IRS Rules Against Oakland Marijuana Dispensary, Demands Millions

In a decision that advocates warn could cripple the industry, the Internal Revenue Service (IRS) has ruled that Oakland's Harborside Health Center cannot deduct standard business expenses on its taxes and sent the dispensary a whopping $2.5 million tax bill.

Most businesses are able to deduct standard business expenses, such as rent and payroll, from their federal tax bill, but Harborside chief financial officer Luigi Zamarra told the Bay Citizen the IRS had determined the dispensary cannot deduct standard business expenses because it is involved in "the trafficking of controlled substances."

Harborside is the largest medical marijuana dispensary in the country, with more than 83,000 members, and pulled in $22 million in sales last year. It has already paid the IRS $500,000 in taxes for 2007 and 2008, the years for which the agency now claims it owes the additional $2.5 million.

Although the IRS is happy to take Harborside's money, the federal government considers marijuana nothing more than a Schedule I controlled substance. The IRS attack on Harborside is part of an Obama administration assault on medical marijuana distribution using the regulatory apparatus of a number of federal agencies, ranging from the Treasury to the DEA.

Harborside said it would appeal the ruling and warned that if it stood, the entire medical marijuana dispensary industry could be endangered.

"We can't live with the conclusions that the IRS has come to and neither can the industry," Zamarra said. "If the IRS ultimately prevails, we would close our doors and go away because the business model wouldn't work,” he said.

Ironically, on the same day it announced the adverse IRS ruling, Harborside also announced it had paid the last installment of its $1,081,450 tax bill to the city of Oakland, which collects a 5% tax on dispensaries.



Oakland, CA
United States
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Obama lost my vote. The

Obama lost my vote. The "Lesser of 2 evils" argument won't work this time.

Obama has proven to be worse than Bush

I recall Ethan Nadelman speaking at the New Mexico drug policy conference about some of the remarks President Obama made that really irritated him as he pandered to the  pro drug war crowd and how he was giving President Obama the benefit of the doubt because he was a different person than Bush. Well, Obama's been different all right. Different in a worse way.  Bush get rid of the Byrne Grants which Obama reinstated as a cheap badge to show his law enforcement stripes. Obama has outspent Bush on drug interdiction. Bush never claimed the drug war was a failure like Candidate Obama did, but if you compare Obama to Bush, it's hard to say who's been worst in pursuing and funding the drug war.

I would hope that Drug Policy Alliance members and other reformers wise up and see President for what he is...a hypocrite. He deserves a earful from us. Meet the new boss. Same as the old boss. I for one won't get fool by Obama, again. Vote for Gary Johnson.  

 

don't be foolish

Obama never claimed that he was on our side. He never came out in favor of legalization. He only came out for decrim. He cannot have betrayed us. What we have in Obama is a centrist. Please do not make an unachievable perfect the enemy of the limited good we already have. While Johnson and Paul are better than Obama because they take a progressive position unlike Obama's centrist position they will never be able to win the Republican nomination. All that throwing one's support to republicans will do is build support for a party whose nominee will inevitably be much worse than Obama. I refuse to believe the fantasy that Obama is worse than Bush. For some because Obama was not the perfection they fantasized they wanted they imagine he must be the worst. What Obama gives us is what a centrist gives us. If we give in to our emotions and support any republican we will find that the republican will be a drug warrior much worse than Obama. We will be left with four choices: vote for Obama, vote for a republican who will openly close all dispensaries once they come to office, vote for a third party candidate or not vote at all. What seems to be happening here is a mindless action of a government bureaucracy that is acting on rote based on the policies of the previous Clinton and republican administrations. It does not indicate a shift in Obama's policy. Obama, however unlikely it may seem is keeping to his policy not to raid dispensaries. I for one do not believe that all the dispensaries in California will be closed by the current Obama administration or be another Obama administration that would hypothetically take office after an Obama re-election. I do think that most of those republicans who have a chance of becoming the nominee would raid and close the dispensaries. Since Johnson and Paul cannot get the nomination to talk of supporting either is to live in a stoner's fantasyland. As for myself I always vote for a socialist or Green part candidate no matter what; my decision to vote for a Green is not a reflection of anger at Obama. Stoners should hope that Obama is re-elected because the republican that will be on the ballot will most likely be a drug warrior far worse than Obama. As for the California dispensaries I do not see them all being immanently closed. Any such talk is a maneuver on DeAngelo's part.  What is more likely is that the dispensaries will continue to exist but pay taxes without the deduction. The mistake seems to be on the part of Harborside and the Berkeley Patients group who took the deduction, expanded their business and did not set aside enough money to cover their tax expenses if they did not get the deduction. It is unjust that they did not get the deduction but it was not unexpected. One should not confuse someone's business error with a purported wave of repression against dispensaries that does not exist. Obama is keeping to his word. If we support someone who cannot win the republican nomination and then continue to support republicans we will win d up supporting a republican will unlike Obama really is interested in closing the dispensaries. Do not make an unachievable perfection the enemy of the good we currently have, should be maintained and expanded. Do not make the poor business decisions of the few an excuse for supporting a party that is our mortal enemy. I am alienated from from this country; I am hardly part of of it and always vote Green or socialist; I do not expect to have my candidate win. If we are talking about candidates that can win in 2012 we can say: the republican will not be Johnson or Paul but will be a drug warrior who will unlike Obama close the dispensaries. Obama will continue not to raid the dispensaries. For stoners like myself and others the choice is clear: Vote for the imperfect centrist Obama in November, do not vote for the republican but do vote for any initiative that will legalize marijuana. Remember: all the dispensaries are not in danger. Only those dispensaries like Harborside who assumed a deduction that they could not take are  in financial trouble of their own making. 

