Pot Dispensary in Battle With IRS

Dispensary has 94,000 customers and had $22 million in sales last year

By Lori Preuitt
|  Tuesday, Oct 4, 2011  |  Updated 3:15 PM PDT
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The Harborside Health Center dispenses cannabis.

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Oakland's largest medical marijuana dispensary is in a million dollars battle with the tax man.

The IRS says Harborship Health Center owes $2.5 million in taxes for the years 2007 and 2008.  That's $2 million more than Harborship actually paid.

The Bay Citizen broke the story and said that Harborship's first appeal to the IRS has already been  rejected.

The IRS takes issue with the dispensary's deductions of payroll, rent health insurance and worker's comp. The IRS claims the business doesn't qualify for those deductions because it is involved in that in the trafficking of controlled substances (section 280e of the tax code).

"Harborside Health Center is not a drug trafficking organization, and it is unfair of the IRS to characterize us as one. We are a non-profit, community service organization that provides desperately needed medicine to sick and suffering patients," Steve DAngelo said in a statement.

The difference of tax opinion shows the conflict between federal and state authorities over medical marijuana is still very much alive and well.

Medical marijuana is legal under California law, but illegal under federal law.

"The IRS action is not intended to collect our fair share of taxes, it is intended to tax us out of business. And we are just the first test case—as goes Harborside, so goes every other medical cannabis dispensary. The real question is whether patients should be able to purchase their medicine in licensed, regulated, tax-paying establishments; or should they be forced back to the street, and into the hands of criminals?" DeAngelo added in his statement to NBC Bay Area.

Medical marijuana advocates say if the IRS wins this battle it could cripple the industry.

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