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Marijuana industry eager to pay taxes, cash in on deductions

Rob Hotakainen




The Senate Finance Committee, for instance, included marijuana taxes in an "options paper" listing fresh possible sources of revenue.





There are plenty of skeptics.

"There's just so much utter nonsense about this issue," said Jeffrey Miron, the director of undergraduate studies in the department of economics at Harvard University and a senior fellow at the libertarian Cato Institute in Washington, D.C. He specializes in the economics of illegal drugs.

"If they don't like the fact that they can't take certain tax deductions because they're in an illegal business," he said, "then they should go in some other business where they can take tax deductions."



"We're just waiting for that door to open and we'll happily come walking in with lots of tax revenue," said Steve DeAngelo, who runs a medical marijuana dispensary in Oakland, Calif., and helped the city pass a 5 percent tax on cannabis-related sales in 2010.

Rob Kampia, the executive director of the pro-legalization Marijuana Policy Project, called it "a man-bites-dog story."

"Very rarely in D.C. will you see an instance where someone is saying they want to be taxed," he said.


Rep. Smith called it an effort "to respect the law" that Washington state voters passed approving recreational sales. While he favors the tax breaks, Smith said he was opposed to the broader national legalization bill.

"Let's walk before we run here," he said. "Let's see how it works in the states."


Attorney General Eric Holder has yet to announce how the federal government will respond to the state legalization plans. So, Mikos said, marijuana sellers still could face prison terms or have their assets seized. And he said sellers could provide federal authorities with "the smoking gun" just by reporting their sales.

"If you're somebody who's reporting monthly to the Colorado Department of Revenue or the Washington Department of Revenue exactly how much marijuana you're selling," Mikos said, "that's very incriminating evidence."



Some experts say that doesn't portend good news for Washington state or Colorado pot sellers.

"It would be hard to imagine (federal authorities) not taking some action against recreational providers if they're going after medical marijuana providers," said Marvin Kirsner, a tax attorney in Boca Raton, Fla., who works with Greenberg Traurig, an international law firm.

As the states proceed with their plans, they're eyeing big money from sales.



"Even if it is going to be billions of dollars, that's still nothing -- a billion is one-thousandth of a trillion," Harvard's Miron said.


"I would never say that marijuana is going to solve the budget problem, because that would be an absurd statement," he said. "But we're talking about a few billion dollars at the federal level. ... That's real money."

DeAngelo, the executive director of the Harborside Health Center marijuana dispensary, said he was the No. 2 retail taxpayer in Oakland. He forked over $1.5 million to the city last year. But he's at odds with the federal government, and he said he had "an immediate stake" in the battle as he challenged a $2.5 million tax bill from the IRS. Even though the drug is illegal at the federal level, medical dispensaries must pay federal taxes.

"We were denied all of our deductions on the grounds that we're a drug-trafficking organization," DeAngelo said.

DeAngelo said Congress should move quickly to legalize marijuana for medical and recreational purposes, saying it was "the perfect moment" as the nation faced its fiscal crisis.

"There's not really any other industry in the country -- let alone one that can bring in tens of billions of dollars in tax revenue -- that's standing up and raising its hand and saying we're ready to step up to the plate and help the country solve its problems, but we are," he said. "We hope that Congress will hear us."

By Rob Hotakainen
McClatchy Washington Bureau