borden's picture

W, one thing I want to

W, one thing I want to disagree with is your criticism of the dispensaries for taking that deduction. The "deduction" is much of the cost of doing business. Without it, there would have been no dispensaries, because the numbers just wouldn't work -- they couldn't have run the businesses. I agree they took a risk, but this outcome was not certain (it's still not certain that this will be the final word). Without the dispensaries there are many thousands of patients who would not have been afforded safe access to their medicine, and there would have been less of a demonstration made to the public of permitted marijuana sales taking place with the sky not falling.

Note that Harborside is a nonprofit organization. They are facing this tax problem because the federal government doesn't recognize their nonprofit status, but the state of California does.

fantasy

You are quite wrong sir.  You have been duped by him.  He only claimed to be for decriminalization before he was elected.  He's not for decrim or even for talking about it.  Another claim was that science would trump politics when it came to public policy.  Yet his administration still tells outright lies about cannabis, including that it has no currently accepted medical use.  His administration still actively denies scientific research on cannabis because they know such research will provide more evidence against their lies.  He also claimed prior to his election that the Drug War was a failure.  That was simply more BS to get him elected.  He's turned out to be quite the good little drug warrior, unfortunately.  Nixon would be proud.

 

You said: "Obama, however unlikely it may seem is keeping to his policy not to raid dispensaries."

 

Really?  On what planet?  Certainly not this one!  The only difference between Obama and the previous administration is they're not publicising the raids now.  You still regularly see them on the news though.

You are flat out wrong

Ron Paul CAN win, he has the numbers, he has the votes, he has the donations, and he will soon have the delegates (and whomever has the most delegates at the national GOP convention wins the nomination); once he wins the nomination his election is assured because very few who voted for Obama the first time around will do so again, Obama has betrayed nearly all of those who supported him, he has broken almost every single campaign promise and even some he made after he became president.  American voters are NOT going to allow the mainstream media and the party bosses to choose our candidates for us this time around.

obama

Your delusions about BO may be linked to substance abuse: you must be high to have such a serious impairment of judgment. Or perhaps it's some religious dogma concerning the divinity of BO...best wishes for your recovery in either case.

Trafficing?

In order to qualify as trafficking, the Drugs would have to cross State lines. Also, if they paid 1 million to the State at 5%---then 2.5 million would only be an additional 12% that still leave a lot of profits. 22 million a year made and have to pay 3.5 million in taxes---

Still not a bad job.

A war that cant be won.

