Extras on Excise: Oregon Plays Tough with Recreational Marijuana Tax Penalties

The Oregon Department of Revenue (“Department”) has recently adopted new rules on the taxation of recreational marijuana, moving the state one step closer to a fully-functioning retail marijuana program.  Industry progression comes with its costs, however, as the new rules also ramp up tax penalties for noncompliant businesses.

Almost two years ago, on Nov. 4, 2014, Oregon voters passed Measure 91 legalizing recreational marijuana.  Because Oregon has permitted medical marijuana sales by licensed medical marijuana dispensaries since 1998, the state enacted S.B. 460, which ruled that initial sales of recreational marijuana could temporarily be performed by medical marijuana dispensaries while the state established its full retail program.  Initial sales of recreational marijuana by licensed medical marijuana dispensaries began in Oct. 2015, while the Department began accepting applications for marijuana retailer licenses on Jan. 4, 2016.

The temporary provisions permitting only licensed medical marijuana dispensaries to sell recreational marijuana expire on Dec. 31, 2016, meaning that beginning Jan. 1, 2017, all businesses selling recreational marijuana must be licensed as marijuana retailers by the Oregon Liquor Control Commission.

The initial rules also established different tax rates between medical dispensaries and retailers, requiring medical dispensaries to collect a 25 percent tax on recreational marijuana sales, while the permanent tax rate for recreational marijuana sales is 17 percent. Marijuana taxes for both medical dispensaries and retailers must be paid on a monthly basis to the Department, and tax returns are due quarterly.

The Department recently added to these existing requirements, passing a new set of rules that went into effect on July 1, 2016, that apply to all businesses in Oregon selling recreational marijuana.

One important addition, Or. Admin. R. 150-475B.715, establishes the Department’s ability to hold owners or employees of a business selling recreational marijuana personally liable if the business has not paid fully paid its marijuana taxes.  The rule states that an owner or employee may face personal liability if he/she should have been aware that marijuana taxes were not paid and has:

  • the power or authority to see that marijuana taxes are paid when due;

  • authority to prefer one creditor over another;

  • authority to hire or dismiss employees;

  • authority to sign or co-sign checks;

  • authority to compute and sign marijuana tax reports;

  • authority to make fiscal decisions for the business; or

  • authority to incur debt on behalf of the business.

Additionally, while the Department had already established a 20 percent penalty for unpaid marijuana taxes—subject to an additional 25 percent penalty if the business received notices from the Department—the Department recently added Or. Admin. R. 150-475B.755, also effective July 1, 2016, which states that if a business selling recreational marijuana does not file required tax returns for three or more consecutive years, the Department may impose an additional penalty of 100 percent of the taxpayer’s liability for each year a required return was not filed.

Given the potential for large tax penalties—and the added potential for personal liability on unpaid taxes—it is particularly important for businesses selling recreational marijuana in Oregon to stay well-informed on marijuana tax requirements and due dates.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Is Oregon’s gradual transition of recreational marijuana sales from medical marijuana dispensaries to licensed retailers a good use of preexisting infrastructure, or is it more of a hassle than it is worth?

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