Tidbits from TTB’s Annual Report

I’m not sure if I’ve actually read the Alcohol and Tobacco Tax and Trade Bureau’s (TTB) Annual Report cover to cover before. It’s actually quite good and informative. Here’s a few things I learned from reading the 2016 report.

  • Screen Shot 2017-03-15 at 9.23.37 AMTTB’s vision is to “be the world’s authority in the regulation, taxation, and science of alcohol and tobacco products and a model for next generation government”
  • TTB has three strategic goals: Collect the Revenue, Protect the Public, and Management and Organizational Excellence
  • There are 82,391 total permittees, 97% of which are from the alcohol industry, however only a subset (12,941 in FY 2016) pay taxes in a given fiscal year.
  • $22.1 Billion in revenue was collected in FY 2016, on a total budget of only $106 Million
  • 161,477 Certificate of Label Approval Applications (COLAs) were received in FY 2016. That is a massive number!
  • Tobacco tax collections are trending downward (12% since 2012), but still amounted to $13.3 billion in FY 2016, representing 60% of all TTB tax collections
  • Tax collections in Virginia and North Carolina exceed $5 Billion each. California and Kentucky are north of $1 Billion each. In Mississippi, North Dakota, and Wyoming, tax collections are each less than $1 Million.
  • In FY 2016, TTB processed approximately 8,000 applications for a federal permit
  • California boasts 7,254 alcohol permit holders, far exceeding the next state of Washington (1,911)
  • Wine products represented roughly 72% of all COLA applications in FY 2016, followed by malt beverage (18%) and distilled spirits (9%)
  • Distilled spirits represented 48% of the 11,452 formula applications, followed by wine (32%) and malt beverages (20%)

 

How to report your Colorado consumer use tax from Amazon

Below I’ll walk you through a step by step guide for how to figure out (hack) how much use tax you (as an individual) should be paying to Colorado. But first, here’s just a little background, without getting too far into the weeds, on why you have to do this in the first place!

Even though I’ve been living in Colorado for almost twenty years, and worked the last 12 in the compliance and tax industries, it didn’t become clear to me until a few years ago that I should be paying “consumer use tax” on purchases I made online. In the Direct Marketing Association v Brohl decision from the 10th Circuit, the introduction provides a pretty good explanation for this, and also acknowledges that very few people actually pay this tax.

When a neighborhood bookstore in Denver sells a book, it must collect sales tax from the buyer and remit that payment to the Colorado Department of Revenue (“Department”). When Barnes & Noble sells a book over the Internet to a Colorado buyer, it must collect sales tax from the buyer and remit. But when Amazon sells a book over the Internet to a Colorado buyer, it has no obligation to collect sales tax. This situation is largely the product of the Supreme Court’s decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), which held that, under the dormant Commerce Clause doctrine, a state may not require a retailer having no physical presence in that state—e.g., Amazon as opposed to Barnes & Noble—to collect and remit sales tax on the sales it makes there.

Faced with Quill, many states, including Colorado, rely on purchasers themselves to calculate and pay a use tax on their purchases from out-of-state retailers that do not collect sales tax. But few in Colorado or elsewhere pay the use tax despite their legal obligation to do so.

To get around the fact that they can’t compel out of state businesses to collect and remit sales tax on sales that originated out-of-state as well as that very few Colorado residents actually collect tax, Colorado passed a law, which has recently been upheld as constitutional, that requires sellers to report their sales data to the Colorado Department of Revenue (DOR). In effect, this law forces sellers that choose not to register with the DOR to rat out their own customers, making it much easier for DOR to then go after Colorado residents for not paying use tax. Because of this, I started paying consumer use tax on my purchases for the past few years.

Almost all of my purchases from out of state sellers are on Amazon, so I’m going to focus on Amazon in this guide, but the same principles can be used for any other sellers. This process can obviously also be used for other states that require consumer use tax. Note, this is not a perfect process, and circumstances vary, but it should give you a general sense of how to make the calculations.

Step by Step Guide for Paying Consumer Use Tax in Colorado for Amazon Purchases

  1. Go to Your Account -> Your Orders -> Order History ReportsScreen Shot 2017-03-10 at 10.51.05 AM
  2. Set “Report Type” to “Orders and shipments”, select the “Last Year” quick set option to filter on just your shipments from last tax year. Type in a name for your report (like “2016 Tax  Report”) so you can easily access it in your account if you ever need to come back to it. Click “Request Report” to run the report.
  3. Amazon will then provide a .csv file that you can them open with Google Sheets (which I use) or Microsoft Excel.
  4. Filter on Column L (Shipping Address State) to show only the shipments that were shipped to you in Colorado. You don’t want to include gifts or other shipments you sent to other states.
  5. Filter on Column T (Tax Charged) to show only purchases where no tax was charged. Depending on the seller, sales tax may or may not be collected on each transaction. You want to pay only on the transactions where sales tax was not collected.
  6. Sum the values in Column U (Total Charged) to determine the value of transactions for which you need to pay consumers use tax.Screen Shot 2017-03-10 at 11.34.26 AM
  7. Complete or use as a guide form DR 0104US, which will ask you to multiply by the state consumer use tax rate of 2.9% as well as the rates from any special districts. Note: to determine if you live in a special district, use this handy online lookup tool.
  8. Report the number from box 7 of the DR 0104US on Line 14 of your Colorado Individual Income Tax form 104.