A war that cant be won is what this drug war is.  I have made millions of dollars in this game were the underground traffic of money an trees that moves nation wide an has made me a million air. facts are facts an weed works i think we can all agree that weed gets us high,an until we change i will find a way to get my product (OGkush) to the people of this nation. laws are put in place for people like me to brake them if its not kush ill push coke if not coke then ill pitch meth so no matter what ill make millions an the people will get the products they want. To win the war on drugs you must make money worthless, an we all now how much we love money. we all have used it an we all liked it until we change who we are, we will be a narco based people thanks to the gov't. the biggest drug pusher ever lets not forget the c.i.a sold crack, an obama snorted coke. so with that off my chest i better get back to counting this stack of racks. god willing. the stewmaker...

what to do

First of all, unless IRS grants them immunity, all these businesses should be filing 5th amendment returns.  If they do get immunity and so are obligated to file, they'll have to restructure their books to make their taxes affordable.  Basically that'll involve offloading their expenses to another entity from the one that collects fees.  For instance, they can make their sales to customers contingent on their customers being paid members of a non-profit club that picks up the costs.

I would tell the IRS when OUR

I would tell the IRS when OUR Government pays it's bills to it's creditors then and only then shall any bill be considered to be paid, our Government can't even balance a budget..... Pitiful !

FUCK THE IRS

IRS- (Intensley, Retarded, System) these losers cant even get oil and insurance tycoons that make billions to trillions of dollars A year to pay taxes. This company even pays taxes and combined all despenserary have gave California A boost of 6 billion dollars a year for the state. Yet your trying to shut down A company that is the standard of what a medical marijuana facility should be.. It was in the originally constitution that A citizen can Posses and Ingest any substance he or she wishes. People in James town were made grow marijuana to make medicine, clothes, food, oil, and paper.  It was not change till the 1900 when the government started loosing money. and immigrants and jazz musicans started smoking marijuana. so supporting the war on drugs is supporting a racist practically communist program.   This IS the land of the free, not the land of what you THINK should be free.    You Wont, and Cant win. Or even start to stop people from smoking. You should know that better then anyone REMEMBER THE PROHIBITION??? It didnt work. and nether will this.. so good job wasting 600 dollars a second on the war on drugs. you fools have already wasted over 10 billion dollars just this year. and guess what. Every one is still getting high. Long Live USA Down with the DEA!!!

Obama is burning his bridges to a lot of people

His  contempt for medicinal marijuana is really gross (and Cuomo's, Cuomo has a good chance of being the Democratic nominee in 2016) . I get particularly annoyed when women and blacks and gays are bigoted against marijuana or other illegal drug users. I just think their own history of being discriminated against would sensitize them and make them offended by alcohol supremacist bigotry, but it doesn't much seem to work that way.

Obama and the Democrats

Funny, it was the Democrats who were for repealing alcohol prohibition, and now the have made the exact opposite arguments against cannabis reform.  They took out Capone for tax evasiion. 

Obama is not the law.

The President didn't create the current laws, nor does he direct their enforcement or have the authority block their enforcement. The agencies are solely responsible for their actions. Also the President can't make Congress pass laws and with a Republican controlled House there is little hope of change for the better.

To those who say "I won't vote for Obama", then what are you going to do, vote for a Republican or weaken the Democrat vote by voting for some minor party candidate who has no chance or by not voting at all? Having Republicans in charge is the worse thing for drug law reform. To get the nomination as the Republican candidate for President they would have to be overtly opposed to any change in the drug laws, that is except to make them harsher.

Without Congress getting a bill to his desk to be signed into law, Obama can only make policy statements and recommendations that in themselves do not and can not supersede the law. No government agency or entity has any legal obligation to abide by such policies by the President instead of enforcing current laws.

It is rather disconcerting to

It is rather disconcerting to me to hear statements such as "..vote for a Republican or weaken the Democrat vote by voting for some minor party candidate who has no chance or by not voting at all?" so frequently. When will people get away from the "lesser of two evils" ideology? Recall, the lesser of two evils, is still evil.

Besides, your statement is incongruous from what voting is intended. It should not be one party against another, yet the reason it has been that way is because so many perpetuate the fear of the "other" candidate. I vote for who I want to win, not for the person who may have a better chance against someone I don't want to win. This is in parallel to such claims that one candidate "steals" votes from another. That may be true, but only in the mind of those who lose.

Maybe someday we will understand that we all want the same things; happiness, (actual) freedom, security (health, safety, & sustained rights), individuality, privacy, etc. And then, maybe...just maybe, we will stop bickering over wedge issues, deal with the crumbling political infrastructure, stop demonizing and belittling each other, and work as one to resolve important issues. Ah well, maybe in a pipe dream.

