The Great Marijuana Tax Heist
Taxation without Representation was one of the main reasons that our founding fathers went to war with the British. People in the American Colonies believed because they were not being represented in the far away British Parliament that tax laws on products such as the Sugar Act and the Stamp act were illegal under the Bill of Rights Law of 1689. Yet in the world of cannabis we see several states not only taxing Recreational Marijuana but Medical Marijuana as well.
The main problem with paying taxes on marijuana sales is that cannabis it is still classified by the Federal Government as a schedule 1 narcotic punishable by imprisonment and even the death penalty as noted on the Normal website.
The sentence of death can be carried out on a defendant who has been found guilty of manufacturing, importing or distributing a controlled substance if the act was committed as part of a continuing criminal enterprise – but only if the defendant is (1) the principal administrator, organizer, or leader of the enterprise or is one of several such principal administrators, organizers, or leaders, and (2) the quantity of the controlled substance is 60,000 kilograms or more of a mixture or substance containing a detectable amount of marijuana, or 60,000 or more marijuana plants, or the if the enterprise received more than $20 million in gross receipts during any 12-month period of its existence.
Steve DeAngelo owner of HarborSide one California’s biggest dispensaries noted this fact in the airing of the episode Weed Wars since his dispensary does more than 20 million dollars a year in cannabis sales. Oddly enough the governments of Colorado and Washington State would similarly qualify for the death sentence along with their heads of department of taxation and revenues.
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Timothy Leary VS the United States of America
Ironically the legality of the taxing cannabis has already been decided by the Supreme Court in Leary Vs. United States. In this case Mr. Leary who was driving back from Mexico was charged with violating the Marijuana Tax Act after marijuana was found in his car. After being convicted Mr. Leary appealed his case all the way to the Supreme Court with the argument that paying the tax amounted to self-incrimination since marijuana was declared illegal by the Federal Government. The Supreme Court agreed and in a Unanimous decision overturned his conviction with the following logic.
a. If read according to its terms, the Marijuana Tax Act compelled petitioner to expose himself to a "real and appreciable" risk of self-incrimination;
b. [The statute] required him, in the course of obtaining an order form, to identify himself not only as a transferee of marijuana but as a transferee who had not registered and paid the occupational tax;
c. Compliance with the transfer tax provisions would have required petitioner unmistakably to identify himself as a member of [a]..."selective" and "suspect" group, we can only decide that when reading according to their terms these provisions created a "real and appreciable" hazard of incrimination.
Attorney Joseph Goldstein does a very nice detailed review of the self-incrimination question that can be found here.
http://www.cardozolawreview.com/content/37-2/GOLDSTEIN.37.2.pdf
Some of the highlights in this article include the following.
The U.S. Supreme Court has held that both legal and illegal income is taxable, and this proposition is not seriously in question. Thus, the authority of the federal government, and by implication, the states, to pass these drug tax statutes is valid. However, such statutes must still conform to constitutional guarantees. For purposes of this Note, that means questioning whether such drug tax statutes violate the Self-Incrimination Clause of the Fifth Amendment
Taking all the above into account, the Colorado excise tax statute presents a real and substantial risk of self-incrimination for persons who comply with it.
Is there a real and substantial risk of tax-paying marijuana business owners being prosecuted? Well, there certainly is with several dispensary owners being prosecuted at state and federal levels in the past few years. More importantly, some States like Washington use it as a method of intimidation and blackmail. If you don’t pay your taxes we will prosecute you in state court or sick the Feds on you and this certainly has already occurred including happening too me personally.
Washington State Attorney Steve Graham put it more bluntly.
The truth is that the dispensaries are scared, and no dispensary is likely willing to refuse to pay these bogus sales taxes to the Department of Revenue. The attorneys general that work with DOR can simply make a call to the criminal division of the Attorney General’s office to push for prosecution of dispensaries unwilling to pay these “taxes.” No dispensary wants to be the one to stand out and risk criminal charges. To put it another way, the uncertainty in the law makes these dispensaries susceptible to a form of blackmail.
http://www.grahamlawyerblog.com/2010/12/24/can-the-department-of-revenue-really-tax-medical-marijuana-dispensaries/
Moreover, the application of prosecution discretion allows rouge prosecutors to go after any target they choose while allowing others to freely operate. This seems to be a clear violation of Equal Protection clause of the Constitution. Lance Gloor a medical dispensary owner was recently prosecuted and convicted of growing marijuana in Washington State even though he was paying taxes. In one of the articles written about the case the state accused him of HIDING REVENUE AND NOT PAYING THE FULL AMOUNT. The remarkable thing about this case is there are hundreds of other medical and recreational owners doing the exact same thing he was prosecuted for. What is to stop prosecutors from going after competition they see as a threat to the illegal tax collecting scheme of a state instituted body?
The threat of crackdown on marijuana tax payers by a new administration.
