Legitimacy of Pot Tax Revenue Remains Hazy Medical marijuana storefronts are helping to offset some of California's multibillion-dollar budget shortfall, but officials there may see the budding tax revenue go up in smoke thanks to federal laws banning the sale or purchase of pot.
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Legitimacy of Pot Tax Revenue Remains Hazy

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Legitimacy of Pot Tax Revenue Remains Hazy

Legitimacy of Pot Tax Revenue Remains Hazy

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In California, a severe budget crisis has led the state to seek an unusual source of tax revenue: medical marijuana storefronts. Pot is legal in California with a prescription, and these shops generate millions of dollars each year. But there is just one problem: Buying and selling marijuana is still a federal crime.

NPR's Richard Gonzales reports.

RICHARD GONZALES: Just off at a busy downtown Oakland Street, any passerby can stop in this coffee shop for a simple cappuccino or latte. But a discerning eye will notice a steady stream of customers who walk past the coffee counter to a backroom where they can purchase medical marijuana.

Richard Lee, the owner of this dispensary, shows us a menu of marijuana buds sold in one-eighth-ounce baggies.

Mr. RICHARD LEE (Pot Dispensary Owner, Oakland): We have one medium grade on our menu, that's $30 an eighth plus tax; and three high grades, those are $40 an eighth plus tax so it comes to $44 with tax, sales tax included.

GONZALES: And you just said, sales tax included?

Mr. LEE: Right. And we're very proud that we pay $200,000 a year in sales tax.

GONZALES: Two hundred thousand dollars isn't much in a state facing a $16 billion budget deficit. But medical marijuana advocates say their burgeoning industry collectively contributes a lot more in tax revenues.

Mr. KRIS HERMES (Americans for Safe Access): Advocates have estimated that the aggregate annual sales tax revenue that's contributed by the approximately 400 dispensaries in California is $100 million. No small change,

GONZALES: Kris Hermes is a spokesman for Americans for Safe Access. He says the state actually makes it easy to do business without revealing what they're selling by issuing generic seller's permits.

Mr. HERMES: This goes a few steps forward in legitimizing medical marijuana at the state level. And you would expect that the state would like to protect that revenue source.

GONZALES: In fact, California's Board of Equalization, the agency that collects sales taxes, does want to protect that revenue stream. Board member Betty Yee says the state sees the medical marijuana vendors like any other retailer.

Ms. BETTY YEE (California Board of Equalization): We view medical marijuana dispensaries as law-abiding businesses. Many of them have complied with state tax laws. And when there's aggressive federal action to shut these businesses down, it's awfully difficult for a state tax agency like the Board of Equalization to work to ensure compliance with state tax laws.

GONZALES: Yee says this could be a make-or-break year for medical marijuana dispensaries. The vendors are under constant pressure from the Drug Enforcement Administration, either through raids or threats of taking action against their landlords. And now the Internal Revenue Service may be getting into the act as well. Arlette Lee, a spokeswoman for the IRS criminal investigations unit:

Ms. ARLETTE LEE (Internal Revenue Service): From a federal criminal tax standpoint, all income is reportable. Income is income, whether it's legal or illegal, it needs to be reported to the IRS.

GONZALES: But Lee says right now the situation in California is murky. Medical marijuana dispensaries may be paying federal tax, but there's not always a paper trail to prove it. All this talk of taxes brings a smile to the faces of some medical marijuana vendors who believe the more taxes they pay, the more legitimate they become.

Richard Gonzales, NPR News, San Francisco.

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