A Tax on Pot, is it a Solution or Problem?

A dirty little secret you don’t hear often when government starts talks about its’ “war on drugs” is that despite it’s questionable legality marijuana is still thought to be America’s second most profitable cash crop. So why not make a tax on pot like other vices? Of course, that question goes well beyond economics and touches upon social and moral issues, but that being said and for the purposes of this discussion, the question remains if the government needs more money why not?

At a time when all levels of government are wrestling with large revenue short-falls and huge deficits, taxing marijuana in the sixteen (16) states where it has been de-criminalized, is becoming a more attractive option. In the City of San Jose, California, for example, a seven percent (7%) tax on medical marijuana sales has produced some significant revenue for the City.

Specifically, San Jose Officials report they’ve collected $290,000.00 ($3.5 million annualized) in the first month of the City’s new marijuana tax. Not bad, especially when one considers that approximately twenty five percent (25%) of the licensed marijuana collectives in San Jose (there are a total of approximately 100 dispensaries presently authorized to operate in the City; last month the City Counsel voted to reduce that number to only 10) may not have complied with the new law and could end-up now owing the City back taxes and a twenty five percent (25%) penalty plus interest on the back taxes due.

IRS tax attorneys point out disparities between states, which permit marijuana sales, and the federal government are creating difficult and complex tax issues causing uncertainty and confusion for marijuana collectives and the public at large. While marijuana is considered in the states which permit its’ sale as prescription medicine, unlike other prescription medication because it is listed as a Schedule I drug it may not be tax exempt. Accordingly, crafting a scheme to tax medical marijuana requires careful consideration and thorough planning.

Tax lawyers point to examples like the City of San Jose as a possible glimpse into the future of likely new tax initiatives across the country. Accordingly, these tax attorneys caution as new states begin to adopt laws permitting the use and sale of marijuana, while the federal government appears to remain adverse to any legalization of pot, new rules governing how the drug may be taxed in the future are likely to invoke even more confusion and uncertainty.

So what can marijuana collectives and their customers do to get some answers to their questions? As this is a relatively new field, and even some of the most seasoned tax attorneys have had little, to no experience counseling clients in this area, the best place to get answers is still probably a tax lawyer. The key, as is often the case when hiring professionals, is to do your homework. Shop around, ask plenty of questions, and find the right tax lawyer for you. Doing so could save you a lot of time, trouble and money in the future.


Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

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