A CPA’s Advice to Business Owners in the Hemp Industry
There are endless things that you should be considering for your hemp business from a financial/accounting/tax standpoint, which is why it is so important that your CPA is knowledgeable in hemp. For starters, here is a very basic list of topics you should be thinking about, and some questions you should be asking yourself and discussing with your CPA.
Research and Development Tax Credits.
Are you involved in any type of developmental or experimental research related to hemp?
Could the words develop, experiment, create, research, test, or design be used to describe what you do? If so, it is very likely you are involved in an activity that may qualify for the research and development tax credit. Some examples of activities that may qualify include:
- Designing, developing, or testing cultivation or extraction techniques.
- Designing new or improved processes and systems for testing potency or related indicators of a particular strain.
- Developing or experimenting with new technology, equipment, or processes that could increase yield or production.
- Discovering or designing new uses for any part of the plant.
Chances are you are involved in research and development activities in some capacity in the hemp industry. Though, just being involved in an activity does not guarantee that it will be considered a “qualifying activity.” The activity must satisfy a four part test to be considered a “qualifying activity” eligible for the lucrative R&D tax credit:
- Technological in Nature
- Permitted Purpose
- Elimination of Uncertainty
- Process of Experimentation
Whether you are experimenting and improving processes for growing, cultivating, or processing the plant, or researching and designing new uses for the plant, you may be eligible for this tax credit and you should have this conversation with your tax professional. Qualifying could benefit you by an offset to income tax or even payroll tax.
Sales Tax: exemptions, filings, compliance, collecting & remitting, and more.
Are you eligible for any sales tax exemptions? Are you collecting and remitting sales tax?
Are you eligible to receive a refund for sales tax paid before being granted an exemption? What do your state laws require regarding sales tax?
Do you or should you have an established sales tax policy that is available to customers or buyers?
Whether you are a farmer, processor, wholesaler, or retailer, sales tax compliance should be at the front of your mind when you consider compliance for your hemp business.
It is highly likely that you are either eligible for a sales tax exemption, should be collecting and remitting sales tax, are required to file sales tax returns (quarterly or even monthly), or are not completely compliant with your state laws regarding sales tax.
When you consider the recent influx of sales tax legislation in combination with an industry experiencing both exponential growth and increasing regulation, you have a combination of red flags that greatly increases the importance of having tip-top compliance. Ensuring compliance in this aspect early on will likely set your business apart from many others in the future.
Accounting records should be: accurate, timely, and compliant.
Do you have separate bank accounts and credit or debit cards for your business? Are you using a formal accounting software?
Do you have a bookkeeper or are you keeping track of this on your own? Are your business bank accounts and credit cards reconciled every month?
One of the biggest mistakes a business owner can make in any industry, but especially an industry that is experiencing such rapid growth, is not investing in the resources that will help determine the future of your business.
The hemp industry is still very new to many which poses a higher likelihood for audits and inquiries. Ensuring accurate and compliant accounting records is imperative to success in this market.
Consider the future of your business… What does that look like to you? Will you pass down the business to future generations? Will you build an empire that you will later sell? Or maybe you plan to franchise? Regardless of what your business plan is, creating a solid accounting framework is key.
For more information or to schedule a free consultation with a CPA knowledgeable in the hemp industry, contact [email protected] or call (910) 256-3456.
As a proud and active member of the North Carolina Industrial Hemp Association (NCIHA), we have a strong network of professionals occupying all verticals of the hemp industry. If we cannot assist your current hemp-related needs, we are confident that we can connect you to someone that can.