Are Delayed Tax Payments a Viable Capital Allocation Strategy?
Notorious Mafia kingpin Al Capone never filed a federal income tax return, claiming he had no taxable income. Before he was convicted of tax evasion in 1931, he boasted, “They can’t collect legal taxes from illegal money.” The rationale might resonate with cannabis companies in the United States , which manufacture and sell a federally illegal product but are expected to pay federal, state, and local taxes anyway. In fact, companies nationwide have been racking up tax debt at an alarming rate. The hope is they will be able to negotiate payment plans when the Internal Revenue Service and other taxing agencies come calling, but that strategy is fraught with risk and has the potential to decimate any operations so tempted. SFGate.com recently reported more than 13 percent of California’s legal cannabis retailers, or about 265 storefronts, missed a state tax payment deadline of May 1. Those businesses now face penalties of up to 50 percent on delinquent taxes. The California Department ...