Ok, now since you're on that topic:
This brings up an issue that I've questioned my attorney about, and he says I can't pay taxes like that. The reason being; it's federally illegal. He tells me that I can't pay federal taxes on an illegal activity... how do you claim the income? Is it just "consulting"? Just curious.
Wolverine,
Sorry I took so long to address this...I was sidetracked.
Wow. It scares me when 2 attorneys give 2 totally different opinions. My attorney advised us to 1099 all working members to avoid any potential tax evasion issues. Bottomline is we are keeping paperwork as normal business would. Some of that paperwork documents hourly pay for the working members of the collective. To stay compliant with State law, we have to spend every dime we bring in on growing costs...be they electricity, nutes, rent, loan payments, and/or...the big one...labor. Documenting income and not paying taxes on it is big time no no. On an IRS 1099 form there's no place you need to specify what the payment is for beyond "non-employee compensation". It's the same when a general contractor hires a sub-contractor. At the end of the year the general sends the sub (and the IRS) a 1099 stating how much money the general paid the sub. The general can then write off this income as a business expense, and the sub pays the taxes on that income.
The IRS does not know or care what the money was for...as long as they get their pound of flesh. Taking money from the collective and not paying taxes on it is a clear case of tax evasion. Just ask Al Capone. I trust my attorney without hesitation. He's a cannabis business attorney, representing dozens of dispensaries and god knows how many growing "Collective Associations" like us. His partner is a cannabis criminal defense lawyer. This is all these guys do. Every month we meet and build our defense. Yes...build our defense. The idea is that our paperwork is so good, in the event of the unthinkable (here come's LEO!), the DA will reject the case as unwinnable. But if that paperwork showed that X amount of growing members were paid Y amount of money, and there were no 1099's sent and no State or Federal taxes paid, there would be a clear cut case of tax evasion. Now, what would have been dealt with on the state level could be referred to the Feds. The tax evasion charges would be a dead lock win for the Feds. And, if they wanted to get nasty, they could pick up the cultivation charges. We have no medical marijuana defense in a federal case. The words "medical marijuana" cannot even be said in federal court.
If you're going to be a pot grower in a state with medical marijuana laws, you have a choice to make. Either be above board 100%, or go underground 100%. Setting up a Collective Association, and attempting to comply with state laws, only to evade taxes is like trying to have it both ways. I had been underground for 20+ years before setting up this grow. I'd like to think that everything we do is above board. You can bet your ass that the vast majority of dispensaries are paying their taxes. You really should get a second legal opinion. I'd be happy to refer you to our attorney via a PM. The first consultation is $500 for 2 hrs...after that he's $300/hr. In 2 hrs he can answer all of your questions and give you some valuable direction on how to protect yourself and your grow op. If you don't intend to be 100% compliant, I would recommend just going underground.
Now the one vague tax issue is sales tax. There is a real legal conflict here. Since we're a collection of patients pooling our resources to grow, we legally should not have to pay sales tax. It would be like if I like the way you baked cookies. I go out and buy all of the ingredients for you, and pay you $20/hr for 2 hrs to bake some cookies for me. Should you charge me sales tax? Logically (and technically legally) NO. But, the state would like to see it a little differently. Our attorney has advised us to get a resale license and put 9.25% of our total sales into an interest bearing account. We then claim zero taxable sales each year. If, and only if, the state comes to us and demands their sales tax, we pay it with a letter of protest from our attorney. If they don't come to us, we continue to deposit the money year after year. When we finally close the collective, the funds are divided up amoung the collective members proportional to their purchases throughout the life of the collective. Big pain in the ass, but we do it to stay as compliant as we possibly can.
There's another more subtle reason to pay taxes. If, god forbid, we ever find ourselves in a jury trial, those jury members probably pay taxes on their income. They are not going to look favorably on you if you don't pay taxes. Furthermore, paying taxes shows the jury that you truly were trying to do everything by the book. They probably wouldn't like the fact that the goverment will take your tax payment, and then try to put you in prison for the work you did to generate the taxable income. The DA knows this too. And the real goal to all this paperwork is to show the DA that you're going to make this case an uphill battle for him at every fucking turn. The DA cannot prosecute every case. With the economy tanking, they are having to drop even more. By showing the DA that you've totally covered your ass, you increase your chances that your case will be thrown out.
All that shit being said, Wolverine, I am not a lawyer. Please do not make ANY choices about how you protect yourself based on
anything I've said (except to speak to another lawyer). It would devastate me to hear that you, or anyone here, got into a legal problem for growing. The risk factor is going down. But, there are still some landmines out there. Please be very careful, brother. We want you around for a long long time.
On another note, were you growing Casey Jones a while back?