Who Is Inept: “NCIA does not seem in the registry of tax-exempt organizations maintained by the Workplace of the Lawyer Common extremely most likely mainly because NCIA has not registered to engage in company in California”

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Who is Inept? – We have been shocked a handful 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 company.

We stumbled across this information and facts very inadvertently.

We have been checking to see if the National Cannabis Sector 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 earnings 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 mainly because NCIA has not registered to engage in company in California.

We have incorporated the preceding as background mainly because we found to our surprise that CCIA also filed a 2017 federal earnings tax return as a company league pursuant to IRC §501(c)(six).  This is component of the explanation for the title of this article.

 

CCIA is organized as a Nonprofit Mutual Advantage Corporation.  This kind of a nonprofit corporation is generally 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 a lot more acceptable corporate entity for a company league below California law.

CCIA ‘s decision of a corporate entity is irrelevant at the moment as a consequence of its suspension by the Franchise Tax Board (“FTB”).  CCIA did not full 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&ampT”).  CCIA’s claim for exemption has been pending considering that 2013.  We suspect CCIA’s failure to full its claim for exemption coupled with its filing of an earnings tax return as a company league might properly be the explanation 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 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 explanation for the suspension.  We have no thought whether or not, 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 although we have been attempting to decide if NCIA had certified to engage in company in California.

Who is Inept?

The information and facts 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 Sector Association the Mendocino Cannabis Sector Association the Monterey County Cannabis Sector Association and the Cannabis Sector Association of Marin County.

Every 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 a lot more acceptable.  None of these entities seem to have secured California tax exemptions below either R&ampT §23701e or R&ampT §23701f.   R&ampT §23701e is the California exemption that is equivalent to IRC §501(c)(six).  R&ampT §23701f is the California equivalent to IRC §501(c)(four).  Only a single 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 mainly because we located a hyperlink to CGA on the HCGA’s internet site.  We have been shocked to locate the hyperlink.  Our readers will recall Hezekiah Allen left CGA in late 2017 in order to go into company for himself.  Substantially 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 nevertheless is.  CGA began an application for a tax exemption in 2015.  The tax exemption application is pending.

Who is Inept?

CGA maintains a internet site.  The internet site 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&ampT §23701e or R&ampT §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 internet 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 a single who has study this far that neither of these organizations has secured a tax exemption below either R&ampT §23701f or R&ampT §23701e.

Who is Inept?

The preceding is a lengthy explanation for the title of this short article.  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 numerous issues to be performed incorrectly that could have effortlessly been performed appropriately.

Who is Inept?

What is it about California’s cannabis business that causes its organizations to do so numerous issues incorrectly that could be effortlessly performed appropriately.  A social welfare organization is effortlessly organized.  Such an organization can readily safe a tax exemption below IRC §501(c)(four) and R&ampT §23701f.  A trade association is effortlessly organized.  A trade association can readily safe a tax exemption below IRC §501(c)(six) and R&ampT §23701e.

The correction of organizational missteps is invariably a lot more expensive than the fees of organizing effectively from the starting.  Is there a explanation cannabis organizations so regularly incorporate as Nonprofit Mutual Advantage Corporations which is nearly 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 cash to appropriate organizational errors even though there are substantial savings in avoiding errors at the starting.  In the instance of CCIA, there might not be sufficient time or sufficient cash to clear up the errors that brought on the suspension of CCIA by the FTB as the errors seem to span six years.

 

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