State to tax medical marijuana dispensaries
October 26, 2005
Brian Seals, Santa Cruz Sentinel
The state approved a policy this week that opens the door for medical marijuana distributors to collect and pay state sales tax.
The policy, while requiring marijuana retailers to feed state coffers just like department stores or any other California retailer, also considers their unique fear of being targeted by federal authorities because of legal questions surrounding their product.
While California approved medical marijuana in 1996, it remains illegal under federal law.
Under the new policy passed by the state Board of Equalization, businesses can get what is known as a sellers permit, allowing them to collect sales tax, without indicating whether their merchandise is lawful to sell.
Like the federal government, the state Board of Equalization considers any kind of marijuana sale to be unlawful.
"We didn't want to inadvertently be in the position of putting medicinal marijuana dealers in a trouble spot," said board member Betty T. Yee of San Francisco.
Currently, some retailers of medical marijuana are registered with the board, while others are not.
Lee said the move "levels the laying field" for dispensaries that have sought to comply with state tax laws.
That was welcome news to Lisa Molyneux, who opened a dispensary in the Harvey West area of Santa Cruz last month.
"Most of us want to comply with the law and do all we should as a regular business," said Molyneux, who obtained both city business and special-use permits as part of opening the shop on DuBois Street.
In agreement was Valerie Corral, co-founder of the area cooperative Wo/men's Alliance for Medical Marijuana, who said such dispensaries should be treated like other businesses.
A sellers permit is required to pay sales tax on tangible personal property and up until now those permits were not issued to businesses the board deemed to be engaged in "unlawful" sales.
But applying that "unlawful" label to marijuana in California became a bit sticky after it was legalized by voters in 1996 under the Compassionate Use Act.
"That act was silent on sales," Yee said. "That's where we have a bit of a problem."
Another complicating factor was the federal government's view of medical marijuana, Yee said.
Allowing businesses to get a permit without stating the legal status of their product was an effort to provide some level of security from federal scrutiny, Lee explained.
The state has some data sharing arrangements with the federal government.
However, Corral doubts there will be much security from federal bodies.
"There is no adequate protection against the federal government," she said.
At least one medical marijuana advocacy group, Americans for Safe Access, opposed the board's action.
That group said any dispensaries should be categorized as "health facilities" where medicine like marijuana would be exempt from taxation.
The state believes any revenue realized from sales tax on medical pot would be negligible.
Sales taxes generally go into the state's general fund. Local governments may add to the state rate with that portion going to those localities.
About 27 medicinal pot operations have sellers permits, according to a Board of Equalization staff report.
This week's Board of Equalization vote was 4-1, with a representative for state Controller Steve Westly voting no.
A call to Westly's press office was not immediately returned.
The five-member board consists of four elected members and the state controller.
Contact Brian Seals at email@example.com.