CA dispensary wants tax payment labeled a ‘contribution’

The owner of a California medical marijuana grow and dispensary is proposing to pay $1.3 million in back taxes to the city of San Jose, but with a caveat – the money must be classified as a “contribution or collection of membership fees,” not as taxes.

David Armstrong, the owner of MediMarts in San Jose, hasn’t paid the city’s 10% business tax in four years, claiming that doing so would put him in violation of state and federal laws. Paying taxes would be tantamount to admitting that they sell marijuana, Armstrong and his lawyers told NBC Bay Area.

MediMarts’ lawyer argues the venture is a co-op and doesn’t sell marijuana. Rather, MediMarts’ members are co-owners who share the company’s cannabis among themselves. Members must possess a free membership to MediMarts, which requires proof of California residency and a doctor’s recommendation for medical marijuana.

The case raises questions about the treatment of MMJ co-ops in California and elsewhere.

Under the deal he has floated to San Jose officials, Armstrong also wants MediMarts to be exempt from city inspections.

“Our position is that if the tax were worded differently – if it were for different reasons – then there’s no problem,” Dania Alvarenga, a lawyer for MediMarts, told NBC Bay Area. “This has the word ‘sales’ is in there. The word ‘business’ is in there, so it’s a matter of characterization and a matter of what it’s for.”

San Jose officials haven’t accepted or rejected MediMarts’ offer but said the proposal was risky because it might seem as if the city was allowing the dispensary to play by different rules than other dispensaries.