New Rules: Oregon Cannabis Retailers Must Certify Tax Compliance

On June 15, 2023, the OLCC approved temporary rules requiring marijuana retailers to obtain a Certificate of Tax Compliance (“Certificate”) from the Oregon Department of Revenue (“DOR”) as a condition for acquiring or renewing a marijuana retailer license, as well as for changes of ownership and adding someone to a license.  These new rules resulted from a directive by Governor Kotek following the La Mota scandal that led to the resignation of the Oregon Secretary of State, Shemia Fagan.

The temporary rules go into effect immediately. But the OLCC will undertake permanent rulemaking this summer to further develop requirements for tax compliance. Also on June 15, the DOR issued a Temporary Administrative Order designed to provide marijuana retailers guidance on how to obtain a Certificate and comply with the new rules.  The temporary rules are here, the DOR order is here, and a FAQ on the temporary rules is here.

The temporary rules apply only to marijuana retailers. But comments at the meeting adopting the temporary rules by the OLCC suggest that the Commission may seek to expand the Certificate requirement to other types of licenses.

Some of the key components of the temporary rules are:

  • The rule took effect on June 16, 2023. It applies to all applications for a retail license, including changes of ownership, submitted to the OLCC on or after that date. It applies to all renewal applications for retail licenses that expire on or after September 15, 2023.
  • The rule requires all marijuana retailer “applicants” to submit a Certificate of Tax Compliance. “Applicant” is a defined term at OAR 845-025-1045(3) and includes, among others, (i) any individual or legal entity who holds or controls a direct or indirect interest of 20 percent or more in the business, (ii) any individual or legal entity entitled to receive a portion of the revenue, proceeds, or profits of the business totaling 20 percent or more, (iii) each manager of a manager-managed liability company, (iv) each principal officer of a corporation. So the rule applies broadly.
  • The Certificate is a letter from the DOR that verifies the applicant is in compliance with “all state and local and fee programs” administered by the DOR. For information on how to obtain the letter (Certificate), see the link above to the DOR’s order.
  • If an applicant cannot obtain a Certificate, the business will not able to renew its license, enact a change of ownership, or add individuals or entities to the OLCC license.
  • An applicant’s failure to submit a Certificate within 90 days of a change of ownership or renewal application causes a determination of “incomplete.” This is not a “denial,” and the OLCC does not give hearing rights to appeal rejections of applications.
  • Individuals and legal entities in tax arrears must get on a payment plan with the DOR in order to obtain a Certificate of Tax Compliance.
  • Disagreements over taxes must be resolved with the DOR, not the OLCC. What is not clear is how the OLCC will handle renewals for businesses involved in a dispute. The DOR order provides that a taxpayer may obtain a Certificate if they have a “pending good faith appeal” in the Oregon Tax Court of any assessment that remains unpaid.
  • A taxpayer is considered in compliance with the DOR requires the taxpayer to have filed all returns and reports for the three years preceding the date of the request for Certificate.
  • The DOR evaluates only Oregon taxes. Not federal taxes or taxes from other states. So out-of-state business owners have a distinct advantage over Oregonians in obtaining a Certificate of Tax Compliance.

There is a lot to digest in the temporary rules and DOR order. This will affect the purchase and sale of marijuana retailers (including anyone bidding on Chalice) and anyone seeking to renew an OLCC license. This looks to make an already depressed industry subject to even more burdensome scrutiny. While we understand the reasonableness of requiring timely sales-tax remittances, these rules go too far, in our opinion.

Stay tuned for more analysis. And, perhaps, start looking for a tax lawyer.

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