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  1. Terrapinzflyer
    In Stormy Ray's proposed legislation for medical marijuana cooperatives in Oregon, there is a mandate for a new sort of "income tax." The medical marijuana cooperative bill, LC-798, will be presented to the legislature in the coming week, according to Stormy Ray of the Stormy Ray Cardholders' Foundation.

    While it makes sense to pay an income tax on net profit like any other business, LC-798 will require medical marijuana cooperatives to pay an additional "income tax" based on a flat 10% rate to the Oregon Department of Revenue. This tax will be comprised of the following:

    * 5% to the Oregon Health Authority (formerly DHS) for the purpose of administering the OMMP
    * 2.5% to the Oregon General Fund
    * 2.5% to the Criminal Fine and Assessment Account established under ORS 137.300

    This tax will be in addition to regular income taxes required for the cooperative as a "business" entity, as well as personal income taxes for all members who may receive dividends.

    While the tax itself is troubling, especially since it requires medical patients to help fund an account designated for law enforcement, there are further concerns coming to light in recent days. A January 8 New York Times article on a raid in California highlights a recent concern regarding medical marijuana cooperatives. Harborside, one of the largest dispensaries in California, is currently being audited by the IRS, according to Chief Executive Officer Stephen DeAngelo:

    Though federal authorities have halted raids on medical marijuana dispensaries under the Obama administration, the I.R.S. has shown a new interest.

    Harborside officials said the I.R.S. was raising questions about a section of the tax code known as 280E. That section, aimed at drug kingpins, prohibits companies from deducting any expenses if they are “trafficking in controlled substances.”


    That section of the Federal Tax Code clearly states that expenses incurred while “trafficking in controlled substances” are not allowed to be deducted:

    No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

    According to DeAngelo: “Our contention is that what we’re doing is legal and not trafficking, and it’s not appropriate to apply it to us." There are no additional taxes mandated under the California law, although some localities have attempted to implement some sort of medical marijuana tax.

    If Oregon cooperatives cannot deduct their costs of operating the cooperative from their taxes, and are then mandated to pay an additional 10% tax on top of federal and state income taxes, how can Stormy Ray claim that this bill is meant to help provide an “affordable supply system?”

    Even Harborside, among the largest and most successful of California’s medical marijuana dispensaries, is concerned that this tax code is so burdensome that Harborside“could be taxed out of business if the law was not changed.” A 2007 Tax Court finding against Californians Helping to Alleviate Medical Problems Inc. solidified this interpretation of Section 280E:

    Forty-seven percent of the members suffered from AIDS; the remainder had cancer, multiple sclerosis and other serious illnesses. On its final tax return for 2002, the taxpayer showed a $239 loss. The IRS denied all the nearly $213,000 in deductions because, it concluded, the taxpayer’s principal purpose was to traffic in marijuana.

    Cooperatives will be paying taxes far higher than any other business in Oregon, before even accounting for the new “income tax” imposed in this bill. This will not make medical marijuana more affordable for patients – and it could potentially set them up for criminal prosecution for tax evasion if they do not calculate the taxes correctly.

    DeAngelo sums it up nicely: “This is an industrywide issue.”



    Jennifer Alexander
    Portland Medical Marijuana Dispensaries Examiner
    January 10th, 2011 7:07 am PT

    http://www.examiner.com/medical-mar...aises-legal-questions-irs-denies-pot-expenses

Comments

  1. CaptainTripps
    I think that this article while dealing with taxes, is really dealing with two completely different issues. The Oregon bill is a real tax bill. It is designed to raise revenue which is what taxes are for. The IRS law is actually a forfeiture law, designed more to punish offenders than to raise any real revenue. The rule is disigned to prevent criminal's from being enriched by their crimes. It is actually more symbolic than anything, as the feds already have forfeiture laws that allow for the taking of all proceeds of a criminal activity or property used in the furtherence of such activity. Also on top of all of this, there are fines that are enough to bankrupt almost anyone.

    I actually like the Oregon tax plan. First, I think 10% is reasonable. The 5% to be used to administer the plan will defend attacks against medical marijuana that say the law costs taxpayers in administrative costs. Make no mistake, there will be costs to this program. By giving law enforcement and the general fund the remaining 5%, it gives them a vested interest in the continuation of medical marijuana. I think it is vital to the continuation of medical marijuana, (and hopefully expansion into recreational use) that it becomes an intergal part of local economies and government budgets. It should also be noted that almost all of the cost of marijuana comes from the "risk factor". It is easy and inexpensive to grow. The reason dealers can get the price they do, is because of the risk they take. The less risk, the less need to ask a high price. Even if they don't want to drop prices, the reduced risk will lead to more people willing to enter the business, meaning more supply and more compitition. While I do have a moral issue taxing any kind of medicine, in this case, in the long run it my be taxed medicine or no medicine at all (at least not the legal kind).

