SAN FRANCISCO (AP) - The federal government has found a new weapon in its war on marijuana — the tax man. A San Francisco Bay area medical marijuana dispensary that promotes itself as the world's largest has been hit with a $2.4 million tax bill following an audit by the Internal Revenue Service, the dispensary founder said Tuesday. The back taxes, penalties and interest levied against Harborside Health Center came after the IRS examined its returns for 2007 and 2008 and determined a 1982 tax code prohibiting cost deductions for businesses that traffic in illegal drugs applies to the dispensary. Harborside is a spa-like fixture on Oakland's waterfront with 94,114 registered customers and 84 full-time employees that offers an average of 30 varieties of medical marijuana every day and has $22 million in annual sales. "What kind of drug trafficking organization actually files a tax return? None of them do," said Harborside CEO Steve DeAngelo, who gave his auditor a personal tour of his posh apothecary. "The very fact that we filed a tax return and told the IRS all the details of what we are doing proves we are not a drug trafficking organization." http://www.myfoxny.com/dpps/news/ir...with-24m-tax-bill-dpgapx-km-20111004_15331274
That's how they brought down Al Capone. Oh well, the owner should forget about it, sit down and have a bowl.
William Panzer, an Oakland tax attorney who helped author California’s medical marijuana law, Proposition 215, also successfully fought the IRS in a similar case in 2007. In that case, U.S. Tax Court Judge David Laro declared that Californians Helping to Alleviate Medical Problems (CHAMP), a medical marijuana provider, could deduct the majority of employee costs as caregiving expenses. The IRS sought $426,000 in back taxes and penalties, but CHAMP ended up paying a tax assessment of less than $5,000. “This law is not about protecting citizens from criminals. It is a concerted effort by the federal government to crack down on a legitimate business,” Panzer said. DeAngelo points out the apparent craziness of the law. “The IRS allows me to deduct my cost of purchasing cannabis, which is the controlled substance they say is illegal. But I can’t deduct my payroll or my rent? That, clearly, defies logic and common sense. "Besides," DeAngelo added, "have you ever heard of a drug trafficker that actually files a tax return? Me neither." http://bottomline.msnbc.msn.com/_ne...ng-strikes-fear-in-medical-marijuana-industry
No they don't. States can make their own rules for how that state taxes, but they can't make rules for how the federal government taxes. Otherwise, Washington or Oregon could make laws about anything under the sun and give all their citizens federal tax-free status... it would be chaos and a race to the bottom (from the perspective of the federal government). Ed O.
