General Tax – Nabis Support

OVERVIEW

Designed for Cannabis Businesses Operating in California, New York, and Nevada.

DISCLAIMER

The information provided in this communication is for informational purposes only and should not be considered tax advice. We recommend consulting with your personal or business tax advisor to determine how this information applies to your specific circumstances. Nabis does not provide tax, legal, or accounting advice. Always seek the guidance of a qualified professional for any tax-related matters.

While Nabis is not able to provide tax advice to our partners, we want to make handling taxes as easy as possible. As such, we have compiled the following FAQ to note tax considerations that may impact your business. This list is not to be considered comprehensive, but contains a summary of common tax considerations and questions.

FORM 1099-K

What is Form 1099-K?
Form 1099-K is issued by payment processors (e.g., TPSOs like Nabis) to report transactions exceeding the IRS threshold for gross payments. It is used by the IRS to verify income reported on tax returns.

This form is on the cash basis, however, payment remittances are sent net of Nabis fees. These fees are considered an expense to your business and must be added back to calculate the gross revenue attributable to your entity. As a result, some fees may appear to be allocated to a specific month, such as December, even if they were applied across multiple months in reality. While there may be variations in the by-month reporting, the overall total has been reviewed and confirmed as accurate by our accounting team. Since the final total is correct, the monthly breakdown does not impact the overall outcome and reporting.

For example, if the ACH or Wire remittance you received in your bank account was for $1,000, and included in that is Nabis fees of $200, the total reportable gross revenue on the form 1099-K would be $1,200 since the Nabis fees are an expense to your organization.

Why am I receiving Form 1099-K?

You receive Form 1099-K because Nabis processes payments from retailers and remits them to brands. If the payments meet the reporting thresholds, the IRS requires us to issue the form.

Reporting Thresholds and State Variations

Federal Threshold: $5,000 in gross payments for tax year 2024, $600 for 2025 tax year and beyond.
California: Aligns with the federal threshold.
Nevada: Aligns with the federal threshold.
New York: Historically aligned with $600 thresholds.

Action Items for Recipients

Reconcile your records with the amounts on Form 1099-K.
Deduct business expenses like Nabis fees during tax preparation.
Consult a tax professional to ensure accurate reporting.

Penalties for Non-Compliance

Late/Inaccurate 1099-K Filing: $60 to $310 per form, depending on when corrections are made.

FORM 8300 COMPLIANCE

What is Form 8300?

Form 8300 is an IRS form used to report cash payments over $10,000 received in a single transaction or related transactions. Businesses are legally required to file this form to help the government track and prevent money laundering and other financial crimes.

Why Does Nabis File Form 8300?

Nabis collects cash payments from retailers on behalf of our partnered cannabis brands. When these payments exceed $10,000, the IRS requires us to report the transactions via Form 8300.

When disclosing the purpose of the transaction, does the form note that this transaction was cannabis related?

No, the form does not provide an option to explicitly note cannabis in the "description of property or service" field. Transactions related to cultivation are categorized under "Agriculture (NAICS code 11)" in accordance with US Census Bureau guidelines.

What are the penalties for not complying with Form 8300 requirements?

Businesses failing to comply with Form 8300 requirements can face significant penalties, including fines. Penalties are generally $100 per form for failure to file; penalties increase significantly for intentional disregard.

Can I opt out of Form 8300 filings?

No, compliance with Form 8300 is mandated by federal law, and all applicable transactions must be reported.

Will this affect my taxes or trigger an audit?

The filing of Form 8300 is a standard reporting procedure and does not affect the cash handlers personal income taxes or trigger an audit. The filing notes that the income was received by the business, not the cash handlers personally.

ANNUAL 8300 STATEMENTS

Who Receives an 8300 Statement?

Statements are sent to the cash handlers or business entities involved in the reported transaction. This is required to ensure transparency and to notify all parties that the transaction has been reported to the IRS.

Key Details of the Statement:

It includes the amount of cash received.
It names the parties involved in the transaction.
It specifies the filing date and purpose.

Why did I receive this statement?

You received this statement because Nabis collected cash payments from your business/employer that exceeded $10,000, triggering the requirement to file Form 8300 with the IRS. This statement is provided to notify you of the filing.

What is considered “cash” for Form 8300 purposes?

Cash includes:

U.S. or foreign currency.
Certain cashier’s checks, money orders, or traveler’s checks if they are part of the payment.

Does this mean I’m under investigation?

No, receiving this statement does not imply any wrongdoing or investigation. It is simply a notification that the transaction was reported to the IRS as required by law.

What information does the IRS receive?

The IRS receives details about the transaction, including:

The amount of cash received.
The parties involved.
The date and purpose of the transaction.

How can I verify the authenticity of the statement?

If you have concerns about the authenticity of the statement, you can:

Cross-check the statement with your records of transactions with Nabis.
Contact Nabis Customer Service for verification.

