Harborside Health Center vs Internal Revenue Service
Federal Tax Code section 208E states “No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.” This tax code was put into effect under President Reagan to keep drug traffickers from claiming expenses on their taxes that would allow them to receive government money. Many people have believed for years that marijuana is a gateway drug and the people who grow or sell it are criminals. Now with the first state, California, legalizing marijuana for medical usage, questions of how to tax the medical marijuana dispensaries have arisen. Since 1996, this topic has become a forefront issue in politics. Federal Tax Code section 280E was passed by congress in 1982, when the Internal Revenue Department brought a case against a convicted cocaine trafficker. The trafficker in reply to the IRS, filed a return where he claimed deductions for objects used to traffic said drugs (i.e. the guns bought for protection ect.) Being that no regulations were put into place to combat this issue, the IRS was required to accept the returns. As a result of this, the trafficker was allowed to keep over half of his earnings. The Tax Code was plainly meant to apply to people who were illegally trafficking drugs and trying to claim their “business expenses” to maintain their lifestyle. This did not pertain to organizations, such as dispensaries, set up to abide strictly to the laws of their state. So why try to tax a company trying to do the right thing with their business? Enter the case of Harborside Health Center v. the IRS. With 22 million dollars in annual sales, Harborside Clinic has quickly grown to be one of California’s most prestigious dispensaries. The CEO of Harborside, Steven DeAngelo, is a visionary of his time. He is involved in an advocacy group for the medical use of marijuana, called Americans for Safe Access and believes that marijuana heals many aches and pains, depression, and a plethora of other ailments. He founded Harborside Health Center on the hope that they could help every individual person who comes through the doors feel truly cared for, valued, and respected. Their mission statement shows their care and concern for the patients who visit the dispensary. This is the reason that they are one of the highest grossing companies in its line of business, crushing the competition.
Like any company, Harborside files their taxes every year. Unlike many other businesses though, Harborside cannot claim typical things like rent, payroll and health insurance from their taxes. They, however, can claim the marijuana, edibles and other products they buy to sell as a business expense. A double standard for sure! This creates a large weakness for the company, by filing on their net income versus the gross income. The end-game situation is that companies are taxed out of business. Harborside’s gross income totals 22 million dollars. Because of this, the back-taxes owed are about 2.4 million dollars. Harborside’s greatest strength, of generating the most revenue, has also become its greatest weakness.
Like many companies, Harborside has external influences affecting their company. These influences include the government and the dispensary’s clientele. On a federal level marijuana is still considered very illegal; however, the state governments of California, Washington, and Colorado have legalized it for medical use. The nature of the business in itself is risky, not to mention the added risks of giving up over half your profits in back taxes. The federal...
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