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California wants its taxes

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Nug of the Month: Jan, May 2013 - Plant of the Month: June 2013
The state Board of Equalization is contending that the Berkeley Patients Group, one of the oldest and largest medical cannabis dispensaries in California, owes $6 million in back taxes, Berkeleyside has learned.

The board claims that the dispensary on San Pablo Avenue did not pay taxes on the medical marijuana it sold from July 2004 to June 2007 and now owes $4.4 million in taxes and about $1.6 million in interest.

The charges come on the heels of a September 2010 ruling in which the Board of Equalization determined that another Berkeley cannabis collective, Patients Care Collective, had to pay $639,000 for back taxes it owed from January 1, 2005 to September 8, 2008 on the sales of cannabis and marijuana cookies.

The Berkeley Patients Group, which has about 13,000 members and serves 800 to 1,000 patients each day, is contesting the charges, according to Elisabeth Jewell, whose firm Aroner, Jewell, & Ellis advises BPG on governmental regulations. Until February 2007, the laws regarding the collection of taxes for the sale of cannabis were murky, which is why the BPG did not pay, she said.

“There is no allegation of malfeasance in terms of collecting a tax and not paying it,” said Jewell. “The Berkeley Patients Group contends it was not clear to them that they had to pay sales taxes on what they consider medicine.”

The Board of Equalization will hold a hearing on the charges at its February 22-24 meeting in Sacramento. While the board would not officially confirm there is a claim pending against BPG, a spokesman did confirm the BPG hearing was on the agenda, which has not yet been made public. Berkeleyside learned about BPG’s late tax payments from a source close to the board, who asked not to be named.

While state law allows collectives and dispensaries to cultivate marijuana, rules governing its sales have evolved in recent years, according to Matt Kumin, a San Francisco attorney who specializes in small business transactions and has worked with numerous cannabis cooperatives. Prior to 2005, few cannabis collectives paid sales taxes because the Board of Equalization did not permit them to take out seller’s permits to report their proceeds. The Board of Equalization at that time did not want to be seen as promoting the sale of products that were illegal under federal law, said Kumin.

In February 2007, however, the board clarified its stance and said all dispensaries must take out seller’s permits, although they did not have to state what they were selling. The board also declared that collectives and dispensaries had to pay sales taxes.

Cannabis plants for sale at BPG
Since the clarification of the rules in 2007, the BPG has been paying tax on the medical cannabis sold out of the San Pablo Avenue facility, said Jewell. But the organization does not think it should be liable for any taxes prior to that clarification.

“During that time the Board of Equalization had very murky policies regarding dispensaries and the collection of sales tax,” said Jewell. “As soon as the board had clarified their policies, BPG began paying the tax.”

The former chair of the board, Betty T. Yee, acknowledged at the September hearing that the rules have been unclear.

“The application of tax on medical cannabis has had a little bit of a rough history on the board,” Yee told Erik Miller, a manager at the Patients Care Collective.

Berkeley Patients Group plans to argue that they should not have to pay back taxes because prior to the 2007 clarification, the group considered medical cannabis to be a medicine and California law exempts prescription medicine from being taxed, said Jewell.

But that argument probably won’t work. The Patients Care Collective tried to use that same argument in its September 2010 hearing, but the Board of Equalization dismissed the idea. Board members noted that in order to be considered a medicine, a substance had to be commonly regarded as a medicine or dispensed by a pharmacy. Medical cannabis does not meet that standard, they said.

The state is not exactly sure how many medical cannabis dispensaries there are in California. About 300 dispensaries currently pay taxes, with another 500 evading them, Alan Davenport, an analyst for the Board of Equalization told a group gathered at a recent convention for the California branch of NORML.

The board has audited about 40 of those dispensaries, said Davenport.

The state collects anywhere from $58 million to $105 million in taxes from medical marijuana each year, according to Anita Gore, the spokesperson for the Board of Equalization. There are approximately $700 million to $1.3 billion in sales of medical cannabis in the state each year, she said.

Berkeley expects to reap about $300,000 in sales tax from medical marijuana in fiscal 2011 and $460,000 in fiscal 2012 , according to Mary Kay Clunies-Ross, the city spokesperson.

The Board of Equalization audited the Berkeley Patients Group and informed it of its tax liability in 2007, said Jewell. It has taken more than three years for the case to work its way through the system.

If the BPG loses, it will not shut its doors and will try to continue its existing level of services, which include massage, acupuncture, arts and crafts and a hospice program, said Jewell.

The Board of Equalization has a program called Offer in Compromise in which businesses in arrears can work out a payment schedule. If the BPG is liable for the $6 million, it will probably go into that program, she said.

Erik Miller of the Patients Care Collective could not be reached for comment to see what his organization is doing to pay its $639,000 tax liability. At the September hearing he told the board repaying the money would be difficult.

