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Seattle activist/attorney Douglas Hiatt: "We've just begun to fight this round"
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Seattle activist/attorney Douglas Hiatt:
“We’ve just begun to fight this round”

Washington State last week reminded medical marijuana dispensary operators that they “must pay taxes,” and the state Department of Revenue plans to collect back taxes from about 300 dispensaries that seem not to have paid any. But Seattle-based activist/attorney Douglas Hiatt says he’s “hopping mad” about the announcement, and he’s advising shop owners to contact him before paying anything.

The Department on Friday sent letters to dispensaries, “medible” makers, and other businesses involved in medical marijuana, emphasizing that taxes apply to their transactions, reports Bob Young at The Seattle Times. According to the Department of Revenue, about 500 registered dispensaries are already paying taxes on their earnings.

That number represents a big increase over previous DOR reports. Department spokeswoman Kim Schmanke said 102 medical marijuana businesses paid about $2.5 million in state and local taxes in 2012.

Douglas Hiatt: "Quote"
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Douglas Hiatt:
“We don’t tax medicine in this state”

That number is likely “not perfect,” according to Schmanke; for instance, some entrepreneurs may be doing business under different names than the one under which they are registered with the state for tax purposes.

According to the state, dispensaries are supposed to pay a retail sales tax of 6.5 percent on any transaction. Local jurisdictions are allowed to add additional sales tax on top of that.

Companies are also required to pay a tax on gross receipts called the business-and-occupation (B&O) tax. Most businesses are required to pay 47 cents of B&O tax on each $100 of gross income, according to Schmanke.

Schmanke said some in the medical marijuana community are “confused” about their tax obligations. “That’s why it’s important to put out these letters directly to businesses,” she said.

Unlike prescription drugs, Schmanke said, medical marijuana is not exempt from retail sales tax. Hiatt strongly disputes that assertion, saying a medical marijuana authorization is equivalent to a prescription.

Schmanke wouldn’t estimate the amount of back taxes the state says is owed, or the amount the 500 compliant businesses paid in taxes in 2013.

Pressure on dispensaries to pay taxes is being ratcheted up as I-502, the recreational legalization measure approved by Washington voters last year, is being implemented. Marijuana sold in state-licensed stores — which are expected to open by June — will be taxed 25 percent at each level of the three-tiered process in the state: cultivation, processing (curing), and retail, plus sales taxes.

The Washington State Liquor Control Board, put in charge of recreational marijuana by I-502, had its authority extended to medical marijuana as well by the Legislature. The LCB has recommended that the system of patient collective gardens (dispensaries) be shut down, and that all medical marijuana patients be required to buy their cannabis at state-licensed marijuana stores, rather than dispensaries.

‘This Is Not A Done Deal’

“They make it sound like a done deal, but we haven’t even lost that tax round yet,” Hiatt told Toke Signals Thursday afternoon. “We’re just starting to fight this round.”

Hiatt, along with ace attorney David Arganian, is mounting a legal challenge to the taxes. “Anybody that receives a tax notice can call us,” Hiatt said.

“There are a couple of good reasons why they can’t tax medical marijuana,” Hiatt told us. “One of them has to do with the fact that, under traditional tax analysis, it’s technically an illegal transaction (collecting sales tax on illegal transactions is against public policy), and the second is the fact that we don’t tax medicine in this state.

“I’ve long been prepared to argue that an authorization is the functional equivalent of a prescription,” Hiatt said. “Additionally, they don’t have any authority from the Legislature to tax medical marijuana, and the general taxing authority they have is not good enough.”

Have You Been Denied A Business License After Being Approved For I-502 License?

Hiatt also wants to talk to anyone who gets a license for I-502, then gets denied by the county in which they are located.

Pierce, Yakima, and other counties in Washington  reportedly might not prove to be very friendly to 502 businesses, according to Hiatt.

If I don’t hear it, somebody who doesn’t know how to separate out medical marijuana arguments from 502 might fuck us all,” Hiatt said. “So I’m looking for a test case there.”

Douglas Hiatt, PLLC (website)
1911 1st Avenue
South Seattle, WA 98014


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