TaxNexus.net – Over The Line?
TaxNexus.net – Over The Line? We were intrigued when we saw the write-up about TaxNexus in Leafwire.com and the article about TaxNexus in a product spotlight in Marijuana Venture. Our first impression was that TaxNexus had the potential to be a rather slick product that could be of substantial assistance to cannabis businesses seeking to organize and maintain their compliance with multiple tax regimes. We will confine our comments to California which has a state-level Cannabis Cultivation Tax [“CCT”], a state-level Cannabis Excise Tax [“CET”], and state and local Sales Taxes. In addition, a substantial number of the fifty-eight counties and 523 cities and municipalities in California also have enacted various combinations of gross receipts, cultivation, and privilege taxes on cannabis.
TaxNexus’s website states that the platform “Situs”
“Point-of-Sale Cannabis Tax Calculation
Taxnexus Situs can be easily integrated with any Point-of-Sale software to provide automated state and local excise and sales tax rates at the transaction level. It offers real-time access to accurate jurisdictional cannabis tax rates using US Postal Address or geolocation for census-block level accuracy.
Cannabis Tax Compliance
By using Taxnexus Situs, cannabis businesses can be compliant with state and local cannabis tax laws and regulations to avoid loss of business license and/or heavy penalties. The automatic implementation of state and local cannabis tax rate updates in the Situs, cannabis businesses can apply the correct cannabis tax rates without the need to continuously check for changes in the laws.
Sophisticated Cannabis Tax Types
Taxnexus Situs is a sophisticated database of state and local cannabis tax rates that distinguishes between and computes tax liability of products based on the type of sale (medical or recreational) and the type of product (cannabis-related or cannabis accessory).”
TaxNexus “Base” is represented to be able to
“Cloud-based data storage of cannabis excise and sales tax data
Comply with state and local cannabis sales record-keeping requirements
Store tax liability information for invoice
Easy access to data for accurate tax filing”
TaxNexus’ Returns is represented as being able to
“Create monthly reports of all tax liability transactions
Generate official government PDF tax filing documents
File timely state and local cannabis excise, sales and business tax returns
Facilitate cannabis tax remittances to state and local tax authorities
Meet state and local tax filing requirements for full compliance”
Our view as a licensed firm of Certified Public Accountants [“CPA’s”] in California is that the functionality in the Base product is an excellent idea and it fills a need in the market. Situs is also an excellent idea with the exception of the assertions with respect to the ability to properly calculate tax liabilities and prepare tax returns. The preparation of tax returns is a reckless over-reach by TaxNexus as a software vendor. The tasks encompassed in tax return preparation are professional services. Preparation of tax returns by a software provider is very likely a violation of the California Accountancy Act.
TaxNexus Invited To Respond
Let’s begin by extending an invitation to TaxNexus to engage with us and respond to our concerns. We commit to listening and publishing the response of TaxNexus to our comments.
Who Is aBIZinaBOX and Jordan S. Zoot, CPA, and Are They Qualified To Comment
We are a national CPA firm with offices in New York City, Chicago, and our Cannabis Practice Group in Oakland, CA. Jordan has been a practicing CPA for thirty-seven years and is licensed in California, Florida, Illinois, New York, and Texas. Jordan is a former Arthur Andersen LLP Tax Partner, who has had his adventures in the California cannabis industry chronicled in Tax Notes in The Business of Tax – Cannabis Tax Advising Growing Like Weeds. Jordan writes a weekly column about complex issues in the legal cannabis industry in California entitled “According to Zoot” that appears on cannabislaw.report. You can read more about the firm’s Cannabis Practice Group [“CPG”] here.
What Has aBIZinaBOX Published About CCT, CET, California Sales Tax, and Local- Municipal Cannabis Taxes?
We encourage everyone to read our write-ups on CDTFA Cultivation and Excise Regulations Approved, How Taxes Apply to Cannabis Inventory, Reporting and Collection of California’s Cannabis Taxes, Calculations – California Cannabis Taxes – Retail a highly complex article that addresses CET where multiple Extractors, Manufacturers and Distributors are involved, a series of flow-charts which were published by CDTFA for complex non-arms length transactions that were developed through an extensive series of email exchange with the agency, California Cannabis Distributor Responsibilities, Keeping Proposition 215’s Promise, CDTFA Guidance for Cannabis Cooperative Associations [“CCA’s”], CDTFA Adds Pricing Information to METRC, and CA Collectives – Sky Falling
So What Is Your Point?
