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Friday, March 11, 2011

Bay Area Pot Clubs Audited as State Goes on Fiscal 'Witch Hunt'

Posted By on Fri, Mar 11, 2011 at 4:45 PM

click to enlarge Balancing the state budget with marijuana
  • Balancing the state budget with marijuana
Balancing the state budget with marijuana
It was big news for taxpayers and medical cannabis advocates

alike when the Board of Equalization informed mega-dispensary Berkeley

Patients Group that it owed some $6.4 million in back taxes.

And now it

appears that BPG's run-in with the taxman is not an isolated incident.

While BOE spokeswoman Anita Gore told SF Weekly that

"no directed enforcement activity" is being aimed at the state's

medical cannabis dispensaries, "dozens" of Bay Area dispensaries have

undergone audits in recent months, according to Kris Hermes, spokesman for

Oakland-based Americans for Safe Access.

And at least one dispensary owner

contacted by SF Weekly noted that BOE's single in-person visit was recently.

"It was the one and only time," said the dispensary

owner, who asked not to be identified. "Before, we'd only corresponded and

paid our taxes via the mails... it's very rare to hear or see from [the


This news comes on the heels of a visit by the IRS to Marin Alliance for Medical Marijuana, who owes the federal government

"millions and millions," according to owner Lynette Shaw.

What gives?

Is the taxman trying to put dispensaries out of business?

That seems highly unlikely, according to ASA's Hermes.

"The BOE, unlike the IRS, has to strike a balance between the money they

think they're owed between what [tax bill] would put the businesses funneling

money into their general fund out of business," he said. "Because if

they come down too hard, they will put them out of business."

That would

mean more black market marijuana, and less tax money over time for the

beleaguered state, which is struggling to plug a $26 billion budget shortfall.

"It would be very counterproductive to the

state's livelihood," Hermes added.

The most recent BOE estimate on sales tax revenue from

cannabis dispensaries is between $58 million and $105 million annually, coming from as much as $1.3 billion in sales, according to Gore.

only have an estimate, because medical marijuana dispensaries don't have to

declare that they're dispensaries, nor do they need to tell us," she said

And, at least outside of the Bay Area, she's right: Pot clubs can, and have,

registered as "holistic healing centers" and other such entities in

San Jose, Los Angeles, and elsewhere.

Gore refused to say how many other dispensaries were

undergoing audits, citing taxpayer confidentiality, while maintaining that

dispensaries are subject to audits "just like any other retailer."

Our dispensary source agreed. "I think it's probably

not aimed specifically at dispensaries," the source said. "They're

probably doing it to everybody, because the state is on a witch-hunt for


Also at issue for many dispensaries is the notion of

historic tax liabilities.

Cannabis dispensaries, which ostensibly sell

medicine that is not taxed in California, did not received BOE sellers' permits

until 2007. Yet the BOE maintains that dispensaries are liable to

pay sales tax on medicine sold prior to 2007 -- sellers' permit or not.


tuned, but don't surprised if this particular issue winds up in court.

Follow us on Twitter at @SFWeekly and @TheSnitchSF 

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About The Author

Chris Roberts

Chris Roberts has spent most of his adult life working in San Francisco news media, which is to say he's still a teenager in Middle American years. He has covered marijuana, drug policy, and politics for SF Weekly since 2009.


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