Managing marijuana taxes is no joke. Here’s what you need to do to keep the IRS off your back.

Tens of thousands of people have left traditional careers or pivoted to join the cannabis space within the last five years. The one thing all these people will all tell you is that with legalization comes new layers of business responsibilities. Taxes, and how they are levied and collected, are causing major growing pains. Getting everything right is crucial in developing positive relationships with government regulators, vendors, end consumers, and ultimately protecting the bottom line.

Here’s how the most successful entrepreneurs are managing it.

1. Understand Local Tax Laws

The importance of taxation is quite apparent in California, the largest and most diverse legal cannabis market in the world. The state is divided into 58 counties, and 482 incorporated cities and towns. By law, each of these territories is permitted to determine its own cannabis policies and taxes in addition to the state regulations. It makes things incredibly confusing for businesses and consumers alike.

Here’s a breakdown of taxes charged for a $35 eighth of cannabis in eight US cities. You’ll notice the total cost is widely different, even when comparing cities in California.

It’s never been more important for cannabis industry hopefuls to understand how state and local taxation affects them. Before setting up automated tax calculations at your dispensary, it’s wise to consult an accountant or attorney to ensure compliance and accuracy.

2. Keep Detailed Records

Though the task may seem daunting at first, even the largest cannabis retailers can easily handle its compliance responsibilities by keeping detailed records of every transaction.

Using a point-of-sale system specifically built for the cannabis industry makes it seamless, and creates a beneficial paper trail for the business, should any issues arise with finances or regulations.

3. Set An Order of Operations for Taxes

Setting an order of operations for your calculations is also important, as there are several different compounding types of taxes. Standard surcharges could include a state-mandated excise tax on cannabis products, and local or municipal taxes, on top of the regular statewide sales tax. By creating a specific procedure for applying these taxes and fees, you will ensure accuracy in your tax reports and payments

4. Be Transparent with Customers

Because of tax differences, the price of a jar of cannabis can vary up to 15 percent based on geography and the policies in that area. That’s a huge shock for cannabis consumers, who end up paying between 20 and 45 percent over the sticker price in tax surcharges.

Though vendors and distributors have to pay taxes too, this particular burden is largely passed on to the retailers. They’re the ones that have to face the customer at the cash register.

Get ahead of the confusion by helping your customers understand exactly what taxes are being charged. Retailers can do this by clearly printing tax details on their receipts. Doing so will alleviate price complaints and visually explain how their total cost was calculated. Staff should also be trained on various tax types so they can intelligently answer questions and provide education about how tax revenue is being used to improve the community.

5. Fight for Fairness

The illicit market for cannabis is shrinking but still exists. If the total cost of cannabis is unaffordable, consumers will continue turning to the black market to save a buck. Additionally, if the business taxes keep climbing as the price of flower falls, the industry will continue to push out smaller players who can’t afford to stay in business.

Fairly-priced cannabis benefits the entire industry. Stay in close communication with your vendors, distributors, and other retailers in your area in order to stress the importance of responsible pricing.

Death and taxes are inevitable, even in the prosperous world of cannabis. Entrepreneurs have an inherent responsibility to advocate for fairness when it comes to taxes the taxes they pay. By taking a stand against excessive taxation and implementing customer-focused best practices, businesses can stand the test of time.