Global Ganja Report

The IRS has ordered Oakland's Harborside Health Center, biggest cannabis dispensary on the West Coast, to pay $2 million in taxes, ruling that the collective may not deduct standard expenses such as payroll and rent. "They're attempting to tax us out of business," protested owner Steve DeAngelo. Ironically, the same day he received the IRS letter, DeAngelo was photographed handing the Oakland treasury a $360,000 check —third installment of $1 million in city taxes  Harborside generated in 2010.

Oakland's four dispensaries pay a 5% tax to the city on top of regular sales taxes. That special tax contributes about $2 million to city's budget. DeAngelo said that is money that Oakland cannot afford to lose. "It's not just Harborside that's under threat here."

Harborside's audit began two years ago and covered its 2007 and 2008 tax filings. The dispensary paid the IRS a total of $500,000 in those years, and the IRS did not dispute Harborside's record keeping. The agency did deny $2 million in deductions Harborside claimed both years for security, lab testing, licensing fees and employee health insurance, among other things. Harborside has also been hit with a penalty of nearly $400,000, DeAngelo said. The agency based the decision on the fact that Harborside provides medical cannabis, a substance that remains illegal under federal laws.

The IRS ruling further complicates Oakland's pursuit of more tax dollars from large-scale cannabis cultivation for the medical market. It also has DeAngelo concerned about the future of Harborside, which opened in 2007. DeAngelo says the dispensary might not be around to pay next year's taxes if the federal government continues to tighten the noose around the medicinal cannabis industry. (Oakland Tribune, Oct. 5)

Graphic by Herbal Remedies