U.S. Sen. Michael Bennet and Rep. Ed Perlmutter on Friday asked the Internal Revenue Service to stop assessing a 10 percent penalty on legal marijuana businesses that are forced to pay federal withholding taxes in cash for lack of banking services.
In a joint letter to IRS Commissioner John Koskinen, Bennet and Perlmutter, both Democrats, noted how pot shops in Colorado often have little choice but to pay employee withholding taxes in cash since banks won’t take their business.
IRS rules require the taxes to be paid via the Electronic Federal Tax Payment System, and businesses that don’t comply face a 10 percent penalty on the tax.
News of the practice came to light when The Denver Post last week reported about a Denver dispensary’s legal efforts to challenge the IRS.
“Given these current challenges, we request the IRS waive this 10-percent penalty for marijuana businesses at least on a temporary basis until there is greater clarity whether (they) have sufficient access to the banking system to meet their obligations” to pay via EFTPS, the two wrote.
Another problem is that businesses willing to pay the IRS assessment — often amounting to tens of thousands of dollars — can’t get an installment plan as other businesses do because they remain out of compliance and subject to additional penalties, according to the attorney who is challenging the fines in U.S. Tax Court.
As a result, a legal marijuana shop’s operating license is in jeopardy — despite paying their taxes on time — because state law requires them to be in compliance with all federal and state tax laws.
“It’s an issue that continues to snowball,” said Rachel Gillette of Louisville, who is representing Allgreens LLC of Denver. The medical marijuana dispensary is challenging more than $20,000 in penalties assessed from December 2012 through December 2013 for paying the taxes in cash.
The company had a bank account at one time and paid the taxes electronically, but the account was closed and the business has been unable to establish a new one. Banks remain leery since marijuana is illegal under federal law.
The government in February offered guidance for how banks could work with marijuana businesses that are legal under state law — 23 states have legalized medical marijuana while only Colorado and Washington have approved its sale for recreational use — but it was too vague for banks.
“It is still not clear … whether the guidance provides the necessary certainty to Colorado-based financial institutions interested in serving marijuana businesses,” Perlmutter and Bennet wrote.
The IRS did not immediately offer any comment about the letter.
“I hope the IRS waives this penalty for marijuana businesses as we work on a broader solution to reduce public safety risks and provide greater clarity for these businesses,” Perlmutter told The Post.
David Migoya: 303-954-1506, firstname.lastname@example.org or twitter.com/davidmigoya