In what The Bay Citizen is calling “an ominous portent of the clash between federal and state law over medical marijuana the IRS is auditing the Bay Area’s largest medical pot dispensary, Harborside Health Center… .”  According to today’s piece,

The IRS audits large companies on a regular basis, but in looking at Harborside, DeAngelo believes the agency will be raising questions about a section of tax code known as 280e. The section, which was aimed at nabbing drug kingpins, prohibits companies from deducting any expenses if they are “trafficking in controlled substances.”

“Our contention is that what were doing is legal and not trafficking, and it’s not appropriate to apply it to us,” said DeAngelo. “This is an industry-wide issue.”

Bob McEligot, a partner at the San Francisco tax firm Calegari & Morris, explained that normal companies just pay tax on their profits after deducting expenses such as payroll and rent. But if the IRS found a medical pot dispensary to be trafficking in controlled substances, then “they would be paying on their gross income with no deductions at all,” said McEligot.

The difference could be enormous. A company the size of Harborside could be paying taxes at a rate of about 35 percent without being allowed to deduct expenses.

In addition, some lawyers contend that since federal law makes marijuana illegal, that forcing a dispensary to pay taxes is a form of self incrimination.  The attorneys argue that when a dispensary pays taxes they are forced to state that they are selling a controlled substance and state how much they sell which could be used as evidence against them in a federal court.

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Photo of Stephen DeAngelo, Executive Director of Harborside.