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Can these ideas solve Alaska's marijuana tax cash problem?

  • Author: Laurel Andrews
  • Updated: September 28, 2016
  • Published October 9, 2015

Alaska's Tax Division is in an unusual predicament as the state prepares to receive millions of dollars in marijuana tax money: it's not sure what to do with all that cash.

The problem? Alaska's marijuana businesses are barred from opening bank accounts. That means the money the state collects -- estimated at $5.1 million to $19.2 million for next year -- may be flowing into the state Revenue Department's Tax Division in briefcases and bags.

The scenario is not ideal for the division, which says increased security risks and a lack of manpower are reasons it doesn't want to be physically handling all the money.

Yet two potential solutions seem to be emerging in what division deputy director Brandon Spanos called the "cash problem."

Drug money or revenue?

The division had asked for "creative ideas" from entrepreneurs on how to handle the money flow. The final brainstorming workshop took place Wednesday in Anchorage, and the state was met by a responsive group. Among them were marijuana business owners, an attorney and an economist.

"In a perfect world, everyone would have a bank account and we would not be having this conversation," Claire Lettow, regulations specialist for the division, told the audience. That's not possible, however, with marijuana remaining illegal on the federal level, so Alaska's financial institutions aren't opening their doors to commercial businesses.

[Read more Alaska marijuana news at our Cannabis North page]

The state doesn't have the same problem. While banks must report marijuana businesses to the U.S. Department of the Treasury's Financial Crimes Enforcement Network, those requirements don't exist for the state.

As Lettow put it, "when the taxpayer gives money to the bank, it's drug money. When we give money to the bank, it's revenue."

After the brainstorming sessions, two potential ideas seem most promising, Spanos said.

The first option would be to use a transportation carrier, potentially an armored car, that would transfer the cash from a business directly to the state's bank account. The money would be counted at the business, and again at the bank, Spanos said.

While potentially expensive, businesses were receptive to this idea, Spanos said.

A second solution would be to install cash deposit machines -- essentially an ATM in reverse. Businesses would put their cash into a machine and get a receipt. The state would then go pick that money up and deposit it. This solution, potentially less-expensive, could be especially useful in rural Alaska, the division said, as transportation carriers may not be feasible.

Some in the audience said they supported this idea, while others pointed out potential issues: What if the machine is full? How many cash machines would the state need? How secure would these machines be?

Another potential option tossed around during the discussion would be to have a third party put the money into his or her own bank account, and have that person pay the taxes. For example, one attorney asked if he could pay the taxes on behalf of his clients; Lettow replied that she couldn't speak to the Alaska Bar Association's ethical boundaries, but for the division, that would work.

This third-party method is being used in Colorado, Spanos said, but isn't a fool-proof solution. Banks may close that third-party's account if they see that marijuana money is being funneled through.

Despite rigid banking rules, in both Colorado and Washington some marijuana businesses have succeeded at acquiring bank accounts. Some 60 percent of Colorado's taxes are paid either electronically or via check, Spanos said.

No taxes for lost product

Alaska's excise tax on marijuana is $50 per ounce, paid to the state by marijuana growers. The growers pay the tax after their cannabis has been sold to retail or manufacturing facilities, the division explained to the audience Wednesday. That means if marijuana has to be discarded, for whatever reason, before it's sold, the growers aren't taxed on that lost product.

This state excise tax is different from sales taxes that both the cities of Fairbanks and Bethel approved in elections this week, and the division noted those communities will be facing similar questions on how to handle an influx of cash.

All excises taxes will go to the state's general fund.

Meanwhile, the Marijuana Control Board has submitted its entire batch of regulations for one more round of public comment. The board will hold hearings on Oct. 15-16, where the public can provide verbal input; written comments will be accepted until Nov. 11.

There's no deadline on when the division needs to have its rules in place, but Spanos said the division hopes to have proposed regulations by the end of the year. He asked the public to continue feeding the division any ideas and preferences on how to handle Alaska's marijuana money.

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