Why Do Marijuana Businesses Pay Taxes?


All businesses are required to process their Colorado tax ID application because they are mandated to pay for their income taxes regardless if the source is legal or not. Paying the right amount of tax and on time will help businesses stay out of the radar of the IRS as they are keen on conducting audits for any suspicious business activity involving cash flow. For businesses that are in the marijuana market, they are not only at risk of paying a fee when caught by the IRS but they will also be facing criminal charges including business practices that are not legal and money laundering.

To stay in the cannabis market, business owners must realize the importance of staying within the line and following rules. If the business is determined to have enough nexus, they might be required to pay taxes regardless if they are within or outside the state. This happens when pot businesses try to partner with vendors that are not within the states. This rule is strictly followed in states such as Illinois and Oregon.

If the business is to be audited by the IRS for other reasons, it would be helpful if they are to know that the business has a record with their agency and is paying the right taxes and within the due date too. An audit is more likely to happen if the business is found out to be underreporting their income or if they are not processing the filing of their income tax.

Underreporting can be easily checked because the IRS also has a copy of the tax returns from the partner company. They also have other methods of determining such as using a T-account analysis where data is compared to similar companies in the market.

Aside from the income tax, excise taxes are also required for businesses selling marijuana products. Excise tax is only evident in a few states like Oregon and Washington. As with all other states, businesses are encourage to start their Colorado tax ID applications in order to do businesses within the state they want.

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