    I think that the IRS regulation should not apply to medical marijuana, if it is supposed to be a revenue measure. You can't make money taxing a business, if you tax it out of existance. Just ask any conservative republican, as it seems that is all they can talk about. If they want to close the dispenseries and use the tax code to do it, they should be up front about it. Just say they are going to use the tax code to close them as the feds don't want dispenseries. But if they are going to have a policy of looking the other way when they follow state laws, then they should do the sensible thing and make a few bucks along the way. The way to do that is to allow reasonable deductions for reasonable business expenses. I also think that as a matter of public policy that as long as the feds have an offical policy of tolerance, that any tax records should not be able to be used as evidence in a future criminal prosecution unless they are trying to prove that the defendant was operating outside of state law. In the future, should they decide to change the policy, they should have to give notice of the change, and not be able to retroactively prosecute for acts done during times of offical tolerance.

    If offical understandings can be reached with the feds, that should reduce the risk factor enough to lower the price of the pot to a point where the tax can be totally absorbed. Also these understanding could encourage the dispenseries to be in strict compliance of state laws. This would be similar to the alcohol laws, where most stores will not risk their valuable liquor licenses to make a few extra bucks by deliberatly selling to minors. If state and local governments have a vested interest in the tax revenues they may actually petition the feds to make these changes.
  2. Terrapinzflyer
    ^^ you make some good points there...

    Personally- I find taxation of medical marijuana to be a very thorny issue on several counts.

    For those who the medical marijuana laws were fought for for so long- those suffering from AIDS, cancer, MS, etc- taxing their medicine (and one not covered by insurance at that) is morally wrong.

    But in many regards states are now doing an end run around the legalization issue that many users have done- and justifying taxation in no small part because of the body of users who using medical marijuana as an end run around legalization themselves.

    There is also the classic american issue of "no taxation without representation". In many, if not most of the states where medical marijuana is legal- it was the doing of the voters- the legislatures generally were unwilling to tackle the issue. But now they are willing to reap the profits.

    And for the federal government to tax something they refuse to acknowledge as legal, and that they continue to place obstacles to research and to the growth of the industry just smacks of hypocrisy.

    And I have a bad feeling that once medical marijuana is taxed- when the day finally comes that recreational use of marijuana is legalized it will be an impossible fight to remove the tax on purely medical marijuana.
  3. Killa Weigha
    If they're keeping it real they shouldn't be making profits. They most certainly should pay taxes on any profits - I'd say a 100% tax on profits is fair. Otherwise they are no better than a street dealer. Why doesn't the state (all states) focus on keeping medicine costs low for the patient?
    Under this scheme these 3 beneficiaries have an interest in escalating the price of medicine so that they may enjoy higher tax revenues. Is this really looking out for the patient? You have to understand who'd REALLY be paying the tax ultimately.
  4. CaptainTripps

    As I said in my previous post I too have a moral issue with taxing medicine. In fact the only thing I find worse is to deprive needy patients of the medicine they need. From reading many posts on DF you would get the impression that the choice is to tax or not to tax. Either mark option A or option B. I am affraid that there is an option C, none of the above. As you stated in most cases the only reason medical marijuana is legal, is because the voters made the decision, not the politicians. Some of this may have been a lack of courage on the part of legislators, but the real truth is that most of them oppose medical marijuana. The same with the bureacrats, who are there regardless of who is in power at the moment. The fact is most of them would much rather drive the dispenseries out of business, than to intergrate them into society. It is easy to think that the political momentum is on the side of medical marijuana and there is no turning back, only moving forward. Hey, I know that kind of thinking, I used to think that way myself. I remember back in the mid 70's when Oregon decriminalized and the Alaska Supreme Court declared the marijuana laws an unconstitutional violation of the right to privacy. Other states began to follow suit and if they did not outright decriminalize they made simple possession of small amounts a misdemeanor. President Carter came out in favor of decriminalization. Nixon had lost the cutural wars. He had been tossed out, and it was only a matter of time before his "get tough" war on drugs would be tossed out as well. Pro drug people looked forward to the future and the anti drug people resigned themselves to it.
    Prohibition was on the way out and every one knew it. Nothing could possibly go wrong. Then the worst disaster in modern political history occured, the unelectable candidate, Ronald Regan was elected. Suddenly the Nixon drug laws looked downright reasonable. I remember when there was a major LSD bust in the mid 70's, it was one of, if not the largest LSD busts in history at the time. Rooms full of blotter acid. Boxes stacked to the ceiling. I remember they got the maximum sentence. Five long years. To make matters worse they would have to serve at least a full third of that sentence. After the Regan drug laws, a 100 sugar cubes could get you a mandatory 10 years. Zero time off.

