Pubdate: Sun, 19 Aug 2012
Source: Seattle Times (WA)
Copyright: 2012 The Associated Press
Contact:  http://seattletimes.nwsource.com/
Details: http://www.mapinc.org/media/409
Author: Mike Baker

STATE TAX COLLECTORS AUDIT MEDICAL POT DISPENSARIES

Some Accept Tax, Others Dig in Heels

Agency Dismisses Legal Objections

Tax enforcers have started auditing medical-marijuana dispensaries in 
Washington, escalating a dispute over whether the outlets should be 
collecting money for state government.

The state Department of Revenue has worked since 2010 to tell 
marijuana establishments that they must remit sales taxes on their 
transactions. Some 50 dispensaries have registered with the state, 
helping the state collect some $750,000 in taxes from the industry 
over the span of one year.

Officials say many other outlets remain unregistered, and that some 
registered entities are improperly reporting that they had no taxable business.

"We've been doing the educational part, and now we're doing the 
enforcement part," said Mike Gowrylow, a spokesman for the Department 
of Revenue (DOR). He emphasized that there was no particular focus or 
crackdown on medical-marijuana entities, just that the state was 
continuing its normal efforts to identify noncompliant businesses. 
The agency is currently conducting audits on two marijuana dispensaries.

Some in the pot community have encouraged dispensaries to pay taxes 
as a means of achieving legitimacy. But Seattle medicalmarijuana 
lawyer Douglas Hiatt said he doesn't believe the state can tax 
medicalmarijuana sales, nor would he allow one of his clients to 
cooperate with an audit.

When the Department of Revenue recently tried to require one of his 
clients to pay taxes, Hiatt said, he threatened to litigate, and the 
department backed down.

"There's no way they can do this," Hiatt said. "DOR doesn't have the 
power to tax marijuana. It's not only that you can't tax it because 
it's illegal, it's that you can't tax it because it's medicine. 
There's an exemption for prescription medicine under state law, and 
an authorization is the functional equivalent of a prescription."

Gowrylow said state law does not consider medical marijuana a 
prescription drug.

Hiatt and others also have argued that dispensaries are not selling 
the drug but exchanging items as part of a cooperative. None of that 
really matters from a tax standpoint, Gowrylow said, because there is 
an exchange of value taking place.

Steve Sarich, who runs a medical-marijuana establishment in Seattle 
called Access 4 Washington, said any money exchanged at his facility 
is a donation to the collective effort of producing the marijuana. He 
noted that it is illegal to sell marijuana under both state and 
federal law, so it would be problematic for any medical-marijuana 
provider to claim sales of the drug.

"If you pay sales tax, you're admitting to sales," Sarich said. "I 
wouldn't advise anyone to do that."

Sarich received a letter from the state regarding the tax issue, but 
hasn't had any further discussions with revenue officials.

Washington's medical marijuana industry has been left in a constant 
state of flux, with federal authorities cracking down on some 
dispensaries. Gov. Chris Gregoire vetoed a measure that would have 
provided broader regulation of the sector, saying she was concerned 
that the federal government could prosecute some state workers for 
overseeing it all.

Now marijuana advocates are pushing an initiative that would legalize 
pot and allow sales at state-licensed stores. If that system becomes 
fully functioning, state officials estimate it could raise up to 
nearly $2 billion over the next five years.

But those projections are extremely uncertain. Officials note that 
the federal government could come in and dismantle the whole thing.
- ---
MAP posted-by: Jay Bergstrom