The largest of the medical marijuana operations in Oakland one of the largest in the world, and the largest on the West Coast, in fact is Harborside Health Center, which posted $22 million in revenue last year. But now the IRS has come a-callin, asking for $2.5 million in back taxes for the years 2007 and 2008, citing a 1982 federal law that prohibits "businesses that traffic in illegal drugs" from deducting things like payroll, rent, insurance, and other expenses like a normal business. Harborside executive director Steve DeAngelo, while saying, "We're happy to pay our taxes," sees this new tactic by the feds as an effort to shut them down, and he's probably right.
Harborside claims some 94,000 patients and can probably afford the $2.5M bill right now, however the IRS plans to audit them for 2009 and 2010 as well, meaning that number is going to skyrocket. Other large dispensaries, including the Marin Alliance for Medical Marijuana, were also hit with big tax bills in what looks like a coordinated effort.
The IRS hasn't commented on the case, but DeAngelo makes a good point to the Washington Post: "What kind of drug trafficking organization actually files a tax return? None of them do. The very fact that we filed a tax return and told the IRS all the details of what we are doing proves we are not a drug trafficking organization."
Harborside has been under audit for two years, and only now hears this decision. The IRS's stance seems to come on the heels of that strongly worded letter from the federal government to the City of Oakland in February, as they tried to collect more local tax revenue by establishing larger, city-condoned pot farms.