In an industry with as many challenges as cannabis, keeping your processes as efficient and accurate as possible is a must. One area of operations that is often overlooked but could cause major problems in the long run is the accurate and timely collection and payment of sales tax obligations, which can vary widely among states and products.
With many retail cannabis companies selling multiple types of products under one roof, it is likely that your inventory represents a variety of sales tax rates. This can leave your business at risk for undercharging or overcharging if state and municipal sales tax laws are not adhered to meticulously.
Fortunately, today’s POS systems are highly sophisticated and capable of charging different rates. Unlike e-commerce merchants, however, brick-and-mortar businesses are responsible for manually coding their inventory to the correct sales tax rates within the POS system.
There are several best practices you should consider to mitigate the risk of incorrect sales tax calculations and make this a more seamless element of your operations, including:
- Develop a formal inventory onboarding process that all team members must follow when entering SKU numbers and assigning sales tax codes.
- Review your SKU numbers once a quarter and establish a policy to govern this quarterly review.
- If resources are tight, consider a third-party company to manage your POS system at a minimal cost.
- Stay educated on the regulations in your state and municipality. Some states and cities have complicated multi-tiered systems for collecting different rates of sales tax from MWBE, veteran-owned, adult use and medical retailers.
- Understand and comply with the reporting requirements of each state and municipality, which are stringently enforced to prevent fraud in this cash-heavy industry.
- Be aware of additional taxes imposed on cannabis retailers. Some states impose fixed taxes on middle-market companies, such as distributors, cultivators and retailers, who in turn can pass down the cost to consumers.
Grassi’s Cannabis Advisors are highly skilled in tax compliance, regulatory reporting and operational efficiencies in the cannabis industry. Please contact your Grassi advisor or Zachary Gordon, Senior Accounting Services Manager, or Dorothy McAuliffe, Senior Tax Manager, for assistance with implementing any of the above recommendations.