Day: November 30, 2022

Cannabis Growth & Sales in NY: Where Things Stand

Marijuana Struggling to Sow Roots In New York Amid Hazy Conditions

On March 31, 2021, the Marijuana Regulation and Taxation Act (MRTA) legalized adult-use cannabis in New York. What has happened since then?

By year-end 2021, 90% of New York municipalities agreed to issue dispensary licenses and/or onsite consumption licenses. Most of the remaining 600 municipalities opted to forgo offering both licenses (at least for now; they can opt in in the future). A high number of opt outs were in Dutchess, Jefferson, Nassau, Orange, Steuben, Suffolk, and Westchester counties. Leaders attributed their opt out decision to a lack of comfort with certain parts of the law (i.e., onsite consumption) and lack of regulations issued by New York’s Cannabis Control Board.

By the middle of 2022, the Board issued 162 recreational cultivation licenses. Just this month, 36 retail dispensary licenses were issued. The application process is onerous and some requirements (like having been arrested in New York in the past for a marijuana offense) are being challenged in court.

While the state gets its ducks in a row, New York City has seen an upsurge in sales from trucks, sidewalks, and bodegas – none of which are legal. Still, it’s hard to justify pursuing legal action when one of the requirements for opening a legal cannabis business is a past offense involving marijuana. So, what many have coined “a gray market” has emerged, raising concerns that legitimate cannabis businesses will be at risk before they ever open their doors.

Another concern relates to taxes. Sources estimate the cost for cannabis from legitimate sources will be two times more than what it costs in the gray market, thanks to several taxes.

Excise Taxes

As of April 1, 2022, Article 20-C of the New York State Tax Law imposed a THC potency excise tax – the first in the nation. The excise tax is an amount a retailer pays to a distributor. It equals: $0.005/mg of THC for cannabis flower, $0.008/mg of THC for concentrates, and $0.03/mg of THC for consumables. In addition, there’s an adult-use excise tax of 13% paid by retailers. Of amounts collected, 9% goes to the state. Of the remaining 4%, 1% goes to the county where the sale took place and 3% is split between the cities, towns, and villages in the county that opted in based on respective cannabis sales.

IRC 280E & 471

For Federal income taxes, IRC 280E governs what expenses are deductible and credits are allowable, while IRC 471 governs inventory rules. To offset IRC 280E, New York’s Governor Hochul enacted Senate Bill S8009 when she signed the 2022-2023 budget into law. As a result, starting January 1, 2023, state cannabis taxpayers will be allowed standard business deductions and credits on state returns (even though IRC 280E bans them on Federal returns).

Franchise Tax

New York businesses are required to pay the highest of business income tax (6.5% to 7.25% or 0 for qualified manufacturers); business capital tax (0.1875% of business capital allocated to New York or 0 for qualified manufacturers); or fixed dollar minimum tax (ranging from $25 to $200,000 or $19 to $3,740 for qualified manufacturers). Note: There are some benefits to being treated as a qualified manufacturer.

Sales Tax

While New York businesses will not collect sales tax on cannabis, sales tax will apply to related products like rolling paper, pipes, and other paraphernalia.

(Some of the taxes referenced in this article may work differently in New York City.)

Beyond taxes, audit expectations are high. As noted in an article published by the New York State Society of Public CPAs (Klimek, Jason. Cannabis Taxes in New York State – How High Is Too High. April 1, 2022), “All of this adds up to a high likelihood of an IRS audit. In 2013, with solely medical cannabis legalized in a few states, the IRS determined that the average per hour recovery for IRS work in mainstream businesses was $493. For cannabis business, the average per hour recovery was $1,375.”

No doubt, 2023 will be a big year for legitimate cannabis businesses in New York. If you need assistance with related accounting, taxes, or audits, please let us know. RBT CPAs is one of the largest firms in the Hudson Valley. We believe we succeed when we help you succeed. Give us a call to learn more about what we can do for you.

Does Your Company Need a Mentor Program?

Mentoring was once reserved for building senior leadership talent pipelines – not anymore. Today, over 70% of Fortune 500 companies make mentoring a fundamental part of their recruitment, retention, and engagement strategies for many employees. The fact is, when done right, mentorships can be a win-win, and their resurgence couldn’t have come at a better time.

