DENVER (KDVR) — The City and County of Denver Auditor’s Office said in a press release on Thursday that Denver is not effectively making sure that marijuana businesses pay the taxes they owe to the city of Denver. Additionally, O’Brien says the city is not effectively collecting those taxes either.

“When voters approved marijuana legalization, many supported the law because of the tax revenue it would generate for things like education, enforcement and regulation,” Denver Auditor Timothy O’Brien said. “It is the city’s responsibility to ensure it is collecting the full amount of taxes owed to support resident services.”

The press release explains that the city is not keeping documentation and records to support audit work, not working with the state to get information for audits and not doing enough to identify marijuana delivery businesses not paying taxes.

When it comes to taxes for recreational marijuana products, the city collects both a three-and-a-half percent special sales tax that goes into the general fund and a two percent special sales tax that goes into the Affordable Housing Property Tax Revenue Fund for affordable housing projects.

A “shareback” of state sales tax revenue to local jurisdictions is also provided by the state.

The city’s Treasury Division oversees the collection, recording and depositing of all city taxes and other city revenues. The division assigns one dedicated tax technician specialist to help identify marijuana businesses to audit.

The Auditor’s Office says that the Treasury’s audit unit has been using several “false assumptions” regarding the risks associated with marijuana businesses. For one, the audit unit assumes marijuana businesses are more compliant than non-marijuana businesses.

When testing this assumption, the press release says there is no significant difference when it comes to the likelihood that the business will report and pay taxes.

Another “faulty assumption,” is that total taxes paid and prior audit history are effective risk indicators when deciding which businesses to audit. Further testing concluded that this is ineffective in determining risk factors.

Additionally, every six months, the Auditor’s Office recommends that the marijuana tax specialist report abnormal or erratic payments from marijuana businesses to the Treasury’s audit unit.

The office also recommends that the audit unit keep documentation used to support tax assessments and sales tax reconciliations.

The Auditor’s Office also recommends that the Treasury identifies marijuana delivery businesses as they begin applying for state licenses to ensure they are paying their taxes as well.