Lastly, I do agree that Obama, or any president, can't enforce many things. However, the influence, decisions, opinion, and (more importantly) placement of individuals in specific key positions/appointments, can, and does, have an enormous impact.

"...rights aren't "rights" if someone can take 'em away; they're privileges."
-George Carlin

To clarify my previous reply;

To clarify my previous reply; I was speaking from the perspective of a realist not an idealist, so I spoke in terms of the political party system as it is right now, not of an idealistic perspective of how I wish it was, though I do wish it were different, that desire however does not change the reality of how it is for the current election, that being there are only two viable primary political parties, Democrat and Republican.

The context of the replies that I was responding to was of a desire for drug law reform from an apparently Liberal perspective and in that context, with the two primary parties, it is a political fact that to have reasonable chance to be selected as the Republican candidate for President you must be openly oppose to such, making in my view Obama by default the best choice in that regard exclusively, not speaking to what degree or of any other point.

For the current election, it doesn't matter how it is intended to be or how we may wish it to be, to make the most of ones vote in the context of drug law reform, you must vote for one of the two primary party candidates who is most likely, not least likely, to support or at least not oppose your views on such. To vote any other way is idealistic and may actually strengthen the candidate who is least likely to support your views. Additionally I do not see how voting for as I said "the mostly likely [to support]" of two main candidates, is in itself a "lesser of two evils" type of vote since to what degree is not specified or implied in that.

Also the reason I did not bring up the points of "influence, decisions, opinion, and (more importantly) placement of individuals" is because I was addressing replies that were in the context of or a long the lines of the claim or belief that Obama is deliberately and/or actively guiding the enforcement of drug laws. Though those points are related, they were not immediately relevant in that context, so I intentionally left them out so as to not clutter the point I was making that he does not directly control enforcement.


 

a fix-it fantasy

Here's a fix-it fantasy for you:

Dennis Kucinich and Ron Paul each separately have an epiphany: it's that their allegiance to their parties is inconsistent with any possibility of their having any influence on the future.

Through an accident somehow involving Occupy Wall Street, they discover that they have each come independently to that conclusion.  They break with their parties and put themselves on the ballot as the Zuccotti Party candidates, with Paul for President and Kucinich for Vice President (or, less likely, the other way around).  Of course, they win, because the ticket deprives the Dem/Rep duopoly of both of its voter bases, and because both men have generally said what they actually think, both have generally acted in a manner consistent with their words, each appeals strongly to the spiritual root of one half of the duopoly, neither is owned by the money, and both know where bodies are buried on Capitol Hill.

 

Vote for me. I am weak.

Obama has some control over HIS cabinet. If he wants to claim otherwise his re-election campaign will become: "Vote for me. I'm weak."

He gets my vote, but not my money.

a fix-it fantasy

Here's a fix-it fantasy for you:

Dennis Kucinich and Ron Paul each separately have an epiphany: it's that their allegiance to their parties is inconsistent with any possibility of their having any influence on the future.

Through an accident somehow involving Occupy Wall Street, they discover that they have each come independently to that conclusion.  They break with their parties and put themselves on the ballot as the Liberty Party candidates, with Paul for President and Kucinich for Vice President (or, less likely, the other way around).  Of course, they win, because the ticket deprives the Dem/Rep duopoly of both of its voter bases, because both men have generally said what they actually think, both have generally acted in a manner consistent with their words, each appeals strongly to the spiritual root of one half of the duopoly, neither is owned by the money, and both know where bodies are buried on Capitol Hill.

What does Obama have to do

What does Obama have to do with a multi-million dollar profitting business that sells marijuana?

borden's picture

Harborside is a nonprofit.

Harborside is a nonprofit. The federal government just doesn't grant it the usual nonprofit privileges, because of the marijuana. They state recognizes them as a tax-exempt nonprofit, and their budget is published every year.

Obama is part of it because he ultimately sets the policies -- he can't unilaterally change the statutes, but he could direct the IRS to use its discretion in targeting their resources on the functions the IRS was intended for. The initiative for this might not come from Obama personally, and I suspect it does not, but the buck stops with the top guy.

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