The emergence of the cannabis industry in New York has been rapid and transformative. As the Empire State takes its place as a potential powerhouse in the US cannabis market, businesses must navigate the discord between state legality and federal prohibition. Cody Ravalli, CPA is uniquely positioned to guide you through these challenges.
Based in Brooklyn, Cody serves cannabis growers, sellers, and dispensaries throughout New York, providing them with first-rate tax and accounting services. When you partner with him, you can be confident that your cannabis business will not only remain compliant but flourish in the intricate regulatory and financial landscape. Call today for an appointment.
Federal vs. State Legality and Its Tax Implications
While New York permits recreational cannabis sales and use, the federal government still considers both illegal. This divergence creates a web of tax complications. At the heart of this discrepancy lies a fundamental conflict: the state views cannabis as a legitimate business, granting licenses and setting up regulatory structures, while the federal perspective, rooted in the Controlled Substances Act, lists marijuana as a Schedule I drug, on a par with substances like heroin.
This dual stance doesn’t merely exist in theory; it has practical implications. Federal law essentially treats cannabis companies as illegal entities. While you might be abiding by New York’s state laws, paying state taxes, and contributing to the local economy, the IRS observes your operations with a wary eye for discrepancies.
Federal banking regulations make it challenging for cannabis businesses to access traditional banking services. That often forces operations to be predominantly cash-based, leading to increased safety risks and accounting complexities. Additionally, while you might be eligible for state-level incentives or grants aimed at boosting local businesses, federal programs might be out of reach due to the illicit status of cannabis on that level.
This dual reality, a mixture of opportunity and obstruction, presents tax challenges that demand expert understanding and navigation. Having an ally like Cody Ravalli, CPA, who grasps both the state’s optimism and the federal government’s reservations, becomes indispensable for success.
How Does IRC Section 280E Impact The Cannabis Industry?
Section 280E of the Internal Revenue Code was crafted as a means to penalize illicit drug traffickers. Its primary intent was clear: deprive drug dealers of standard tax benefits. However, as states began legalizing cannabis for medicinal and recreational use, this once-targeted provision has unintentionally entangled legal cannabis enterprises in its snare.
Section 280E states that no deductions or credits shall be allowed for any amount incurred by businesses traffic controlled substances. This might seem straightforward, but it has profound implications for the legal cannabis industry. While cannabis companies can deduct the Cost of Goods Sold (COGS), they are prohibited from deducting other common business expenses like rent, utilities, and salaries. This restriction can lead to effective federal tax rates that are significantly higher than those of other industries, often ranging from 65 to 75 percent. Such rates can be crippling for businesses, especially those in their infancy or operating on thin margins.
However, some cannabis businesses have found innovative, yet legal, workarounds to minimize the impact of Section 280E and maximize deductible expenses by restructuring operations and segregating distinct business activities. For instance, a dispensary might segment its business into separate entities: one for cannabis sales and another for non-cannabis merchandise or consultation services.
Such nuances in operation, while not immune to scrutiny, underscore the necessity of adept financial guidance in this unique industry landscape. With a deep understanding of the tax code and its implications, Cody Ravalli helps cannabis entrepreneurs maneuver through Section 280E’s challenges.
Sales Tax and Local Implications
New York’s state and local sales taxes for the cannabis industry are not just a simple percentage applied to sales. They’re a nuanced patchwork of rates and regulations that vary depending on local jurisdictions and the specific nature of the cannabis product. As municipalities have the option to opt-out or impose additional taxes, this landscape becomes even more intricate.
Cody Ravalli will leverage his expertise to guide you through these challenges. More than crunching numbers, he understands the intricacies behind them. For any cannabis business, partnering with Cody gives you a strategic advantage. His insights ensure that your business is not only compliant but can also optimize its tax positions. As the industry continues to evolve, having an experienced CPA by your side will help you steer clear of tax controversies.
Audit Preparedness
Cannabis businesses, given their unique legal status, are more susceptible to audits. Maintaining impeccable financial records is imperative. From preparing documents to defending claims, having a CPA by your side equips you with a fortified defense against potential audits.
Benefits of Partnering with a CPA
The cannabis financial landscape is not just about numbers; it’s a dynamic maze of ever-evolving regulations, compliances, and opportunities. When your cannabis business partners with Cody Ravalli, CPA you work with a skilled professional who understands the cannabis industry.
Cody will chart a tailored financial path, considering your business’s unique challenges and goals. He will guide you thorough strategic tax planning, helping you take advantage of the available benefits and comply with laws and regulations. Cody can also assist in long-term financial planning, ensuring sustainability and profitability for the future.
In an industry where regulations can shift rapidly, you can trust Cody Ravalli to continuously monitor changes, ensuring that your business stays a step ahead. Above all, Cody understands that the cannabis industry is still in its infancy. As it matures, he will be there to help your cannabis businesses adapt, grow, and thrive.
A Homegrown CPA for Cannabis Businesses in New York
Navigating New York’s cannabis industry is both promising and challenging. Don’t wade through the complexities alone. Contact Cody Ravalli today.