“We are a small not-for-profit company and we don’t have the ability to pay hundreds of thousands in taxes which we perhaps erroneously did not collect,” said Miller. “We are going to have to find a way to mitigate this or it is going to put us out of business.”:smoke2:

Source: Berkeley cannabis collectives slapped with huge tax bills | Berkeleyside
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420 Warrior

Well-Known Member
IDK? I'd gladly pay taxes in GA for my canna-med's!

I have a hard time feeling sorry for MMJ states...sorry :24:

Just sayin'...

I am a bit confused... If mmj dispensaries are not for profit, what is taxed?
If I were a dispensary, what do I pay taxes on?
Any sale would be taxed. Either the buyer or seller would have to eat the cost. The seller is obligated to pay taxes on ANY sale. The phrase 'not for profit' can be misleading. Being a coop doesn't preclude the hiring of employees. Those employees can be paid a reasonable wage. Basically, the growers, cashiers, security guards, and anyone doing actual work can derive compensation for there investment in time. This is at least my understanding since reading about this for the past couple of days. Not a lawyer. Interested to hear the interpretations of others. I will reference the legal guidlines when I get on a computer with a copy/paste function.


Well-Known Member
As I understand it: The state board of equalization does sales and use tax. I used to smoke cigs and when they ran specials or gave away 'free' with purchase, they had to pay sales tax. It's probably an issue that the state wants sales tax on the value of the item.

I don't agree with this, but as I understand it, even if it's 'given' away or 'traded' for a donation, they can still collect a sales tax.

BTW, in case someone doesn't know, the IRS and other government bodies can LIE to you about the laws/rules and you can't use that against them. In other words, if they were told they don't have to pay sales tax by the FTB, TOO BAD !!

They collected thousands from me and when I proved I didn't owe any of it, they said it was too late and I wouldn't get a penny of it back.

In other words, don't trust what you are told, get it in writing and confirm.


New Member
mmj dispensaries dont have employees... they have people who donate there time. They are call volunteers. Do they get paid who knows. There off the books. People come into your mmj dispensaries and donate there money for there meds. Know I dont see how you can tax something that isnt making profit. As its call a non-profit organization.Also cigars is nothing like mmj. Horrible comparison.


New Member
Dispensaries have to pay sales tax. Regardless of any legal jujitsu that's how it's worked out practically speaking. I am wondering though: what if you "sell" to a dispensary? Is there also sales tax due on that transaction? Everyone is focusing on dispensaries, so growers seem to still be flying under the radar in a legal grey area...
Dispensaries have to pay sales tax. Regardless of any legal jujitsu that's how it's worked out practically speaking. I am wondering though: what if you "sell" to a dispensary? Is there also sales tax due on that transaction? Everyone is focusing on dispensaries, so growers seem to still be flying under the radar in a legal grey area...
I'd imagine that growers are getting a 1099-MISC so the transactions are reported as "income" to IRS (at least that was what we were told in RI). Is CA set up differently?
I am a clone farmer in N. California.

Some of the dispensaries I supply to send me a 1099 at the end of the year - some don't.

California is interested in their SALES taxes - these are different from INCOME taxes. People think that income is the same as sales - it is not. People think that income is the same as profit - it is not.

IF it costs me $1 to make a widget, and another $1 to package and ship it to market, and I sell it for $5, there is a total of $3 profit there and I pay income tax on that $3. If I am a non-profit then I retain that $3 for the benefit of my members and pay no income tax because there was no profit or income.

But, it doesn't matter if I am a non profit for the sales tax issue. I also pay a sales tax on the $5 sales price.

Let me tell you how it will be
There's one for you, nineteen for me
Cos I'm the taxman, yeah, I'm the taxman

Should five per cent appear too small
Be thankful I don't take it all
Cos I'm the taxman, yeah I'm the taxman

If you drive a car, I'll tax the street
If you try to sit, I'll tax your seat
If you get too cold I'll tax the heat
If you take a walk, I'll tax your feet

Cos I'm the taxman, yeah I'm the taxman

Don't ask me what I want it for (Aahh Mr. Wilson)
If you don't want to pay some more (Aahh Mr. Heath)
Cos I'm the taxman, yeah, I'm the taxman

Now my advice for those who die
Declare the pennies on your eyes
Cos I'm the taxman, yeah, I'm the taxman

And you're working for no one but me

~ Auggie ~
BOTH the feds and the state get taxes from MJ.
Just because it's illegal doesn't mean they don't want their money.
Two different subjects.

Al Capone went to jail for tax evasion.
The liquor he was selling was illegal - doesn't matter.

~ Auggie ~
and, also ...

if the source of the income is illegal, the person owing the taxes can not deduct the costs to make the product. If you make pencils for a living, and it costs you $1 to make a pencil, and you sell it for $5, you pay the taxes on the difference - $4.
But, if you make meth, and sell it for $5 a gram and it costs you a dollar to make it, you have to pay your taxes on the whole $5.

So, when the state says you can grow MJ, the feds say "no you can't but IF YOU DO you have to pay federal taxes on the total income with no deductions."

Long live the King.

~ Auggie ~