California's Biggest Marijuana Dispensary Owes Feds Millions

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    NEWSLETTERS

    It's not easy being the biggest medical marijuana dispensary on the West Coast, and possibly the United States -- especially when you also owe the federal government the largest tax bill on the West Coast, and possibly the United States.

    Oakland's Harborside Health Center -- which reported some $22 million in revenue last year -- is deep in the red to the Internal Revenue Service, according to the Bay Citizen.

    Harborside owes $2.5 million in taxes from 2007 and 2008, according to the dispensary's chief financial officer, some $2 million more than the cannabis club paid. The money's owed because, like most any other business, the dispensary claimed rent, payroll, insurance and other deductions on its taxes. The IRS ruled, however, that because the dispensary deals in a federally-illegal substance -- to wit, medical marijuana -- the business cannot deduct any of those expenses, and must pay.

    The section of tax code preventing the dispensary from claiming deductions is called 280-E. It was written in the 1980s to punish drug dealers like cocaine traffickers.

    Harborside is appealing the ruling, but the stakes are clearly high: if the dispensary cannot make deductions any other business can do, it will have to "close our doors and go away, because the business model will not work," according to Luigi Zamarra, the dispensary's top number-cruncher.

    Harborside has paid much in taxes, too: it wrote a check for $1,081,450 tax bill to the city of Oakland for 2010.