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Are Company Managers and Officers on the Hook for Unpaid Cannabis Taxes in California?

California has become a hub for the legal cannabis industry since the legalization of recreational marijuana in 2016. While the industry has grown exponentially, so has the responsibility for paying cannabis taxes. For business owners, staying compliant with the California Department of Tax and Fee Administration (CDTFA) regulations is crucial. But what happens if a cannabis business fails to pay their taxes? Can the CDTFA hold company managers and officers personally liable for non-payment of cannabis taxes?

In this blog post, we’ll take a closer look at whether the CDTFA pursues company managers and/or officers for unpaid cannabis taxes and what you need to know to stay compliant.

First and foremost, it’s essential to understand the legal framework surrounding cannabis taxes in California. The CDTFA administers and collects taxes for the state, including sales and use taxes, as well as excise and cultivation taxes specific to the cannabis industry. The agency is responsible for ensuring compliance with tax laws and has the authority to take various actions to collect unpaid taxes.

Now, let’s address the question at hand: can the CDTFA go after company managers and officers for non-payment of cannabis taxes? The answer is not a simple yes or no. In some cases, the CDTFA may indeed hold responsible parties personally liable for unpaid taxes, but this is typically a last resort and subject to certain conditions.

Under the California Revenue and Taxation Code (RTC) Section 6829, the CDTFA can pursue responsible persons for unpaid sales and use taxes if the following conditions are met:

The corporation or limited liability company (LLC) has terminated, dissolved, or abandoned its business operations.

The taxes were collected but not remitted to the CDTFA.

The responsible person had control or supervision of the funds or had a duty to pay the taxes.

The “responsible person” is typically defined as an officer, member, manager, or other person who is in charge of the business’s financial affairs. It’s important to note that the CDTFA must establish that the responsible person had both the authority and the opportunity to pay the taxes but chose not to do so.

While RTC Section 6829 does not specifically mention cannabis taxes, sales and use taxes are applicable to the cannabis industry, and unpaid cannabis taxes could potentially trigger personal liability under this statute. However, it is crucial to emphasize that personal liability only arises in specific circumstances, and the CDTFA usually exhausts other collection methods before pursuing responsible persons.

To avoid the risk of personal liability for unpaid cannabis taxes, it is essential for business owners, managers, and officers to ensure their companies remain compliant with CDTFA requirements. This includes accurate record-keeping, timely tax filings, and prompt payment of all taxes due. Additionally, understanding the specific tax obligations for cannabis businesses – such as excise and cultivation taxes – is crucial.

In conclusion, while the CDTFA may, in certain situations, hold company managers and officers personally liable for non-payment of cannabis taxes, this typically occurs as a last resort and only when specific conditions are met. To mitigate the risk of personal liability, it is vital to maintain proper record-keeping, stay up-to-date on tax filings, and promptly pay all taxes owed. By staying vigilant and informed, cannabis business operators can focus on growing their businesses while staying compliant with California’s tax laws.