights
 Pontiac
 Port Huron
 Portland
 Springfield
 Walker

14. Local Payroll
Taxes
DETROIT
 2.4% residents; 1.2% nonresidents
GRAND RAPIDS
 1.5% residents; .75% nonresidents
Payroll Taxes – Federal, State, and Local
HIGHLAND PARK
 2% residents; 1% nonresidents
SAGINAW
 1.5% residents; .75% nonresidents

15. Payroll Taxes – Federal, State, and Local
Local Payroll Taxes
 Must file and pay monthly payroll tax return by either the 15th or EOM
 Must file an annual reconciliation report by Jan 31 or Feb 28

16. Income and Sales
Tax Compliance

17. Income and Sales Tax Compliance
Sales Tax Compliance
 6% sales tax must be collected and paid monthly
 Paid electronically through MTO (due on or before the 20th of each month)
 Can pay in cash at a local SOM Treasury office (recommend to call for an
appointment)
 Must file a monthly SUW tax return
 Must file an annual SUW tax return
 Adult Use imposes a 10% “marijuana” excise tax to be paid quarterly (30 days after
quarter end)

18. Income and Sales Tax Compliance
Income Tax Compliance
C Corp
Pays income tax at the entity level
Corporate Tax Rates: 21% Federal, 6% State, 1-2% Local
Quarterly estimated tax payments required based on tax liability
State and local income tax do not follow 280E

19. Income and Sales Tax Compliance
Income Tax Compliance
LLC/S Corp
Income tax flows through to the individual owners via K-1
Quarterly estimated tax payments required based on tax liability

20. Income and Sales Tax Compliance
Income Tax Compliance
Sole Proprietor
Income and expenses reported directly on Schedule C of 1040
Quarterly estimated tax payments required based on tax liability

21. Apportionment &
Considerations When
Operating in More
than One City

22. Apportionment &Considerations When Operating inMorethan One
City
Apportionment is the determination of the proportional sales
attributable to each municipality over total sales
Apportionment of income, expenses, assets and liabilities
Tax rates vary between cities as noted earlier

23. Apportionment &Considerations When Operating inMorethan One
City
May be required to offer health benefits under the Affordable Care Act
50 or more FTE employees
1095 Forms are issued to employees
Penalties can be substantial for non-compliance

24. 280E
Considerations

25. What is the Cost of Goods
Sold (COGS)?
280E Considerations

26. 280E Considerations: What is the Cost of Goods Sold
(COGS)?
Cost of goods sold is the accumulated total of all costs used to create a
product or service, which has been sold
These costs fall into the general sub-categories of direct labor, materials, and
overhead.
Cost of Goods Sold is also referred to as Cost of Sales or Cost of Services.
The cost of services is considered to be the labor, payroll taxes, supplies, materials,
equipment, shipping and other direct costs related to the service

27. Latest Court
Case –
Harborside
Health Center
vs. IRS
26 U.S. Code § 162(a) allows a deduction for all the
ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or
business.
280E prohibits businesses whose activities “consist
of” trafficking in controlled substances that are
prohibited by federal or state law to take deductions
under § 162(a)
280E Considerations

28. 280E Considerations: What is the Cost of Goods Sold
(COGS)?
Separate legal business from marijuana business
 Provisioning Centers are impacted the greatest by 280E
 Testing Facilities, Growers, Processors and Transporters are less affected by 280E

29. State of Michigan
Annual Financial
Review
Requirement

30. State of MichiganAnnual Financial Review Requirement
 Review or an Agree Upon Procedure of financial statements and other financial
documents due 30 days after the fiscal year end of September 30.
 No official guidance from the State yet
 State is looking to ensure financial compliance from owners and operators
 No back door deals
 No payments to non-owners
 No off-record income and payments

31. Questions?
simon@cannabislegalgroup.com
(248) 291-9194