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Who is Inept? – We had been shocked a couple of days ago when we found California Cannabis Sector Association (“CCIA”) has been suspended by the Franchise Tax Board (“FTB”).  At the moment CCIA lacks the authority to engage in business enterprise.

We stumbled across this information and facts fairly inadvertently.

We had been checking to see if the National Cannabis Sector Association (“NCIA”) was authorized to engage in business enterprise in California as a foreign corporation.

  • NCIA is organized beneath 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 earnings tax returns as a business enterprise league pursuant to Internal Income Code (“IRC”) §501(c)(six).
  • NCIA does not seem to have registered to engage in business enterprise 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 incredibly most likely due to the fact NCIA has not registered to engage in business enterprise in California.

We have integrated the preceding as background due to the fact we found to our surprise that CCIA also filed a 2017 federal earnings tax return as a business enterprise league pursuant to IRC §501(c)(six).  This is element of the cause for the title of this article.

 

CCIA is organized as a Nonprofit Mutual Advantage Corporation.  This type of a nonprofit corporation is ordinarily utilized for social welfare organizations.  Such organizations are entitled to safe exemptions from federal earnings tax pursuant to IRC §501(c)(four).  A Nonprofit Public Advantage Corporation is the extra proper corporate entity for a business enterprise league beneath 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 approach to establish its entitlement to an exemption from corporate tax beneath any provision of the California Income and Taxation Code (R&T”).  CCIA’s claim for exemption has been pending considering that 2013.  We suspect CCIA’s failure to total its claim for exemption coupled with its filing of an earnings tax return as a business enterprise league may possibly nicely be the cause 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 earnings tax beneath California law and not be exempt beneath 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 cause for the suspension.  We have no thought regardless 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 when we had been attempting to ascertain if NCIA had certified to engage in business enterprise in California.

Who is Inept?

The information and facts we found relating to CCIA and NCIA piqued our curiosity concerning the status of some other cannabis membership organizations.  We found 4 entities that seem to be minor clones of CCIA: the San Diego Cannabis Sector Association the Mendocino Cannabis Sector Association the Monterey County Cannabis Sector Association and the Cannabis Sector Association of Marin County.

Every single of these 4 entities is organized as a Nonprofit Mutual Advantage Corporation even although the activities of these organizations indicate incorporation as a Nonprofit Public Advantage Corporation would be extra proper.  None of these entities seem to have secured California tax exemptions beneath 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 1 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 although the organization is incorporated as a Nonprofit Mutual Advantage Corporation.  HCGA seems to be fairly 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 due to the fact we discovered a hyperlink to CGA on the HCGA’s web page.  We had been shocked to locate the hyperlink.  Our readers will recall Hezekiah Allen left CGA in late 2017 in order to go into business enterprise for himself.  Substantially to our surprise CGA seems to be alive and nicely.  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 nevertheless 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 although the business enterprise activities of the organizations are these of trade associations or business enterprise leagues.  None of the partners of CGA seem to have secured, or even applied for, tax exemptions beneath 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 information and facts on their respective web sites.  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 1 who has study this far that neither of these organizations has secured a tax exemption beneath 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 nicely as the ineptitude of the California Division of Tax and Charge Administration (“CDTFA”) and the Workplace of the Lawyer Common, that has permitted so numerous factors to be performed incorrectly that could have quickly been performed appropriately.

Who is Inept?

What is it about California’s cannabis sector that causes its organizations to do so numerous factors incorrectly that could be quickly performed appropriately.  A social welfare organization is quickly organized.  Such an organization can readily safe a tax exemption beneath IRC §501(c)(four) and R&T §23701f.  A trade association is quickly organized.  A trade association can readily safe a tax exemption beneath IRC §501(c)(six) and R&T §23701e.

The correction of organizational missteps is invariably extra pricey than the expenses of organizing correctly from the starting.  Is there a cause cannabis enterprises so regularly incorporate as Nonprofit Mutual Advantage Corporations which is pretty much constantly improper.  Is there one thing about the cannabis sector that CDTFA and the Workplace of the Lawyer Common have not figured out?

In most situations, there will be sufficient time and funds to appropriate organizational errors despite the fact that there are substantial savings in avoiding errors at the starting.  In the instance of CCIA, there may possibly not be sufficient time or sufficient funds to clear up the errors that triggered the suspension of CCIA by the FTB as the errors seem to span six years.