Calif. officials telling medical marijuana dealers to pay taxes

April 07, 2007

Associated Press, KGET TV 17

The taxman is going after the medical marijuana man. For the first time since California voters approved use of medical marijuana more than a decade ago, the state Board of Equalization is telling the estimated 150 to 200 medical marijuana retailers in California to pay sales taxes on pot.

"If you sell medical marijuana, your sales in California are generally subject to tax and you are required to hold a seller's permit," the board said in notices sent out in February. "If you do not obtain a seller's permit or fail to report and pay the taxes due, you will be subject to interest and penalty charges."

Proposition 215, the 1996 initiative that decriminalized use of marijuana for medical purposes, did not address how state tax officials should deal with medical marijuana sales. The sales weren't covered before Proposition 215 because they were illegal.

The board ultimately decided that medical marijuana was not exempt from sales taxes because it was not dispensed by a pharmacist or approved by the Food and Drug Administration as a medication.

"For the Board of Equalization, any tangible personal property not exempt from tax is subject to a sales tax," said Betty Yee, the board's chairwoman.

The board's action has divided the medical marijuana community, with some sellers saying it helps legitimize their businesses. But others worry that any tax information they report will be used against them by the federal government, which still bars use of medical marijuana.

"It's frustrating," said Chris Moscone, an attorney who is representing the Hemp Center, a San Francisco medical marijuana dispensary that is negotiating with the board on back taxes. "There are basically two camps: Those that want to be treated like legitimate businesses, and the other side, where they're still rebels and don't want to be taxed."

The applications for a seller's permit do not require the retailer to disclose what he or she is selling, which would make it difficult for federal officials to track sales.

Kris Hermes, legal campaign director for Americans for Safe Access, a national medical marijuana advocacy group, said the board would get more medical marijuana dealers to come forward and pay taxes if it agreed not to go after back taxes.

"If they started collecting taxes when they sign up for seller's permits, that would reduce anxiety for many of these providers," Hermes said. "And it would probably increase the level of participation in the state."

But Yee says that's not an option, that the board has to treat all retailers the same.

The board has the authority to collect taxes going back as many as eight years.

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