To Tax or Not to Tax? That is the Question

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February 20, 2011; Source: Annenberg Digital News | Voters in Los Angeles will be asked next month to approve a bill that will require the city to tax medical marijuana dispensaries. Taxing a business would seem a no-brainer under most circumstances. However, in California, only nonprofits are allowed to sell marijuana for medical purposes, and in Los Angeles, nonprofits are exempt from city sales taxes.

Still, supporters say Measure M, which would require dispensaries to pay $50 for every $1,000 in gross sales, can easily circumvent the pesky little problem that otherwise prevents the city from taxing nonprofits. The dispensaries in question haven’t received their IRS exemption because they can’t apply for nonprofit status. Why? Federal law bans the sale of marijuana. Therefore, say backers of Measure M, medical marijuana dispensaries are nonprofit in name only and taxable.

Despite that argument the Los Angeles city’s attorney has said that if passed the law would be unenforceable because it is illegal. Why? Only nonprofits can sell marijuana and the city – law or no law – can’t tax nonprofits. Anyone want to try this again?—Bruce Trachtenberg