EXCISE TAX

What is Excise Tax?
Excise tax is a tax on cannabis products that must be collected and remitted to state authorities.

Who is responsible for remitting Excise Tax in California?
The passage of Assembly Bill 195 shifted the responsibility of collecting, reporting and remitting excise tax to the CDTFA from the distributor to the retailer effective January 1, 2023. As a result, retailers are responsible for collecting and remitting excise taxes for tax year 2023 and beyond.

Who is responsible for remitting Excise Tax in New York?
In New York, as the licensed distributor of record, Nabis is responsible for collecting and remitting the excise tax on all recreational, adult-use cannabis product sales to retailers. However, if a brand has obtained its own distribution license and has a formal arrangement with Nabis, they may assume responsibility for remitting the excise tax directly to the New York State Department of Taxation and Finance (NYSDTF).

Additionally, retailers must collect a 13% excise tax on final sales to consumers, which is split between 9% state tax and 4% local tax. To ensure compliance, all transactions must be accurately tracked through New York’s seed-to-sale system [BioTrack]. Proper tax remittance and reporting are crucial, as failure to comply can result in penalties, interest, or license revocation.

Excise Tax Rates by State

California: Cannabis excise tax is set at 15% of the gross receipts from the retail sale of cannabis or cannabis products. In addition to the excise tax, cannabis sales are subject to the state's sales and use tax, which has a base rate of 7.25%. Local jurisdictions may impose additional district taxes, leading to varying total sales tax rates across the state. It's important to note that medical cannabis patients with a valid Medical Marijuana Identification Card are exempt from the state sales tax, but the 15% excise tax still applies to their purchases.
Nevada:
- Wholesale Excise Tax:
  - Rate: A 15% excise tax is imposed on the fair market value at wholesale of cannabis.
  - Responsibility: This tax is the obligation of the cultivation facility and applies to both adult-use and medical cannabis.
- Retail Excise Tax:
  - Rate: A 10% excise tax is applied to the sales price of cannabis or cannabis products sold by a retail cannabis store.
  - Responsibility: The retail cannabis store is responsible for collecting and remitting this tax.
- Sales and Use Tax:
  - Rate: Nevada imposes a statewide sales tax of 6.85% on the sale of tangible personal property, including cannabis products. Local jurisdictions may impose additional sales taxes, leading to varying total rates across the state.
- Medical Cannabis:
  - Medical cannabis sales are exempt from the 10% retail excise tax but are subject to the standard state and local sales taxes.
New York:
- Adult-Use: Flat 9% tax rate imposed on the amount charged for the sale or transfer of adult-use cannabis products by a distributor to a retailer. For registered organizations or microbusinesses that sell adult-use cannabis products directly to retail customers, this 9% tax is applied to 75% of the amount charged for the sale or transfer of those products to the retail customer. In addition to the distributor tax, retailers are required to pay a 13% retail tax on the sale or transfer of adult-use cannabis products to consumers. This retail tax is divided into a 9% state tax and a 4% local tax.
- Medical Use: The excise tax rate is 3.15% of the gross receipts from the sale of medical cannabis. The tax is paid by the registered organization (retailer) and should not be added as a separate charge or line item on sales receipts provided to patients or caregivers.

STATE-SPECIFIC TAX CONSIDERATIONS

California

Sales and Use Tax: Retailers collect and remit sales tax to the California Department of Tax and Fee Administration (CDTFA).
Excise Tax: Based on wholesale costs plus CDTFA-determined markups.
Compliance Deadlines: Monthly or quarterly filings.

Nevada

Excise Tax: Applies at both wholesale and retail levels as noted above.
Sales Tax: Standard state sales tax applies.
Compliance Deadlines: Monthly filings with the Nevada Department of Taxation.

New York

Excise Tax: Applies to both the distributor and retailer. Rates vary depending on if the cannabis is for recreational adult-use or medical use.
Sales Tax: Standard state sales tax applies.
Compliance Deadlines: Monthly returns filed with the New York State Department of Taxation and Finance.

OTHER CONSIDERATIONS

Cash Handling:

Importance of Compliance
Federal banking restrictions make cash transactions common in the cannabis industry. Compliance with cash reporting rules like Form 8300 is critical.

Best Practices for Cash Management

Maintain detailed records of cash transactions.
Implement strong internal controls to prevent theft or misuse.

Audit Risks and Mitigation:

Possible Triggers for Audits

Discrepancies in 1099-K reporting.
Failure to comply with Form 8300 requirements.
Incorrect expense allocation under §280E.

Audit Mitigation Strategies

Keep accurate and organized records.
Reconcile accounts monthly.
Use a qualified tax professional.

CONTACT

For tailored tax advice applicable to your specific situation, consult a CPA or tax professional experienced in the cannabis industry.

RESOURCES

State Resources

Federal Guidance