Posted on 10/05/2011 11:58:47 AM PDT by Smogger
SAN FRANCISCO (AP) - The federal government has found a new weapon in its war on marijuana — the tax man.
A San Francisco Bay area medical marijuana dispensary that promotes itself as the world's largest has been hit with a $2.4 million tax bill following an audit by the Internal Revenue Service, the dispensary founder said Tuesday.
The back taxes, penalties and interest levied against Harborside Health Center came after the IRS examined its returns for 2007 and 2008 and determined a 1982 tax code prohibiting cost deductions for businesses that traffic in illegal drugs applies to the dispensary.
Harborside is a spa-like fixture on Oakland's waterfront with 94,114 registered customers and 84 full-time employees that offers an average of 30 varieties of medical marijuana every day and has $22 million in annual sales.
"What kind of drug trafficking organization actually files a tax return? None of them do," said Harborside CEO Steve DeAngelo, who gave his auditor a personal tour of his posh apothecary. "The very fact that we filed a tax return and told the IRS all the details of what we are doing proves we are not a drug trafficking organization."
The IRS said the agency does not comment on individual audits.
(Excerpt) Read more at myfoxny.com ...
Marijuana is legal in CA for medical purposes, but at the federal level it is illegal, so the IRS can bust them.
It’s probably better to go back to the old system. Sell the stuff on the streets, keep the cash and launder some of the cash through a restaurant.
I just looked it up, the MJ Tax Act was repealed in ‘69 after the Supremes knocked it down.
Although I disagree with the case law, the Supremes have held that federal statues making pot illegal, even if grown in-state, are the law. So pot is not legal in the state of California. It would be more accurate to say it is not illegal under California law but quite illegal under federal law.
Until the Supremes reverse 40 years of commerce clause law, I can't say I agree with you.
An ever-growing and emboldened federal government will eventually use any extra powers granted to it to punish California pot markets on any law-abiding business or individual that they decide to punish in the future.
The biggest threat the pot heads pose is a revival of Pauly Shore's movie career.
IIRC, it was struck down as a Fifth Amenement violation because the issuance policy made you legally obligated to self-incrimination.
.... and determined a 1982 tax code prohibiting cost deductions for businesses that traffic in illegal drugs applies to the dispensary.
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ALL drugs are “illegal” if not prescribed ,, therefore if the focus of the IRS clause is the “drug” itself then my neighborhood CVS is in violation also because the drugs COULD be illegal IF they were being sold to someone without a prescription... but in both the dispensary and my CVS example there has been no claim that the purchasers did not have legal prescrptions... and if the FedGov IRS is claiming that the California laws are not adequate then the STATE OF CALIFORNIA needs to step in to safeguard one of it’s only brightspots in commerce.
The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.
It was a flippant remark, but think of it in another way, one which happens on a daily basis: Plea bargaining.
A man is probably guilty of murder, but the DA doubts if the case can be proved, he then offers to accept a guilty plea for manslaughter.
Tax evasion laws serve a similar purpose.
Why sic the IRS on them? I’ll tell you why - because they know they’d never get away with it.
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By using the IRS as their “big hammer” they bypass the constitution (see my post immediately above this) and route this into the seperate IRS Court system.
Do you think decriminalizing it will stop the taxing of it?
It will make it easier to tax. But then, most pot heads will grow their own.
Perhaps it can be taxed by selling growers a tax stamp. Make it $100 per year and a $1000 fine to grow without a stamp.
If that were true, I wouldn't have much of a problem with it. The 16th Amendment, for better or worse, says that Congress can tax income "from whatever source derived." But what makes this case worse is the law the IRS is relying on here. The dispensary in this case actually filed a tax return and paid the taxes they owed (or would have owed if they were in any other business.).
But here's the rub: Back in 1981, a drug dealer who got busted and was hit up by the IRS actually went to Tax Court and established that, even though he hadn't filed a tax return, he had a bunch of business deductions which he was entitled to claim which reduced his tax bill. The Reagan Administration threw a fit (this was back in the days of "Just Say No"), and got Congress to pass a law saying that drug dealers cannot claim business deductions on their taxes. I think a good argument can be made that that law is unconstitutional. Congress can tax "income," but not gross receipts.
You have it partially correct but the 16th Amendment is so convoluted and vague now, that is it null and void.
Originally, only corporations (not private enterprise) which were under/using the protective wing of government to derive income were to be taxed along with government employees paid out of government funds. Now...your kid is on the hook for selling lemonade.
You have a separate court system interpreting tax law which those decisions then become tax law (expanding).
It’s Catch 22 for illegal markets filling tax documents. Sure you should be allowed deductions before arriving at gains but what’s a drug dealer to do about it (an unfavorable ruling) esp. when Congress passes a contrary law for illegal gains.
If there is going to be a tax, make it flat tax on consumption and do away with all the IRS silliness that ruins lives. Give the States, say...half (whatever) the taxes collected before forwarding the balance for Congress to fight over.
The entire system is demented at this point in time.
“It’s hard to know who to root for in this story.”
In any story involving the ORS vs. humans, I make the obvious choice.
“It’s hard to know who to root for in this story.”
In any story involving the IRS vs. humans, I make the obvious choice.
Not true, although tax protestors like to claim that. There was a tax on corporations before the 16th Amendment was ratified, but since 1913, all private wage-earners were subject to the income tax. Most didn't have to pay anything for the first few years because the exemptions were so high, but that quickly changed.
You have a separate court system interpreting tax law which those decisions then become tax law (expanding).
Not exactly true. There is a specialized Tax Court, but you can also challenge the IRS in a regular federal district court if you pay first and sue for a refund. And even decisions of the Tax Court are always appealable to the regular, Article III, federal courts of appeals and from there to SCOTUS.
The current income tax situation is an abomination, no doubt, but it is (largely) constitutional.
Exactly such a challenge got to the Supreme Court in Gonzales v. Raich (2005), in which the marijuana at at issue was legal under California's medical marijuana law, and had been grown in California for the possessor's personal use (so it had never been sold, and therefore had never been in "commerce," and certainly never in "interstate commerce"). SCOTUS nevertheless held that federal law made its possesion illegal; Justice Scalia, of all people, wrote an opinion saying that Congress's power to ban sales of marijuana in interstate commerce includes the power to ban any possession of marijuana anywhere in the U.S. because someone could easily take it and sell it across a state line. Justices Thomas and Sandra Day O'Connor, to their credit, dissented.
Now you getting down to the nuts and bolts of tax law: The definition of ‘income’. Typical definition will read something like....in exchange for labor or services...How can you have a gain if you exchange? Your labor is worth $0 and every payment is gain? Yeah, right.
Income was redefined for IRS standards to encompass everything on the planet.
When was the last time an IRS case made it to the Supremes?
Wages and salaries were taxed as income in the Civil War income tax, and in every post-16th Amendment income tax starting in 1913, so that train left the station a while ago.
On a theoretical level, "income" is defined as the difference between gross receipts and cost, not value. If I buy stock for $10 and it goes up to $50 and I sell it for $50, I have made an "even exchange," because I sold stock worth $50 and I got $50 cash; but I still have $40 of "income," because my gross receipts exceeded my cash outlay.
When was the last time an IRS case made it to the Supremes?
Last one I recall was Mayo Foundation v. United States, decided January 2011. SCOTUS usually hears one to two tax cases every year.
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