We all know the statistics – the average age of retirement in construction is 61 and today more than 1 in 5 construction workers is over 55. As if the talent shortage isn’t bad enough, issues are compounded when you consider the pending loss of institutional and on-the-job knowledge that will accompany workers into retirement. Before construction managers, project managers, and experienced tradespeople leave the workforce, it’s imperative to tap into their wealth of knowledge and set up future workers – and your company – for success.

Gen Zers and Millennials make up about 40% of today’s workforce and they’re unlike any predecessor. They place a premium on having a purpose and being valued and respected. Being in the first two digitally native generations, they want continuous learning. Both work/life balance and professional development are important. If a company’s values, culture, and environment don’t align with their priorities, they may not stick around for an interview much less a job.

Unlike what these employees learned in a classroom, apprenticeship or internship, mentorships can help provide insights into your company culture, the value proposition your company and their profession offer, and soft skills like decision-making, active listening, communication, and collaboration.

Mentor programs are used to build leadership and communication skills; provide networking opportunities; improve quality and safety; promote employee ownership of professional development; navigate on-the-job challenges; provide a window into career opportunities and professional development; expose new employees to all aspects of a job; foster diversity and inclusion; break down silos; hasten the pace of merger and acquisition integration; and more.

By pairing a workforce entrant with an experienced employee, new employees gain insights into why things are done a certain way, the rewards and challenges of a construction career, what clients really expect, or even the best way to stay safe on the job (which is valuable considering 60% of on-the-job injuries involve employees with less than a year of service).

A mentor program can also serve as a retention tool for existing talent. When more experienced workers are asked to share experiences, skills, and knowledge, they feel valued and have another reason to put off retirement – in fact, retention rates are higher among mentors than non-mentors.

Today’s mentoring programs come in many formats – one-on-one, group, or even online – and last anywhere from a few months to a few years. Some build a talent pipeline by offering mentoring to high school or college students. Others focus on new hires or any employee seeking development. There are even reverse mentorships, where experienced business leaders pair up with new workers to learn about growing up with technology and other traits of Gen Z and Millennials.

Numerous construction associations offer mentor programs as part of their skill building toolkits. Still, many employers build customized programs targeting employee and company priorities. Software is available to help track and facilitate program activities.

Visible executive support is vital to help build support of the program; foster participation; and market an employee value proposition. “We have the best people. We learn from each other. We help each other succeed.” Those are potent selling points to employees that value living a meaningful life.

To maximize ROI, a program should have a formal structure and process for recruiting and training mentors, goals and success measures, and prescribed activities and timelines. One way to promote effectiveness is by conducting a pilot; asking for feedback; and making adjustments before launching companywide.

One challenge to prepare for is motivating existing employees to step up as mentors. Consider what’s in it for them. Plan for special recognition in company communications and at events. Share success stories. Provide incentives ranging from gift cards and extra time off to bonuses.

While there is no magic bullet for resolving current staffing challenges, mentoring programs check off a number of boxes in terms of delivering value to recruits, employees, companies, and clients. Interested in learning more? Our Visions Human Resources affiliate staff is available to work with your team on mentor programs (as well as other recruiting and retention tools), while RBT CPAs can free you up by taking on your accounting, tax, bookkeeping, and audit responsibilities. Give us a call today.

Should Your Company Be Taking Advantage of the IC-DISC Federal Export Tax?

The Interest Charge Domestic International Sales Corporation (IC-DISC) offers eligible manufacturers and distributors that export U.S. products significant Federal income tax savings, which can come in handy given the current economic environment. In fact, an IC-DISC is treated as a federally exempt entity. No federal corporate tax applies. Could it be right for your business?

Who’s eligible?

To qualify for IC-DISC status, a corporation must:

Pass the qualified export receipt (QER) test (95% of gross receipts during a tax year are qualified export receipts).
Pass the qualified export asset (QEA) test (at the end of a tax year, the adjusted basis of qualified export assets equals at least 95% of the sum of the adjusted basis of all assets).
Have one class of stock with a stated value of at least $2,500 each day of the tax year.
Maintain separate books and records.
Have the same tax year as the principal shareholder with the highest percentage of voting power.
File Form 4876-A, “Election to Be Treated as a Disc.”

What is it and what does it offer?

