As if raids from gun-toting Drug Enforcement Agency agents weren't enough to make stoners paranoid, California's medical marijuana clubs can also be shut down real fast by the IRS.
That's because the Internal Revenue Service has declared that California's legal medical cannabis collectives can not deduct the price of marijuana from their federal taxes; that's unlike every other merchant in the country -- deductions for goods sold is the only way to do business.
But for once, it looks like pot clubs and their dependent patients have a friend in, uhh, high places. United States Congressman Pete Stark, (D-Fremont) introduced legislation on Wednesday that would amend the tax code and allow pot dispensaries to deduct the price of medical marijuana on their federal tax forms.
"While unfair to these small business owners, the tax code also punishes the patients who rely on them for safe and reliable access to medical marijuana prescribed by a doctor," Stark says.
Dispensaries like Fairfax-based Marin Alliance
for Medical Marijuana, certainly aren't complaining. The IRS is currently asking the Alliance for $1.4 million in
back taxes. "This is a very significant thing," MAMM cofounder Lynette
Shaw told SF Weekly.
What's even more significant is that Stark's cosponsor is a Republican -- and that alone makes it a good day for the politics of pot.
Since its passage in 1986, Section 280E of the IRS code has prohibited individuals from deducting "sales of illegal drugs" on their personal or business income tax forms. This law was originally passed to punish cocaine dealers, who, by the way, tend to drive much nicer cars than most pot growers.
Stark's bill, cosponsored by Rep. Dana Rohrabacher, (R-Huntington Beach), dubbed "The Small Business Equity Tax of 2011," is two pages long, detailing an exception to the current tax code. This exception allows "amounts paid or incurred in connection with the trade or business consisting of sales marijuana ... intended for patients for medical purposes pursuant to the laws of a state" to be deducted from taxes.
Pot clubs have found ways of getting around 280E, thanks to San Francisco cannabis activist Michael Aldrich, the former director of a dispensary called CHAMP, which closed in 2002.
In 2005, the IRS asked CHAMP for "everything we made, plus 10 percent," Aldrich told SF Weekly. In the ensuing court case, CHAMP successfully argued that a dispensary could deduct everything but its marijuana dispensing operation, meaning that rent on space, electricity, and staff salaries used on social services, including massages or therapy, was deductible. Only the "bud-tending" counter was not.
"That's what saved [dispensaries'] butts," Aldrich said.
That said, every dispensary in California -- and Colorado, and Michigan, Maine, and you get the idea -- would like to be treated like every other money-making business. "A level playing field would be wonderful," said Cathy Smith, one of the cofounders of HopeNet on Ninth Street. "Everyone else gets to take out deductions. [If the bill passes], I'll go out and celebrate."
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