Running a dispensary in New York is an exciting venture, but like any business, it comes with responsibilities—one of the most important being tax compliance. Taxes in the cannabis industry can be complex, and understanding how to manage them is essential to keeping your business on track and avoiding costly mistakes.
In this guide, I’ll walk you through the process of registering with New York’s Department of Taxation and Finance, explain how to collect and remit taxes, and share best practices for accurate reporting. By the end, you’ll feel confident about handling your tax obligations and ensuring your dispensary operates smoothly.
Why Tax Compliance Is Critical
1. Legal Obligations
New York’s tax laws for cannabis businesses are strict, and compliance is non-negotiable. Failing to comply can result in hefty fines, penalties, or even jeopardize your dispensary’s license.
2. Financial Stability
Proper tax management ensures your dispensary remains financially healthy. By collecting and remitting taxes accurately, you avoid unexpected liabilities that could disrupt your cash flow.
3. Building Trust
Tax compliance demonstrates your commitment to operating a responsible and transparent business. It builds trust with regulators, customers, and your community.
Step 1: Registering with the Department of Taxation and Finance
Before you can begin collecting taxes, you must register your dispensary with the New York State Department of Taxation and Finance (DTF). Here’s how to do it:
1. Obtain an Employer Identification Number (EIN)
- Your EIN is like a Social Security number for your business. You’ll need it to register for taxes and open business bank accounts.
- You can apply for an EIN online through the IRS website for free.
2. Register for a Sales Tax Certificate
- Visit the DTF’s online services portal to register for a sales tax certificate.
- As a cannabis dispensary, you’ll also need to register for the Adult-Use Cannabis Certificate of Registration, which is required to collect and remit cannabis-specific taxes.
Pro Tip: Have your business information ready, including your EIN, business address, and contact details.
3. Confirm Your Registration
- Once approved, you’ll receive confirmation from the DTF, including instructions for collecting and remitting taxes. Keep this documentation for your records.
Step 2: Collecting Taxes for Adult-Use Cannabis Sales
New York imposes specific taxes on cannabis sales, and it’s your responsibility to collect them at the point of sale. Here’s what you need to know:
1. Cannabis-Specific Excise Taxes
Cannabis dispensaries must collect two types of excise taxes:
- THC-Based Tax:
- This tax is calculated based on the milligrams (mg) of THC in the product sold.
- Rates vary by product type, such as flower, edibles, or concentrates.
- Retail Excise Tax:
- A 13% excise tax is added to the retail price of cannabis products. This tax is shared between the state (9%) and the local municipality (4%).
Example Calculation:
- Product Price: $100
- THC-Based Tax: $5 (hypothetical example based on THC content)
- Retail Excise Tax: $13 (13% of $100)
- Total Price: $118
2. Sales Tax
In addition to cannabis-specific taxes, your dispensary may also be required to collect standard state and local sales tax on non-cannabis items, such as branded merchandise or accessories.
Step 3: Remitting Taxes
Once you’ve collected taxes, the next step is remitting them to the appropriate agencies. This process requires accuracy and timeliness.
1. Filing Deadlines
- Excise and sales taxes are typically due monthly or quarterly, depending on your registration type.
- Check your tax account with the DTF to confirm your filing frequency and deadlines.
2. Submit Payments
- Log in to the DTF online portal to file your returns and submit payments.
- You’ll need to report the total sales, THC-based taxes, excise taxes, and any applicable sales taxes.
Pro Tip: Set reminders for filing deadlines to avoid late fees or penalties.
Step 4: Reporting Requirements
New York requires detailed reporting to ensure transparency in cannabis sales and tax collection.
1. Record Keeping
- Maintain accurate records of all sales, including product types, THC content, and taxes collected.
- Use your point-of-sale (POS) system to generate detailed transaction reports.
2. Reconciliation
- Reconcile your sales records with the taxes reported to ensure accuracy.
- Conduct monthly audits to identify and correct any discrepancies.
3. Submit Reports
- Submit detailed tax reports to the DTF as part of your filing process.
- Include supporting documentation, such as receipts and transaction logs, if required.
Best Practices for Tax Compliance
1. Invest in a Cannabis-Specific POS System
Choose a POS system designed for the cannabis industry, like Flowhub or BioTrack, that can:
- Automatically calculate THC-based taxes.
- Generate compliance-ready tax reports.
- Integrate with New York’s seed-to-sale tracking system.
2. Work with a Cannabis Tax Professional
Navigating cannabis taxes can be complex. Hiring an accountant or tax consultant with experience in the cannabis industry can help you:
- Maximize deductions within the constraints of IRS Code 280E.
- Avoid errors that could trigger audits or penalties.
- Stay updated on changing tax laws and rates.
3. Train Your Team
Ensure your staff understands the basics of cannabis tax compliance, including:
- How to calculate taxes at the point of sale.
- The importance of accurate reporting and record-keeping.
- How to handle customer questions about pricing and taxes.
4. Plan for 280E Limitations
IRS Code 280E prohibits cannabis businesses from deducting ordinary business expenses. Plan your budget carefully to account for higher tax liabilities.
Common Tax Compliance Mistakes to Avoid
- Failing to Collect the Correct Taxes
- Double-check your POS system settings to ensure all taxes are applied accurately.
- Missing Filing Deadlines
- Late filings can result in fines and damage your reputation with regulators.
- Inadequate Record-Keeping
- Incomplete records make it difficult to verify tax payments and may trigger audits.
- Misunderstanding THC-Based Taxes
- Ensure you understand how to calculate taxes based on THC content for each product type.
Conclusion
Tax compliance may feel daunting, but with the right tools and knowledge, you can manage your cannabis dispensary’s tax obligations with ease. By registering correctly, collecting taxes accurately, and maintaining thorough records, you’ll protect your business from penalties and build a reputation as a trustworthy operator.