In 1971, Congress created the Domestic International Sales Corporation (DISC) to promote export sales. According to the New York State Society of CPAs (NYSSCPA), “A U.S. exporter was allowed to allocate a portion of its export profits to a domestic subsidiary (i.e., a DISC) to reduce its U.S. taxes.” Over the years, there have been several changes, with one occurring in 1984 that resulted in DISC owners paying interest on the deferred tax of undistributed earnings (a.k.a. an interest-charge); thus, the IC-DISC was born. The NYSSCPA further explains, “The IC-DISC is actually a corporate tax remedy – one that provides U.S. exporters and manufacturers large tax incentives in order to mitigate potentially significant tax burdens.”

How is an IC-DISC structured?

Typically, a flow-through entity (i.e., an LLC, partnership, or S-Corporation) holds the ownership interest in the IC-DISC (which is a C-Corporation). The IC-DISC can be structured as a buy/sell (taking title to the goods it sells outside the U.S.) or as a commission where it is treated as a commission agent selling products outside the U.S..

Why would you want to consider it?

By setting up a separate corporation and complying with related rules and restrictions, there’s a 15.8% direct tax benefit. If your company is a commission IC-DISC, the export company pays a commission (which is a deduction at the ordinary tax rate) to the IC-DISC based on foreign sales of products manufactured or produced in the U.S. (which is tax-free income). What’s more, an IC-DISC shareholder will get to treat any distributions, as well as any taxable income from export receipts exceeding $10 million, as taxable dividend income at the qualified dividend tax rate. If the IC-DISC doesn’t pay dividends to shareholders, an interest charge applies to the deferred tax.

Interested in learning more? For general information, visit IRS.gov. If you want to find out how an IC-DISC may benefit you and your organization, give RBT CPAs a call. We can help you determine whether your organization qualifies for IC-DISC and, if so, what the potential benefits could be. Give us a call to learn more.

How the Inflation Reduction Act Will Transform Construction

What the introduction of the Intranet did for retail, the Inflation Reduction Act (IRA) – combined with the Infrastructure Investment and Jobs Act (IIJA) – will do for construction, fundamentally changing every aspect of the industry as we know it.

IIJA laid the groundwork for what some are calling the next industrial revolution. As we noted earlier this year in our thought leadership article, Hudson Valley Construction: Get Ready to Get Building (Marchione, 2022), “The $1.2 trillion law has money for everything from roads, bridges, railways, and highways to clean water, a stronger power grid, internet, climate change, and more. It includes 375 programs, of which 125 are new. Of the $1.2 trillion budget, $550 is new spending. There’s also $650 billion in previously authorized funding for roads and other infrastructure.”

We followed that up with Prepare for the Infrastructure Construction Boom (Marchione, 2022), which included these tips: “For those in the construction industry, it’s a good time to become acquainted with the White House guidebook; raise your hand and let government representatives know if there are particular areas of interest to you; examine staffing and training needs for your organization, and consider whether you should be partnering with other firms.

When we wrote those articles, the IRA didn’t even exist. Now that it does, we still stand behind our initial thoughts and recommendations, but we also believe there’s a much bigger picture to consider.

There’s sort of a peer pressure aspect to the Act. While there are incentives targeting construction, there are also incentives for other industries that will ultimately impact how construction gets done.

For example, look at how the IRA impacts manufacturing. There are incentives for the creation of cleaner processes and materials that will be used in construction (i.e., paving materials). The same incentivization is true for the energy industry, public transportation, the automobile and heavy equipment industries, Internet and communication industries, and more. So, even if you were planning on taking advantage of the upcoming building boom based on the status quo, the “peer pressure” from other industries may give you no choice but to start transforming the way you do construction.

Going back to continue with our manufacturing example, to maximize IRA opportunities, let’s imagine manufacturers start shifting from the production of current construction materials to greener/cleaner/more sustainable ones, which will impact construction project planning (Strupp, 2022), sourcing, and procurement (especially given Buy American provisions). Everything from doors, windows, ductwork, insulation, wiring, heating and cooling systems, electric panels, paving materials and more will likely change.

Employees will have to be trained on using the new materials. Prevailing wage requirements under IIJA and the IRA will likely come into play. The equipment you use to get work done – from vehicles to handhelds – may have to be modified or updated to handle new materials. (It will be a good time to take advantage of the first federal tax credits (Electrification Coalition, 2022) for commercial EVs). No doubt, that’s just the tip of the ice burg.

So, as you consider how your business may benefit from IIJA and the IRA, also consider how it will have to change. Whether that change starts now or will be eventually driven by transformation in other industries is up to you. In the meantime, if you need any assistance with accounting, audits, and/or taxes, RBT CPAs – the largest CPA firm in the Hudson Valley – is here to help. Give us a call today.