Whew! Not exactly easy. If you have a better way, I’d love to hear it!

H.R.1227 – Ending Federal Marijuana Prohibition Act of 2017 Introduced

Determined to eliminate the uncertainty created by Jeff Sessions and the White House, Rep. Thomas Garrett introduced H.R. 1227 (the Ending Federal Marijuana Prohibition Act of 2017) in the House of Representatives last week. The bill very simply removes (not reschedules) “marihuana” and “tetrahydrocannabinols” from the list of Schedule 1 controlled substances in the Controlled Substances Act (CSA). It also adds some language to the CSA that gives states the ability to prohibit the sale of marijuana into and out of their respective states.

Our Take: I doubt this will move any time soon and the chances are low of ending prohibition in this Congress. Only 3 Members have signed on as co-sponsors of the bill so far, although its still pretty early. The Congressional Cannabis Caucus hasn’t officially weighed in, but Jared Polis is signed on as one of the co-sponsors.

If the Department of Justice begins to take significant action against businesses in states that have existing cannabis laws, the list of co-sponsors will grow along with the momentum for actually ending prohibition. However, it’s highly unlike that we’ll see major movement on this bill in the next 12 months .

California ABC issues $400,000 settlement against beer wholesalers

The California ABC issued a press release stating that they had issued on of the biggest penalties in the history of the ABC. Primarily levied against Anheuser-Busch, LLC’s distributorships, the settlement is for prohibited marketing practices. The distributors are accused of providing “things of value” to retailers, thus creating an unfair marketplace. The year-long investigation in this case begun back in 2015.

Our Take: Some of the infractions seem minor here, but many ABCs around the country take “Tied House” laws very seriously and won’t stand for any things of value to be provided. It’s a bit surprising to see the California ABC issue such a major settlement, akin to what has become standard fines from the New York SLA. California is clearly sending a message to the rest of the industry here.

Minnesota wants to license wineries for direct wine shipments

Minnesota is currently one of three states that allows wineries to make direct shipments from off-site sales without a permit, along with Alaska and Florida. That would change under Minnesota HF 791 (and companion bill MN SF 1418), which is currently being reviewed by the Committee on Commerce and Regulatory Reform.

The new bill would create a standard permit system for wineries begging on July 1, 2017 and would also introduce several new provisions that wineries must comply with, including:

  1. 2 case per calendar year volume limit
  2. Wineries must submit all of the addresses from which shipments will originate (including winery warehouses and fulfillment houses)
  3. Wineries must provide a list of all Third Party Providers (TPPs) that they will be working with. Presumably this refers to fulfillment houses (aka third partly logistics – 3PL) companies, but it’s not perfectly clear in the bill text
  4. Annual license renewal by January 1st of each year
  5. Restricts shipments to wines of the “winery’s own production”
  6. Any TPP that is operating on behalf of wineries must first verify that the winery is properly permitted in Minnesota. TPPs must also submit a monthly report of shipments into Minnesota, “unless the direct ship winery has supplied the required statement to the commissioner”
  7. Wineries must collect gross receipts tax, sales and use tax, and a monthly report to the commissioner detailing each wine shipment
  8. Restricts common carriers (FedEx and UPS, for example) from making shipments unless the carrier confirms that the winery is properly licensed. The commissioner is required to provide a list to the common carriers and the TPPs on a monthly basis of all licensed wineries.

Our Take: This bill isn’t written very well in its current form. Many of the provisions seem insufficiently crafted or thought-through. However, otherwise it seems like a fairly standard direct shipping bill that allows wineries to ship with a permit including volume limits and taxes, but prohibits retailers from doing the same. The common carrier and TPP provisions are more and more becoming standard fare in new wine shipping bills.

 

First Salvo? Feds target Cannabis Cup

In what may be the first shot from the Department of Justice in their effort to start cracking down on cannabis, the Reno Gazette-Journal posted a warning letter from U.S. Attorney Daniel Bogden to the Moapa Paiute Tribe. Referring to the upcoming Cannabis Cup to be held this week outside of Las Vegas, the letter states that the “transport, possession, use and distribution of controlled substances, including marijuana, is prohibited by 21 U.S.C. 841.”.

What’s notable about the letter is the specific reference to the Cole Memo, which Bogden clarifies should only be interpreted as providing guidance for decision making and does not at all preclude the enforcement of federal law. The letter also goes on to clarify that nothing precludes the Department of Justice from taking action to enforce the Controlled Substances Act in “Indian Country” or on tribal lands.

Our Take: If you’re headed to the Cannabis Cup this week, don’t bring any greens. It seems like there is a strong likelihood the feds will come knocking and might look to send a strong message here.

