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Who is Inept? – We had been shocked a couple of days ago when we found California Cannabis Business Association (“CCIA”) has been suspended by the Franchise Tax Board (“FTB”). At the moment CCIA lacks the authority to engage in company.
We stumbled across this info very inadvertently.
We had been checking to see if the National Cannabis Business Association (“NCIA”) was authorized to engage in company in California as a foreign corporation.
- NCIA is organized below the laws of Washington, D.C. NCIA is registered with Colorado as a foreign corporation.
- NCIA maintains an workplace in Colorado.
- NCIA is organized and files federal revenue tax returns as a company league pursuant to Internal Income Code (“IRC”) §501(c)(six).
- NCIA does not seem to have registered to engage in company in California as a foreign corporation.
NCIA does not seem in the registry of tax-exempt organizations maintained by the Workplace of the Lawyer Common extremely most likely simply because NCIA has not registered to engage in company in California.
We have incorporated the preceding as background simply because we found to our surprise that CCIA also filed a 2017 federal revenue tax return as a company league pursuant to IRC §501(c)(six). This is portion of the purpose for the title of this article.
CCIA is organized as a Nonprofit Mutual Advantage Corporation. This kind of a nonprofit corporation is ordinarily utilized for social welfare organizations. Such organizations are entitled to safe exemptions from federal revenue tax pursuant to IRC §501(c)(four). A Nonprofit Public Advantage Corporation is the much more proper corporate entity for a company league below California law.
CCIA ‘s selection of a corporate entity is irrelevant at the moment as a consequence of its suspension by the Franchise Tax Board (“FTB”). CCIA did not total the course of action to establish its entitlement to an exemption from corporate tax below any provision of the California Income and Taxation Code (R&T”). CCIA’s claim for exemption has been pending considering the fact that 2013. We suspect CCIA’s failure to total its claim for exemption coupled with its filing of an revenue tax return as a company league may perhaps properly be the purpose for the FTB’s suspension. Of course, we do not know what returns CCIA has filed with the FTB.
An organization can be exempt from revenue tax below California law and not be exempt below federal law, and vice-versa. The public records of the California Secretary of State indicate that CCIA has been suspended as a corporation at the instigation of the FTB. We do not know the purpose for the suspension. We have no notion irrespective of whether, or how, or if, the suspension of CCIA can be rectified. We also do not know what ramifications the suspension of CCIA will have for NCIA. CCIA and NCIA seem to companion on all activities in California. We found CCIA was suspended whilst we had been attempting to ascertain if NCIA had certified to engage in company in California.
Who is Inept?
The info we found relating to CCIA and NCIA piqued our curiosity relating to the status of some other cannabis membership organizations. We found 4 entities that seem to be minor clones of CCIA: the San Diego Cannabis Business Association the Mendocino Cannabis Business Association the Monterey County Cannabis Business Association and the Cannabis Business Association of Marin County.
Every single of these 4 entities is organized as a Nonprofit Mutual Advantage Corporation even even though the activities of these organizations indicate incorporation as a Nonprofit Public Advantage Corporation would be much more proper. None of these entities seem to have secured California tax exemptions below either R&T §23701e or R&T §23701f. R&T §23701e is the California exemption that is equivalent to IRC §501(c)(six). R&T §23701f is the California equivalent to IRC §501(c)(four). Only one particular of these 4 organizations seems to have bothered applying to the FTB for a tax exemption.
Our curiosity continued. We looked up Humboldt County Growers Alliance (“HCGA”). We understood HCGA was organized as the successor to California Growers Association (“CGA”) following Hezekiah Allen abrupt departure from CGA late in 2017. HGCA operates as a cannabis trade association even even though the organization is incorporated as a Nonprofit Mutual Advantage Corporation. HCGA seems to be very active as a trade association, but it has not applied for a tax exemption. HCGA’s tax-exempt status in California is pending.
We looked up CGA simply because we identified a hyperlink to CGA on the HCGA’s web page. We had been shocked to uncover the hyperlink. Our readers will recall Hezekiah Allen left CGA in late 2017 in order to go into company for himself. A great deal to our surprise CGA seems to be alive and properly. The records of the Secretary of State indicate it is a corporation that is wholly owned by Hezekiah Allen. CGA was formed as a Nonprofit Mutual Advantage Corporation in 2015. It nonetheless is. CGA began an application for a tax exemption in 2015. The tax exemption application is pending.
Who is Inept?
CGA maintains a web page. The web page indicates CGA partners with a quantity of cannabis trade associations. Most of these entities seem to be incorporated as Nonprofit Mutual Advantage Corporations even even though the company activities of the organizations are these of trade associations or company leagues. None of the partners of CGA seem to have secured, or even applied for, tax exemptions below either R&T §23701e or R&T §23701f.
The most egregious examples of entity partners of CGA that have flouted California’s tax exemption laws are Southern California Coalition and California Minority Alliance. Each are organized as IRC §501(c)(four) organizations primarily based on the info on their respective internet websites. Each of these organizations are cannabis trade associations. They are not social welfare organizations. Trade associations are entitled to exempt status as IRC §501(c)(six) organizations. Social welfare organizations are entitled to exempt status as IRC §501(c)(four) organizations. It will surprise no one particular who has study this far that neither of these organizations has secured a tax exemption below either R&T §23701f or R&T §23701e.
Who is Inept?
The preceding is a extended explanation for the title of this post. It is the ineptitude of the advisors and organizers of these cannabis trade organizations, as properly as the ineptitude of the California Division of Tax and Charge Administration (“CDTFA”) and the Workplace of the Lawyer Common, that has permitted so several points to be accomplished incorrectly that could have very easily been accomplished appropriately.
Who is Inept?
What is it about California’s cannabis business that causes its organizations to do so several points incorrectly that could be very easily accomplished appropriately. A social welfare organization is very easily organized. Such an organization can readily safe a tax exemption below IRC §501(c)(four) and R&T §23701f. A trade association is very easily organized. A trade association can readily safe a tax exemption below IRC §501(c)(six) and R&T §23701e.
The correction of organizational missteps is invariably much more expensive than the charges of organizing effectively from the starting. Is there a purpose cannabis corporations so regularly incorporate as Nonprofit Mutual Advantage Corporations which is virtually usually improper. Is there anything about the cannabis business that CDTFA and the Workplace of the Lawyer Common have not figured out?
In most situations, there will be sufficient time and income to appropriate organizational errors even though there are substantial savings in avoiding errors at the starting. In the instance of CCIA, there may perhaps not be sufficient time or sufficient income to clear up the errors that triggered the suspension of CCIA by the FTB as the errors seem to span six years.