Medical marijuana dispensary (photo: Thomas Hawk)

The IRS has ruled that Harborside Health Center, one of California’s largest medical marijuana dispensaries, owes $2.5 million in taxes. Such a large tax bill could potentially force Harborside out of business.

The problem is not that Harborside has been involved in any form of tax evasion or attempts to defraud the government. The issue is that the IRS has determined that an obscure provision of a 1982 federal law prevents a marijuana dispensary from qualifying for the standard deductions that any other normal business could use. From the San Francisco Chronicle:

Harborside Health Center owes the Internal Revenue Service back taxes for 2007 and 2008, based on a federal law prohibiting marijuana dispensaries – unlike other businesses – from deducting payroll, insurance, rent, workers’ compensation and other operating costs from its revenues.

“We think this assessment is unfair and inaccurate. We have no choice but to fight this,” said Harborside executive director Steve DeAngelo. “I’m profoundly concerned on behalf of our patients.”

The issue at stake here is much bigger than the fate of Harborside. If marijuana dispensaries’ federal tax responsibility isn’t calculated in the same way as a normal business, the huge added tax burden could make running such dispensaries extremely difficult if not impossible. Not being able to deduct normal expenses like payroll and rent would cause a dispensary’s federal tax bill to increase several fold. 

The precedent the IRS is trying to establishing with this Harborside case could easily cripple or destroy the entire medical marijuana industry in this country. The result could be thousands of Americans all over the country losing their jobs in the industry and thousands of patients losing their safe access to the medicine they depend on.