Friday, January 15th, 2010
The California Board of Equalization (BOE) sent Special Notices to medical cannabis providers this month reminding them that medical cannabis transactions are subject to sales tax. The BOE first made the controversial decision regarding medical cannabis and sales tax in 2005, over the objections of patients and advocates. The board recently stepped up enforcement at medical cannabis collectives by visiting facilities to check for permits and auditing some collectives. Those who do not have permits or have failed to make payments are subject to interest, penalties, plus unpaid tax liability.
Collective and cooperative operators can download an application for a Seller’s Permit, Form SPA-400, from the BOE web site. As far as I know, no one has ever been investigated or prosecuted for selling cannabis based on their Seller’s Permit application. However, operators can avoid self-incrimination by requesting a “Waiver for Incomplete Application” from a BOE field office. This waiver allows applicants to submit the form without explicitly stating that they sell medical cannabis.
The BOE was wrong to decide that patients should pay sales tax on medicine. This runs contrary to typical public and places an undue burden on patients. Nevertheless, the board has the authority to make that decision. Medical cannabis providers ignore this obligation at their peril. Collectives and cooperatives that may have a sales tax liability should contact a qualified and experienced tax attorney for professional advice.
Posted in Medical Marijuana Information | 2 Comments »
Wednesday, April 1st, 2009
Patients at medical cannabis dispensing collectives (MCDC) in California will be paying more sales tax on their medicine beginning today. Sales tax increases 1% today as part of a budget negotiated by Governor Schwarzenegger and state lawmakers earlier this year. MCDC operators should check with the Board of Equalization (BOE) to determine what the new sales tax is in your city or county.
The message that medical cannabis patients pay sales tax resonates with the media, community, and elected officials, who see this revenue as a partial solution to the state’s budget woes. Few would be so enthusiastic, however, if they stopped to consider the burden sales tax places on sick and dying patients – or that the estimated $100 million in medical cannabis sales tax is only 0.4% of this year’s $42 billion budget shortfall.
Americans for Safe Access (ASA) argued against sales tax on medicine in 2005, but the BOE ruled that medical cannabis did not qualify as a tax-exempt prescription medicine. There is more work to be done in persuading the BOE to abandon this position, and in adopting state legislation to relieve this burden from patients and protect some of the state’s oldest MCDC form crushing liabilities for uncollected sales tax.
The BOE erred in making medical cannabis subject to sales tax, but MCDC operators must collect and pay the tax until we can change the policy. Penalties for failing to comply are severe. Additionally, California Attorney General Jerry Brown mentioned sales tax compliance as one of the criteria state law enforcement should consider when evaluating the legal status of an MCDC when he published his landmark guidelines for medical cannabis last year.
In response to pressure from ASA, the BOE updated its policy to allow MCDC operators to file a “waiver for an incomplete application” when applying for a Seller’s Permit. The waiver allows the applicant to decline to state what he or she sells or to identify the suppliers – thus avoiding self-incrimination. You must obtain the waiver from a BOE field office.
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