Records released in medical cannabis tax row

Washington State demands medical cannabis tax

December 23, 2010 -- The Cannabis Defense Coalition has received the first installment of records from the Washington State Department of Revenue in its efforts to shed light on what led to the department's recent attempt to tax medical cannabis in the state. We have scanned the documents in searchable PDF format. The file contains 84 pages and is 8 megabytes in size.

Selected DOR quotes

Updated December 29, 2010

"Is there anything that is prohibiting us from taxing clubs that sell medicinal marijuana? There is an individual who is meeting with the governor at 10:00 on the 22nd and then coming to Revenue (I passed this on to Mike who sent it to Nicole) to discuss five very affluant clubs in King County that he thinks we should start taxing. Not because he doesn't like them, but because he would like to see them legitimized through our acceptance and taxation. I was told, years ago, we could not tax illegal income. Is that correct?"
-- Steve Bren, Department of Revenue, December 13, 2006 (page 3)

"We have two fellas in our NBO today who are growing and selling medical marijuana. Do we have any guidance on this?"
-- Kurt Sedlacek, Department of Revenue Spokane Field Audit Manager, June 17, 2009 (page 6-7)

"I really need to get a legit decision on this at some point as too many of these guys are popping up. Don Morley just sent me a referal for yet another medical marijuana distributor in my area this week too. It's an entire industry at this point. Sales of product in the form of the weed itself, tea, lozenges, spaghetti sauces, tincture, house favorite brownies of course, and a whole variety of items. Some farm it. Some purchase out of other states and the Sheriff's department brings the weed to the person's business and they sell it from there. I could go on for hours, but I'm getting the munchies."
-- Kurt Sedlacek, Department of Revenue Spokane Field Audit Manager, September 1, 2009 (page 8)

"My only comment about marijuana cannot be prescribed. It is illegal to sell marijuana in the state according to references you provided and DOH. I'm just baffled that these dispensaries are so openly operating. I feel I'm missing something. These dispensaries are going to all the state agencies in my area and trying to play by the rules, so they say. They have CPA's advising them, attorneys, etc. But, when DOH is saying adamantly these dispensaries are not legal, and the law clearly states it, I'm not sure why local enforcement isn't doing anything to stop them from selling the marijuana. Still, I realize it's a sidenote to our discussion, as I understand even though it is illegal, it is a transaction creating a potential tax liability. DOH is adamant it cannot be legally sold, whether through a pharmacy (where it doesn't exist anyhow) or any other way."
-- Kurt Sedlacek, Department of Revenue Spokane Field Audit Manager, September 3, 2009 (page 9)

"I decided to call WSDOH for further clarification, because if these rules are true, then dispensaries are illegal. In fact, WSDOH agrees. They don‘t know how these dispensaries are allowed to exist and they have recently been getting tips/complaints about illegal dispensaries popping up. One in Spokane was mentioned to me by the employee at WSDOH."
-- Kurt Sedlacek, Department of Revenue Spokane Field Audit Manager, September 3, 2009 (page 10)

"I just wish the Sheriff's Dept would run these guys out of business so we wouldn't have this issue in the first place."
-- Kurt Sedlacek, Department of Revenue Spokane Field Audit Manager, October 6, 2009 (page 26)

"Some of the 'etc.' aspects we haven't decided, yet. Such as can marijuana be considered an agricultural product and qualify the growers the advantages of Washington State farmers?"
-- Pat Moses, Department of Revenue, October 20, 2009 (page 36)

"I am trying to determine what type of licensing I would need to grow medical marijuana for the local dispensaries. There are now 3 in the that I know of in the area, and after having interviewed, I have found that they are in serious need of a reliable and steady supplier. This presents a prime business opportunity for someone who would willing to undertake this typo of business venture. Any information you may have about the licensing proceedure or requirement for this type of business would be greatly appreciated."
-- Public inquiry from Theresa Hatch, April 27, 2010 (page 61)

"I just got off the phone with Bert Caldwell, the reporter from the Spokesman Review. I explained our position regarding the taxability of medical marijuana, He is now interested in knowing the following: Is there any way we can identify revenue from these sales? Are we aware of any businesses reporting tax from sales of medical marijuana?"
-- Janet Shimabukuroh, Department of Revenue Program Manager, July 27, 2010 (page 72)

"Here is the first outfit (The Herbal Coop) that has identified itself as actually selling medical marijuana. We included a more detailed analysis gotten from Pat since they are likely not to know our position. Just wanted to let you know before we sent this out."
-- Gary Davis, Department of Revenue, September 20, 2010 (page 73)

"Wanted to let you know that I've asked Aaron and Scott to do some digging around on the internet to try to find dispensaries and/or association that we could use to notify the industry regarding the taxation of medical marijuana. Some sites are blocked and you may get an alert saying staff has been trying to access these sites. All in trying to support what Exec wants done to notify the industry. Don’t know if we should let IS know and if we can get around the blocks?"
-- Gary Davis, Department of Revenue, November 30, 2010 (page 82)

"I just spoke with Ralph and his staff has identified six dispensaries. However, there is no special license requirement for these dispensaries. He thought that if there was any special licensing, it would be through DoH."
-- Gary Davis, Department of Revenue, November 30, 2010 (page 82)

"A letter was mailed last Friday to approximately 90 dispensaries and interested organizations and associations regarding sales of medical marijuana. The letter explains that retail sales tax must be collected on sales of medical marijuana to consumers, and the dispensaries must pay business and occupation (B&O) tax under the retailing classification on the income derived from the sales. Sales of medical marijuana do not qualify for the sales tax exemption for prescription drugs. A Tax Topics article regarding this issue is available on the Department’s website."
-- John Wack, Department of Revenue, December 13, 2010 (page 84)

Revenue department demands sales tax on medical cannabis

December 14, 2010 -- Yesterday we received notice from the Washington State Department of Revenue that they believe all sales of medical cannabis are subject to retail sales tax. They are demanding that all medical cannabis providers begin collecting and remitting to the state a nearly 10% tax on medical cannabis.

We notified the Associated Press of the notice, and they sent something out over the AP Wire. We contacted the Department of Revenue and learned that approximately 90 medical cannabis dispensaries and providers received this letter, as did a small number of interested parties.

We believe this letter is the result of a question sent earlier in the year to the DoR by Senator Jeanne Kohl-Welles, asking whether medical cannabis was taxable under current state law an inquiry sent by a Tacoma dispensary. We sent a public records request to DOR to obtain more information about the details surrounding these actions. We believe the list of dispensaries and providers was compiled from sources outside the Department of Revenue.

CDC statement on tax notices

The Cannabis Defense Coalition released the following position statement on the move:

"Medical cannabis should be taxed as would any other therapeutic drug. The state should not try to balance its budget by taxing the poor, sick and dying. Cancer patients don't need more taxes on their medicine, they need protection from police and criminal violence.

"State and local law enforcement routinely ignore the law and raid authorized medical cannabis patients and providers. These raids and arrests have been on the rise since the State v. Fry ruling, which states that police can arrest authorized medical cannabis patients. Registering with the state is akin to painting a target on one's head, and we recommend against it at this point."