The IRS has just ruled that medical marijuana dispensaries cannot deduct standard business expenses like payroll, security or rent, a potentially devastating blow to the medical marijuana industry and the legalization movement. The ruling comes from the recent IRS case against Oakland’s Harborside Health Center, one of the nation’s largest dispensaries, which now owes $2.5 million in back taxes from 2007 to 2008.
“I see only two outcomes here,” Steve DeAngelo, future reality TV star and director of Harborside, tells msnbc. “Either this IRS assessment has to change or we go out of business. “
After celebrating it’s 5th anniversary on Monday, a possible Harborside shut down would not only be a crying shame it would disrupt service to 94,000 patients and displace 84 full-time employees as well as end a lucrative flow of tax revenue, to the City of Oakland about $1.1 million, $2 million to the state of California and $500,000 to the federal government!
“We have no complaint about the taxes we pay,” DeAngelo also said. “We are doing our part. All we ask is that we be treated like any other business enterprise. To treat us like criminals is simply wrong. Drug kingpins and cartels don’t file taxes. We do. But no business, including ours, can survive if it is taxed on its gross revenue. The IRS is trying to tax us out of existence.”
This IRS ruling is based on an obscure portion of the tax code, section 280E, which was passed into law by Congress in 1982, at the height of the Reagan administration’s War on Drugs. The law, originally targeted at drug kingpins and cartels, bans any tax deductions related to “trafficking in controlled substances.” Even though there’s now 16 states that allow medical marijuana the feds still consider it a Schedule I drug.
But what’s really crazy is that according to DeAngelo, “The IRS allows me to deduct my cost of purchasing cannabis, which is the controlled substance they say is illegal. But I can’t deduct my payroll or my rent?”
Unless Congress acts soon, more dispensaries will suffer the same fate as the Harborside. Luckily, some members of Congress have taken up the cause introducing three bills, back in May, that could change this bunk tax law, breathe new life into the burgeoning medical marijuana industry, and possibly END MARIJUANA PROHIBITION!
The first bill authored by Colorado Congressman, Jared Polis (D), co-sponsored by Texas Congressman, Ron Paul (R), Barney Frank (D-MA) and California Congressman, Pete Stark (D), the Small Business Banking Improvement Act, will level the banking playing-field for all weed businesses allowing them to access the complete array of banking services all other business, like gun stores and liquor stores fully enjoy.
The second bill, authored by good ol’ Californian Pete Stark is the Small Business Tax Equity Act and it deal with exactly what’s happening to the Harborside. This bill looks to allow all medical marijuana dispensaries the ability to write-off business expense deductions on their federal income tax returns forcing Uncle Sam to recognize that the buying and selling of Prozac is pretty much the same as buying and selling medical marijuana.
“Our tax code undercuts legal medical marijuana dispensaries by preventing them from taking all the deductions allowed for other small businesses,” said Stark back in May. “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. The Small Business Tax Equity Act would correct these shortcomings.”
Finally our favorite piece of legislation was brought forth by stoner-friendly, Barney Frank (D-MA). The States’ Medical Marijuana Patient Protection Act was co-sponsored by Stark, Polis and Congressman Dana Rohrabacher (R-CA). This bill looks to grant immunity to individuals and entities from federal prosecution when acting in compliance with state medical marijuana laws. But most importantly, it’ll force the administration to start the process of rescheduling marijuana under the Controlled Substances Act.
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