Medical Marijuana Tax Revolt Brewing

A Marijuana Revolt?

This article comes to us courtesy of SF Weekly's The Snitch.

Taxes are never far from Dave Hodges' mind. According to the state of California, Hodges, the founder and operator of the All American Cannabis Club in San Jose, owes almost a quarter million dollars in back taxes. According to Hodges, the state owes him -- about $11,000, in taxes he "mistakenly" paid.

Like every other medical marijuana dispensary in the state, Hodges paid state sales taxes in order to appease the Board of Equalization, which levies the same tax rate on pot clubs (8.375 percent, as of Oct. 1) as any other business.

Except Hodges does not conduct sales. His collective, according to city law, receives donations in exchange for medical marijuana. And a donation is not a sale. The BOE told him so -- and now Hodges wants to tell other dispensaries how not to pay taxes, too.

California state law is not explicit one way or another on the legality of a marijuana "sale" -- and indeed, as recently as the spring, San Francisco District Attorney George Gascón's office filed a legal brief, which it since retracted, stating that all sales of marijuana are illegal (an odd stance to take in a city that had, at the time, more than 20 taxpaying medical marijuana businesses).

Storefront marijuana businsses may operate as nonprofit collectives or cooperatives under laws and guidelines passed by the legislature and Gov. Jerry Brown. The state began collecting sales tax on every transaction in 2007. But is walking into a dispensary and exchanging money for OG Kush a "sale"? Is it a "donation" to cover the cost of producing and distributing the product? Or is it something else entirely?

Hodges, who blogs and advocates for the medical cannabis movement at, says that his organization does not sell marijuana (which is one reason why he changed the name of his dispensary from San Jose Cannabis Buyers Club in 2011). Other dispensary operators tired of forking over nearly 10 percent of their take may be interested in Hodges' information symposium in San Jose on Oct. 19.

A main theme of the Education and Planning Conference will be taxes -- namely, why and how not to pay them.

Hodges also refuses to remit taxes to the city of San Jose, which passed a local gross receipts tax on marijuana, Measure U, in 2010. That tax went into effect in 2011. Hodges doesn't pay that tax, either, because city law says gross receipts apply to sales -- and again, Hodges maintains he takes donations.

If his argument is correct, and if his argument is judged correct in court, the BOE could be hard-pressed to collect the $100 million in state sales taxes medical marijuana was estimated to produce prior to the 2011 federal crackdown that closed 400 dispensaries statewide. In other words, a tax revolt could be brewing.

"The BOE, in a legal opinion from their attorneys, have stated that a collective does NOT pay sales tax," Hodges told SF Weekly. "If I can prove in court we ARE a "collective" they owe me 11k in sales tax I mistakenly paid them."

Such a decision could be a ways off. Hodges filed his initial petition against the BOE a year ago. Only recently did he receive notice of an audit on his tax situation; an appearance in court could be "60 days to a year" away, he said Thursday.

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