MJ Biz report
California’s business tax collector is ramping up enforcement against unlicensed and licensed cannabis companies, which owe the state nearly $200 million in unpaid taxes.
In the past few months, the California Department of Tax and Fee Administration (CDTFA) has taken a new tack against underground businesses that have undermined the legal market by skipping taxes and undercutting licensed companies.
In particular, the CDTFA has launched raids and auctioned off seized properties as part of heightened efforts to collect unpaid taxes and rein in underground operators.
Legal businesses, meanwhile, are facing stepped-up efforts by the state as well.
The escalation, according to the department, signals a return to normalcy in state government functions as the economy rebounds from the pandemic-led downturn.
CDTFA spokesperson Tamma Adamek told MJBizDaily via email that the department “was mindful of hardships that all businesses faced during the pandemic.
“Now that the economy is showing signs of recovery, we are resuming our standard approach to enforcement in all industries, including cannabis.”
Seizing commercial properties connected to illegal cannabis operations is a new approach for the department.
And, so far, that effort appears to be generating results:
- On May 11, the CDTFA auctioned a property for $50,000 that was seized in Compton. It was the agency’s third auction in three months.
- In late March, the department sold a property in Whittier, just east of Los Angeles, for $310,000 after an investigation into illegal cannabis sales. Unlicensed operators at the site owed $850,000 in taxes, according to the CDTFA.
- A few weeks earlier, the CDTFA, in conjunction with the Los Angeles County Sheriff’s Department, sold another property seized in Compton for $256,000.
The CDTFA told MJBizDaily that unlicensed operators used the seized properties to sell a variety of illegal, unregistered cannabis products.
“CDTFA is committed to leveling the playing field for legal businesses by enforcing tax laws against illegal operations,” Adamek wrote.
“Because legal cannabis retailers and distributors are required to hold a permit with CDTFA, we know who they are, where they are, and if they are current on their taxes. Illegal operators can be more challenging since they are underground.”
Auction proceeds are applied to the debtor’s account, less any fees or expenses associated with the sale.
The CDTFA, which collaborates with the California Highway Patrol, local law enforcement, city and county licensing authorities and other government agencies, has conducted more than 1,000 inspections of cannabis businesses since 2020.
The department has seized more than $32 million in cash and products.