Harborside Health Center – the prominent medical cannabis dispensary in Oakland led by well-known pot activist Steve DeAngelo – announced today that it has filed a petition protesting the $2.4 million bill it received from the IRS for back taxes after a long, drawn-out audit.
Last year, the IRS ruled that the California dispensary owed taxes for standard business deductions it claimed several years ago, saying the company violates Section 280E of the tax code. The section in question was drafted nearly four decades ago to prevent illegal drug dealers from claiming business deductions on their sales.
The code has not been updated to reflect the recent rise of medical cannabis shops across the country. Sixteen states plus the District of Columbia now allow the use of medical marijuana, and many of them also allow MMJ to be sold at store-front locations.
Although the IRS did not contest Harborside’s accounting records or determine that it violated state medical cannabis laws, it essentially decided that Harborside falls under 280E because marijuana is still illegal federally.
The ruling was a major blow not only to Harborside but also to dispensaries across the United States. If medical marijuana businesses can’t claim tax benefits that every other type of company receives (such as rent, electricity and insurance), the industry could crumble.
DeAngelo equates 280E as a “dagger pointed at the heart of medical cannabis.”
“If the IRS is successful in denying all deductions, no cannabis dispensary will remain in busines,” DeAngelo said. “How much is it worth for patients to have the right to use a medicine, if there is no way for them to safely obtain it?”
In protesting the IRS decision, Harborside claims that it is operating under state laws and regulations that were passed by voters, and therefore it should be able to claim standard business tax breaks. The IRS has a few weeks to respond to Harborside’s protest.
The move comes as Harborside and several other medical marijuana businesses and organizations from 12 states gather support for a new group called the 280E Reform Team, which seeks to educate the public about the tax issue.
The team, which includes dispensary owners, health support groups and pot activists, is calling for the IRS to stop “attacks” on legally operating medical marijuana businesses in the United States. In the coming months, the group will hold workshops for medical cannabis professionals and their accountants, educating them on tax topics pertinent to MMJ. The group also eventually hopes to bring about legislative reform for the marijuana industry.
The 280E Reform Team is now seeking volunteers and small donations to support its work.