What To Know About GASB Changes Taking Effect in 2023

As you start your 2023 planning, make sure Governmental Accounting Standards Board (GASB) changes taking effect next year are on your radar. Following are some highlights…

GASB Statement No. 96 (Subscription Based IT Arrangement or SBITA). A SBITA is a contract that gives one the right to use another party’s IT software for a defined period in an exchange or exchange-like transaction. Examples include cloud computing arrangements; Enterprise Resource Planning systems; online conferencing or payment tools; as well as email, calendar, and office tools. The standard is similar to 2022 implementation for leases and takes effect for fiscal year 2023 reporting.

GASB Statement No. 94 (Public-Private and Public-Public Partnerships and Availability Payment Arrangements). GASB No. 94 defines PPP as an arrangement where a government (the transferor) contracts with an operator for public services by giving the right to operate or use a non-financial asset (i.e., infrastructure) for a period in an exchange or exchange-like transaction. The transferor can change and approve which services the operator provides, to whom, and prices that can be charged. What’s more, the transferor is entitled to residual interest in the service utility of the PPP asset at the end of the arrangement. There are other special arrangements for SCAs and APAs. GASB No. 94 takes effect for fiscal year 2023 reporting.

GASB Statement No. 100 (Accounting Changes and Error Corrections). This amendment of No. 62 takes effect fiscal years starting June 15, 2023. (Earlier adoption is encouraged.) GASB No. 100 defines accounting changes as changes in accounting principles, changes in estimates, and/or changes to or within the financial reporting entity. Implementation of changes/corrections must be identified as prospective or retrospective. Prior period financial statements must be restated. Financial statements must display the aggregate amount of adjustments to and restatements of beginning net position, fund balance, or fund net position by reporting unit.

Required supplementary information (RSI) – like Management’s Discussion and Analysis (MD&A) for earlier periods than those included in basic financial statements – should be restated for error corrections – but is not required for changes in accounting principles.

Financial reporting entity changes should be reported by adjusting the current period’s beginning balances. Estimated changes should be recognized in the current period and reported prospectively.

Finally, financial statements should reflect the organization has adopted Statement No. 100 provisions; note disclosures detailing changes, errors, impacts on starting balances; and highlight why the new methods are preferable (i.e., understandability, reliability, relevance, timeliness, consistency, and/or comparability). Financial statements must note consideration of Statement 100, as well as the date of adoption.

GASB Statement No. 101 Enhancements to compensated absence recognition, measurement and disclosure requirements take effect fiscal years starting December 15, 2023. (Earlier adoption is encouraged).

Statement No. 16 (Accounting for Compensated Absences) is being replaced by Statement No. 101 (Compensated Absences) to reflect paid time off practices (including vacation and sick time) in today’s workplace. The enhanced standards focus on recognition, measurement, and reporting.

Under Statement No. 101, an unused leave liability (including sick leave) will be recognized if the leave is attributed to services rendered; accumulates; and is likely to be used for time off or paid/settled. This applies even if the leave hasn’t been used or has been used but hasn’t been paid/settled. One exception: for parental and military leaves, as well as jury duty, liability is recognized at the start of the leaves/duty.

Measurement will be based on an employee’s pay rate in effect on the financial reporting date, unless a compensated absence arrangement calls for a different pay rate at the time of payment (for example, sick pay based on 50% of the employee’s pay rate). As is the case under GASB 16, salary related payments – including the employer’s share of payroll related taxes, defined pension contributions, and other post-employment benefit plans – should be part of the compensated absence liability calculation.

Finally, certain requirements are being eliminated or made optional for financial disclosures. The government funds used to liquidate liability for compensated absences will not have to be disclosed. Also, governments can choose how to identify increases and decreases in long-term liability change, as either gross or net amounts. Financial statements must note consideration of Statement 101, as well as the date of adoption.

For complete details, visit the GASB website at www.gasb.org or give RBT CPAs a call. We’re a leading accounting, tax, and audit firm in the Hudson Valley and beyond. We pride ourselves on our knowledge and application of accounting rules for government organizations. 2023 is going to be a big year in terms of GASB changes and compliance. Get peace of mind that your municipality complies by partnering with a firm you can trust. Give RBT CPAs a call today.