The Obama administration has allowed the states to experiment with legalized marijuana but that hasn’t stopped federal prosecutors from selectively targeting growers as in the Kettle Falls Five and other dispensary owners as they see fit. While at the same time allowing others go unmolested. The problem with paying taxes is that you are leaving a paper trail of incriminating evidence for any future prosecutor to use against you. This would be an open and shut case since Federal Courts do not allow the use of a medical marijuana defense. Republican Candidate Chris Christie has made it clear that if he was elected president he would immediately shut down all recreational and medical marijuana operations around the country and probably prosecute many operators. Many are speculating that since he just endorsed Trump after dropping out of the race that he will seek to be appointed Attorney General where he can still carry out his threat of dismantling the entire cannabis industry.
If you are not sure of Christie's intentions consider this statement. Chris Christie calls marijuana users diseased and pledges to cure them with law enforcement.
http://marijuanapolitics.com/chris-christie-calls-marijuana-users-diseased-pledges-to-cure-them-with-law-enforcement/
High Times goes further in the analysis saying that Chris Christie, the man now apparently positioning himself to control the Department of Justice, has been one of legal marijuana’s most vocal opposing forces, saying earlier last year, “As President of the United States, I will enforce the marijuana laws, because I believe marijuana is a gateway drug that causes our children and adults to use other drugs.
http://www.hightimes.com/read/attorney-general-chris-christie-could-shut-down-recreational-cannabis-industry.
One of the precursors of the self-incrimination clause is that there has to be a real and perceived threat of prosecution. Since we have already seen prosecution of taxpaying cannabis owners and the uncertainty of what a new administration would do to existing laws there is no way that taxing the substance can stand up to legal scrutiny until cannabis is legalized on the federal level.
IRS Tax Rule 280E
To further instill the taxation without representation theory is the draconian IRS tax code 280E which prevents legal cannabis businesses from deducting otherwise ordinary business expenses from gross income coming from distributing a schedule 1 or 2 substance, as defined by the controlled substances act. Cannabis businesses, however, pay taxes on gross income. These businesses effectively pay tax rates that are effectively seventy percent higher than a normal business. In January 2015 the IRS made it even worse by issuing an internal memo that stated how state-legal businesses should calculate federal income taxes. The memo imposed a strict reading on Section 280E. These rules basically stated that not even the minimum deductions would be allowed. These businesses will have trouble staying afloat in the long run. Combined with the Washington States extremely high tax rate many have predicted it will be impossible for any business to make a profit after paying state and federal taxes. What is even more ironic is that the IRS themselves are committing the federal crime of money laundering by accepting the taxes from sales of schedule 1 narcotic along with the Washington State and Colorado department of revenue.
https://www.irs.gov/pub/irs-wd/201504011.pdf
http://www.forbes.com/sites/anthonynitti/2015/01/24/irs-futher-limits-deductions-for-state-legal-marijuana-facilities/#554ab21f6fd1
Where are the lawyers?
With the obvious evidence presented and with the Supreme Court ruling of Leary you would think this issue would have been resolved by now in state and federal courts. Why haven’t attorneys’ come rushing to the rescue of prosecuted dispensary owners and medical growers around the country? It would seem to have to do with the all mighty dollar. Attorneys are afraid to go up against the State with fear of being ostracized by the legal community or being shut out of lucrative state contracts in the future. However, 2 attorneys have filed lawsuits relating to taxes in both Washington and Colorado. Attorney Rob Corry has filed a lawsuit in the Denver District Court to block marijuana taxes in Colorado stating that the tax violates the Fifth Amendment, which protects people from self-incrimination. A copy of the lawsuit can be found here.
http://archive.9news.com/assetpool/documents/140610024513_Prop-AA-Complaint-Final.pdf
And in Washington State, a lawsuit has been filed by attorney Douglas Hiatt on behalf of his client Martin Nickerson who was prosecuted for running a medical marijuana dispensary while at the same time being issued a tax warrant by the Washington State department o revenue.
See: http://www.king5.com/story/news/local/2015/01/09/medical-marijuana-back-sales-tax/21486299/
These 2 lawsuits were both filed about 2 years ago and the question remains is why are they taking so long to move to a conclusion? Further research on the status of those cases will be updated as soon as I can find out.
Conclusion
Marijuana is still a schedule 1 narcotic and in spite of promises from the Obama administration operators, caregivers and patients are still being prosecuted on the federal and state level. State Governments are violating the constitutional rights of business owners by collecting taxes that incriminate them for violations of federal trafficking laws. Prosecutors around the country are further violating constitutional rights by selectively prosecuting business owners while leaving others to operate free for doing the exact same thing. It would seem that our constitution was developed to prevent this exact scenario where laws are enforced on certain citizens but not on others. What needs to happen is that states need to return all taxes collected and all records destroyed containing any information on licensing and taxation. This must be done to prevent any administration from using it to prosecute business owners in the future. Any business owner who was prosecuted while paying taxes should immediately have their convictions overturned and be compensated for violations of their constitutional rights and damages to their credit and business reputations.
About the Author
D. Meshach is the owner of www.dispensaryexhange.com a searchable dispensary and vendor index for business owners that offer free registration and blogs on the cannabis industry.
Contact at DavidMeshach44@gmail.com
Currently seeking partners and investors for expansion of dispensaryexchange.com
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