Pubdate: Thu, 10 Mar 2011
Source: Sacramento Bee (CA)
Page: 1A, Front Page
Copyright: 2011 The Sacramento Bee
Contact: http://mapinc.org/url/0n4cG7L1
Website: http://www.sacbee.com/
Details: http://www.mapinc.org/media/376
Author: Peter Hecht
Cited: Berkeley Patients Group http://www.berkeleypatientsgroup.com/
Bookmark: http://www.drugsense.org/cms/geoview/n-us-ca (California)

CALIFORNIA GOES AFTER POT SHOPS FOR BACK TAXES

As one of California's pioneering marijuana dispensaries, the 
Berkeley Patients Group served thousands of medical marijuana users 
and handled tens of millions of dollars in pot transactions a year.

But until 2007, the dispensary didn't charge customers sales taxes 
nor did it pay them to the state, contending that marijuana as 
medicine wasn't taxable.

California tax officials, strapped for cash, disagreed and now the 
State Board of Equalization is ordering the Berkeley facility to pay 
$6.4 million in back taxes and interest on $51 million in pot sales 
between 2004 and 2007.

The case is illuminating efforts by the state plus Sacramento and 
other cities to collect revenue from California's burgeoning medical 
cannabis industry.

Since last October, the state tax board has completed audits on 32 
other marijuana dispensaries, demanding $4.5 million in sales taxes 
and interest.

In September, the board ordered another Berkeley medical marijuana 
outlet, Community Flavor, to pay $600,000 in taxes and interest on 
$4.9 million in marijuana and $670,000 in pot cookie sales the 
dispensary argued were exempt from taxes between 2005 and 2008.

"It is our intent to identify where there could be a problem and then 
aggressively go in and enforce the law," said BOE Chairman Jerome 
Horton. "You will see a lot more investigations to assist them in 
complying with law."

The BOE estimates it takes in $57 million to $105 million in sales 
taxes as dispensaries ring up as much as $1.3 billion in annual pot 
transactions.

The industry's ultimate tax value to the state and local communities 
is hard to calculate. The BOE, in a concession to dispensaries 
worried about federal prosecution, requires them to obtain state 
sales permits but doesn't mandate they disclose what they sell.

BOE member Betty Yee said the growing California dispensary trade may 
someday generate $400 million in state sales taxes. George Mull, 
attorney for the California Cannabis Association, says dispensaries 
could produce $140 million if they all paid the standard 8.25 percent 
sales tax.

The Berkeley Patients Group and medical marijuana advocates complain 
tax authorities are targeting them after only belatedly explaining the rules.

In 2005, in the case of a San Francisco dispensary, the Hemp Center, 
the BOE declared that medical marijuana was "tangible personal 
property" subject to taxation.

But Kris Hermes, a spokesman for Americans for Safe Access, a 
marijuana patients advocacy group, said the state didn't begin 
informing dispensaries of its sales tax rules until 2007 and then 
went after them for back taxes.

"These facilities shouldn't have to pay from before they were 
notified," Hermes said. "But the BOE is saying they should pay a tax 
for as long as they existed. That is punishing them unnecessarily."

California marijuana dispensaries are supposed to operate as 
nonprofits. And Elisabeth Jewel, a lobbyist for the Berkeley Patients 
Group, said it doesn't have the money to pay its 2004 to 2007 tax bills.

She said the center, which employs 76 people and offers free patient 
services, such as counseling and AIDS testing, paid $1.5 million in 
state sales taxes last year. It is seeking a reduced settlement for 2004-2007.

"We're going to try to negotiate this down to an amount that the 
Berkeley Patients Group can afford while staying in business," she said.

Yee said she urged the dispensary to try to settle its tax debt 
through a state "offer in compromise" program that may allow 
businesses to negotiate a smaller tax payment based on ability to 
pay. "We're not interested in shutting them down," she said.

But the BOE is searching for medical marijuana outlets that may owe 
taxes. Horton said the agency knows of only 300 dispensaries with 
proper state sales permits, while more than 800 are registered with 
cities and counties.

Mull, the cannabis association lawyer, said many dispensaries didn't 
register with state tax authorities or pay taxes for years out of 
fear of triggering raids under federal laws against marijuana.

He said the state should consider "some type of amnesty" on back 
taxes to bring unregistered outlets onto California tax rolls.

California's largest dispensary, Harborside Health Center in Oakland, 
which pays more than $2 million in yearly state sales taxes, recently 
confirmed it is being audited by the Internal Revenue Service.

Meanwhile, dispensaries are about to get new taxes and scrutiny on 
the local level. Nearly a dozen California cities have approved local 
medical marijuana taxes.

Oakland is expecting to take in $1.4 million in pot taxes this year 
after boosting its local medical pot tax from 1.8 percent to 5 
percent. Los Angeles voters Tuesday approved a 5 percent tax. And 
Sacramento is due to begin collecting July 1 on a voter- approved 4 
percent tax on medical marijuana sales.

"We're making them a legitimate business," said Sacramento City 
Councilmember Sandy Sheedy. "And by doing that, you pay taxes." 
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MAP posted-by: Richard Lake