Washington Marijuana Collectives Are in Big Federal Tax Trouble

Washington Marijuana Collectives Are in Big Federal Tax Trouble

Many medical marijuana dispensaries in Washington operate as collective gardens, rather than retail dispensaries, meaning that they are not licensed to sell marijuana. In these organizations, qualified patients make monetary donations to the growers who donate plants to the collective.

This allows the collectives to operate in a legal gray area where they can say that, technically, there are no retail sale transactions being made. Therefore, there would be no need to collect or pay federal taxes because there are no taxable sales transactions taking place.

This is how many of Washington’s cannabis collectives have been operating since Initiative 692 was approved by voters in 1998. Recently, the Department of Revenue has issued notices to these organizations stating that those donations are, in fact, considered to be retail sales transactions, and along with these notices came invoices requesting to collect millions of dollars in back taxes.

There are approximately 440 registered dispensaries in Washington, and it is estimated that nearly 120 of those have been issued tax payment delinquency notices. By using industry averages to estimate totals, the Department of Revenue acknowledges that the back-tax amounts issued on the invoices are not exact calculations because there are no sales figures with which to make exact calculations. The DOR is reportedly looking to collect close to $9.5 million total, from all of the involved collective gardens.

The response from collective owners has varied from person to person. Some claim that they have never sold marijuana, and therefore should not be forced to admit to committing a federal crime by agreeing to pay taxes. While organizations on the other side of the fence admit to operating a legitimate business, and have already paid or agreed to pay.

Steve Mohr, owner of Olympia Alternative Medicine, and Stephanie Viskovich, president of Delta 9, are both asserting that a sales transaction has never taken place within their establishments because they are not licensed vendors, and therefore they refuse to admit to illegal activity by paying taxes.

Jeremy Kaufman, owner of CPC, on the other hand, chose to begin paying taxes when he opened doors of operation in 2009 to set an example for those operating in the legal gray area. He explained his reasoning to K5 news,

“What business operates without paying taxes? I’m engaging in the sale of a Schedule 1 narcotic. … If you’re going to be part of the new cannabis industry, its pay to play.”

To end the confusion behind this issue, Senator Jeanne Kohl-Welles is currently drafting a bill to establish clear regulations. This legislation reportedly clarifies that collective garden operations will be phased out, and only the businesses paying taxes to the Department of Revenue will remain operational. The collectives will have until August of 2016 to legitimize, apply for a license to operate, and agree to pay taxes.

photo credit: Columbian.com

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