Bay Area Pot Clubs Audited as State Goes on Fiscal 'Witch Hunt'

March 10, 2011

Chris Roberts, SF Weekly

It was big news for taxpayers and medical cannabis advocates alike when the Board of Equalization informed mega-dispensary Berkeley Patients Group that it owed some $6.4 million in back taxes.

And now it appears that BPG's run-in with the taxman is not an isolated incident.

While BOE spokeswoman Anita Gore told SF Weekly that "no directed enforcement activity" is being aimed at the state's medical cannabis dispensaries, "dozens" of Bay Area dispensaries have undergone audits in recent months, according to Kris Hermes, spokesman for Oakland-based Americans for Safe Access.

And at least one dispensary owner contacted by SF Weekly noted that BOE's single in-person visit was recently.

"It was the one and only time," said the dispensary owner, who asked not to be identified. "Before, we'd only corresponded and paid our taxes via the mails... it's very rare to hear or see from [the BOE]."

This news comes on the heels of a visit by the IRS to Marin Alliance for Medical Marijuana, who owes the federal government "millions and millions," according to owner Lynette Shaw.

What gives? Is the taxman trying to put dispensaries out of business?

That seems highly unlikely, according to ASA's Hermes.

"The BOE, unlike the IRS, has to strike a balance between the money they think they're owed between what [tax bill] would put the businesses funneling money into their general fund out of business," he said. "Because if they come down too hard, they will put them out of business."

That would mean more black market marijuana, and less tax money over time for the beleaguered state, which is struggling to plug a $26 billion budget shortfall.

"It would be very counterproductive to the state's livelihood," Hermes added. The most recent BOE estimate on sales tax revenue from cannabis dispensaries is between $58 million and $105 million annually, coming from as much as $1.3 billion in sales, according to Gore.
"We only have an estimate, because medical marijuana dispensaries don't have to declare that they're dispensaries, nor do they need to tell us," she said

And, at least outside of the Bay Area, she's right: Pot clubs can, and have, registered as "holistic healing centers" and other such entities in San Jose, Los Angeles, and elsewhere. Gore refused to say how many other dispensaries were undergoing audits, citing taxpayer confidentiality, while maintaining that dispensaries are subject to audits "just like any other retailer." Our dispensary source agreed. "I think it's probably not aimed specifically at dispensaries," the source said. "They're probably doing it to everybody, because the state is on a witch-hunt for money." Also at issue for many dispensaries is the notion of historic tax liabilities.

Cannabis dispensaries, which ostensibly sell medicine that is not taxed in California, did not received BOE sellers' permits until 2007. Yet the BOE maintains that dispensaries are liable to pay sales tax on medicine sold prior to 2007 -- sellers' permit or not.

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