    It would be nice if people did things because they are the right thing to do. But not everyone has the same idea of right and wrong. There are those who believe that stopping medical marijuana is the right thing to do. I mean if it really was medicine it would not be on schedule l. Or so the argument goes.

    I also don't really think that they are "willing to reap the profits", I think they have been handed lemons and are making leomonaide. I would bet you anything that they would gladly give up the taxes if they could get rid of the dispenseries.

    If you are really concerned about the folks who are truely poor and can not afford their medicine, then how about requiring dispenseries to give a certain percentage of their product "pro bono". Yes, they will probably pass this cost along to other customers, but that is not really any different than hospitals who treat indigent patients.

    My point is that the progress that has been made should not be taken for granted. It is not irreversable.

    They may not be "street dealers" but they are dealers. They are commiting serious violations of federal law. Make no mistake, they are taking a big risk by doing what they are doing. Should someone who is risking a possible life sentence, not be compensated for their risk? It should also be kept in mind that many medical marijuana laws allow for the patient or caregiver to grow their own, at a fraction of the cost. It is not like the store fronts are the only show in town.

    As I said in my previous post, the high cost is related to the high risk. If marijuana was totally legal and just another product, you could put a 500% tax on gross sales and it would be cheaper than it is today, after making a big mark up on the price for what it cost to produce. Marijuana is not an inherently expensive product. The answer to getting affordable medicine to the patients, is to grant immunity from prosecution to the providers at all levels of government. This is America and we believe in competition. If there was not threat of prosecution marijuana could be sold at two or three times the cost of production and still be sold at 10% of what it is sold for today (not including any tax).

    This all probably a mute point anyway, my guess is that the neo prohibitionist will support the reschedule of marijuana to schedule II. That way they can get real control of the product. They can lower the quality. They can limit the amounts and how often they can be refilled. They can place severe limits on what illnesses that it can be prescribed for. They can require doctors to do drug tests to make sure patients are not using other unauthorized drugs. On the bright side it will be more available to the few patients that will qualify for a prescription as you will be able to get it at the local drug store and insuance and medical coupons will probably cover the cost for the poor. Once this happens, and I truely think it will, they will declare war on state medical marijuana laws the way they exist at this time. Not only that but many states may repeal their laws as the only reason they have them in many cases is because of the federal law prohibiting marijuana for any reason, is keeping ill people from getting help. So many people getting medical marijuana now under state rules will return to being criminals again.

    My guess is 10 years from now, medical marijuana patients will long for the good old days, before the feds "legalized it, and ruined eveything".
  5. Killa Weigha
    We're probably in agreement but arguing semantics. Salary can be set at the level the organization deems satisfactory to offset any risk, time and effort involved yet still remain competitive. Profits were never a part of the original deal to make cannabis available to patients in the states with which I am familiar.
    And competition should determine who stays in business. By having a well run shop, consistent high quality meds in a sufficient array, with an efficient cost-structure and prices the patients like, the cream will rise to the top. There are lots of alternatives to excess income than "profits". R and D, equipment, better facilities or giving back to loyal customers. Just don't think a dispensary should be throwing off cash when sick patients struggle to pay for their meds. It's not in the spirit of marijuana culture, IMO. Call me old-fashioned.
  6. CaptainTripps
    It almost seems to me that this thread and the one where we discussed non profits should be merged. The strange thing about this plan is that there are no profits. If we are talking about an " income tax", then the tax would be zero. As you are suggesting about alternatives to excess "profits", that is exactly what a non profit should be doing. All excess income is reinvested or kept in reserve. The only other legal alternative is to give it to a charity or another non profit. The only thing that can really be looked at as "profit" is the wages that are paid to the employees. That is where people who run non profits make their money, by hireing themselves as very highly paid employees. This income is subject to income tax the same way anyones wages are. What it sounds like here is an excise tax or some kind of quasi sales tax.

    I would agree with you Mr. Weigha. People should not be getting rich off the suffering of sick people. My issue is that a small tax that would make the government dependant on the marijuana industry is not where the high prices come from and can only help insure that the medicine will continue to be available to patients.
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