We believe that TaxNexus.net is on the right track, but that are some tweaks that we suggest.
We have identified numerous features within their Base and Situs products that could certainly be offered to the public directly. We strongly believe that such offerings fill a need and will be successful.
We believe that the “fix” which should be implemented is that the functionality contemplated for return preparation should be solely licensed in California to licensed tax professionals [“attorneys, CPA’s and Enrolled Agents – collectively Circular 230 Practitioners” subject to regulation by the Treasury’s Office of Professional Responsibility “OPR“] and possibly other tax return preparers that are either recognized by the IRS Return Preparer Office or possess the California CTEC credentials.
Our suggestion also addresses two glaring problems. The first involves TaxNexus.net’s Terms of Service. The Terms of Service expressly disclaims responsibility for the accuracy of their product which is precisely what a software developer should do but a professional service provider cannot do.
“No Professional Tax Advice and Opinion –You acknowledge and agree that Taxnexus does not provide professional tax advice and opinions specific to the facts and circumstances of your business and that your access and use of Taxnexus Websites and Services does not create any fiduciary obligation on the part of Taxnexus to you. Although we strive to provide current and accurate data, we are dependent on third-parties, such as state and local governmental agencies, to timely update and provide tax-related information that affects Taxnexus Services. Therefore, you agree that you use and rely upon the content and services of Taxnexus at your own risk and you acknowledge that Taxnexus cannot and does not guarantee that any data and information contained in its Services are accurate or current. Furthermore, because of quickly changing tax rates and regulations that require interpretation by your qualified tax professionals, you maintain full responsibility to determine the applicability of the output generated by Taxnexus Services and to confirm its accuracy. We suggest that you conduct due diligence and seek the assistance of qualified tax counsel and accounting professionals on matters requiring professional advice.”
Second, the language which has been used to describe the preparation of tax returns is clearly in violation of the California Accountancy Act. The performance of independent audits of financial statements, elements of financial statements, reports on internal accounting controls and other types of regulatory compliance reviews is reserved exclusively for Certified Public Accountants [“CPA’s]. The practice of public accountancy which is the exclusive purview of CPA’s is contained in Section 5051or the California Accountancy Act [“CAA”] which states
“Except as provided in Sections 5052 and 5053, a person shall be deemed to be engaged in the practice of public accountancy within the meaning and intent of this chapter if he or she does any of the following:
(a) Holds himself or herself out to the public in any manner as one skilled in the knowledge, science, and practice of accounting, and as qualified and ready to render professional service therein as a public accountant for compensation.
(b) Maintains an office for the transaction of business as a public accountant.
(c) Offers to prospective clients to perform for compensation, or who does perform on behalf of clients for compensation, professional services that involve or require an audit, examination, verification, investigation, certification, presentation, or review of financial transactions and accounting records.
(d) Prepares or certifies for clients reports on audits or examinations of books or records of account, balance sheets, and other financial, accounting and related schedules, exhibits, statements, or reports that are to be used for publication, for the purpose of obtaining credit, for filing with a court of law or with any governmental agency, or for any other purpose.
(e) In general, or as an incident to that work, renders professional services to clients for compensation in any or all matters relating to accounting procedure and to the recording, presentation, or certification of financial information or data.
(f) Keeps books, makes trial balances, or prepares statements, makes audits, or prepares reports, all as a part of bookkeeping operations for clients.
(g) Prepares or signs, as the tax preparer, tax returns for clients.
(h) Prepares personal financial or investment plans or provides to client’s products or services of others in implementation of personal financial or investment plans.
(i) Provides management consulting services to clients.”
Our view is that software vendors are precluded from being the paid preparers of tax returns. Without beating the issue to death, we direct a reader’s attention to payroll service providers such as ADP, Paychex and Gusto, and to Avalara.com, the market leader in providing Sales Tax computation services. The complexity of cannabis taxation in California makes TaxNexus’ Base and Situs an incredibly useful resource for California’s cannabis industry. However, the same complexity this mandates that professional judgement be utilized in connection with the use of this resource.
 Section 5033. of the California Accountancy Act defines -“Certified public accountant” means any person who has received from the board a certificate of certified public accountant and who holds a valid permit to practice under the provisions of this chapter.
If you have questions with respect to cannabis taxation in California, you can use the contact form below. We welcome the opportunity to elaborate on the necessity of professional advice in connection with the analysis and reporting of tax liabilities by California cannabis businesses.
TaxNexus.net – Over The Line?