Sean Spicer provides first comments on Marijuana, shockwaves ensue

There’s a big difference between that (medical marijuana) and recreational marijuana, and I think when you see something like the opioid addiction crisis blossoming in so many states around this country, the last thing we should be doing is encouraging people.

In the daily White House Press Briefing today, Sean Spicer provided the first glimpse into how the administration will handle the enforcement of marijuana laws. The comments sent immediate shockwaves through the industry, with the Marijuana Policy Project providing an instantaneous press release denouncing the comments.

It seems clear from Spicer’s comments that the administration will not take significant action in states where medical marijuana has been legalized. However, he repeatedly differentiated between medical and recreational marijuana, and indicated that the Department of Justice would be looking further into the recreational market.

I do believe that you’ll see greater enforcement of it (recreational marijuana)

Our Take: Even though medical marijuana shops may be breathing a sigh of relief right now, this is very bad news for the recreational cannabis industry. It appears there will be a sea change here, and any possibility of a memo similar to the Cole Memo that includes recreational cannabis is all but dead. This will be extremely disheartening to anybody involved in the recreational industry. Recreational businesses should prepare for the worst here, and make sure they’re fully in compliance with all state laws at a minimum.

It seems like a crazy fight for the administration to pick against an industry that is increasingly organized and has public opinion on its side. Just today, Quinnipiac University released a poll saying that that 71% of voters think that “The government should not enforce federal laws against marijuana in states that have legalized medical or recreational marijuana use”. With all of the other priorities facing the nation right now, it’s baffling to see this rise on the priority list.

It’s now up to Congress to change the laws regarding recreational marijuana because it’s clear this administration plans on enforcing the current prohibition of marijuana as a Schedule 1 drug. The Congressional Cannabis Caucus couldn’t have had better timing.

See a clip of Spicer’s comments here

 

Massachusetts lawmakers delay, propose changes to recreational cannabis legislation

The implementation of recreational cannabis in Massachusetts may still be a ways off. Back in December, the legislature rushed through a bill that would delay implementation by at least six months (until July 2018). This week, the Massachusetts House and Senate created a new “Committee on Marijuana Policy” to rewrite the recreational marijuana laws that were passed by ballot initiative.

Because the ballot initiative (Question 4 aka the Regulation and Taxation of Marijuana Act) was codified as statute and not an amendment to the Massachusetts Constitution, lawmakers are free to make any changes to the act that they desire. Governor Charlie Baker has requested a comprehensive bill to be on his desk by June 2017.

Among the changes being considered by the Committee on Marijuana Policy are a reduction in the number of plants that can be grown at home from twelve to six, a 2-year ban on edibles, and an increase in the tax assessed on marijuana products.

Our Take: This seems like a contentious mess. Even though the ballot initiative passed convincingly, lawmakers seem determined to change the laws significantly. Other groups would rather repeal the law entirely. Implementation will likely be on hold as lawmakers go through the sausage making. Once changes are enacted, it will take a while to create the regulations, systems, and processes needed for implementation. We’d be surprised if they are fully ready to go on July 1st 2018.

Arizona group pushes recreational cannabis initiative for 2018

An Arizona group called “Safer Arizona 2018” is collecting signatures for a recreational marijuana ballot initiative for 2018. Recall that Arizona only narrowly failed to pass Proposition 205 last year. The Marijuana Policy Project is not actively supporting or contributing money to the 2018 effort though because they feel the turnout in mid-term elections won’t be sufficient.

Our Take: Mid-term elections are tough for controversial ballot initiatives. This may inform public opinion and improve the changes for legislation or a 2020 ballot initiative, but this one seems unlikely to pass, especially without active support for MPP.

Congressional Cannabis Caucus Kicks Off With Ambitious Goals

A formal, bi-partisan caucus representing marijuana interests now exists in Congress. Representatives Dana Rohrabacher (R-CA), Earl Blumenauer (D-OR), Don Young (R-AK) and Jared Polis (D-CO) held a brief press conference to officially kick off the Congressional Cannabis Caucus and identify their goals.

The main focus of the press conference was to prevent federal interference into state laws. Each of the four members comes from a state that has passed a ballot initiative to allow for recreational marijuana. The group made it clear that the current laws are broken, and that it’s the job of Congress to fix them. Rather than relying on the whims of the President and the Attorney General, their objective will be to pass new laws to regulate the sale and use of marijuana. They will set out initially to de-schedule marijuana from the list of “Schedule 1” drugs such as heroin, fix unfair taxation issues, create a way for marijuana businesses to have access to banks instead of dealing with large amounts of cash, and prevent federal authorities from interfering with state laws.

The group noted that 95% of the US public now lives in a state with some form of access to marijuana. In Colorado, underage use is down and crime is down, according to Rep. Polis. “The Colorado model is working”.

Our Take: This is very important. Having a credible bi-partisan group that can educate other Congressman and that will actively move to introduce legislation will make a big difference. Over time, the cannabis industry will get more and more effective with their lobbying, and having allies in Congress is key.

Watch the Congressional Cannabis Caucus press conference below.