Pubdate: Fri, 10 Jul 2015
Source: San Francisco Chronicle (CA)
Copyright: 2015 Hearst Communications Inc.
Contact: http://www.sfgate.com/chronicle/submissions/#1
Website: http://www.sfgate.com/chronicle/
Details: http://www.mapinc.org/media/388
Author: Bob Egelko

COURT RULING COSTLY TO POT DISPENSARIES

A San Francisco federal appeals court dealt a financial setback to 
medical marijuana dispensaries Thursday, saying that - unlike other 
commercial enterprises - they can't deduct business expenses from 
their taxable income because their product is prohibited by federal law.

The ruling by the Ninth U.S. Circuit Court of Appeals was also 
another blow to the Vapor Room, which operated as a pot-inhaling shop 
and social club in the Lower Haight neighborhood from 2004 until July 
2012, when it shut down under pressure from U.S. Attorney Melinda 
Haag, who said she would seek its eviction for being too close to 
Duboce Park. Federal law increases penalties against marijuana 
dispensaries that are less than 1,000 feet from a school or 
playground, and the Vapor Room was 597 feet from the Duboce playground.

The business has continued as a delivery service, and owner Martin 
Olive recently announced plans to reopen at a new location.

Olive had claimed $650,000 in business expenses on its 2004 and 2005 
federal income tax returns, but the Internal Revenue Service balked. 
The court in Thursday's opinion upheld the IRS' tax assessments for 
Olive for those years. While the Vapor Room provided free snacks, 
movies and massage therapy, the court said, its only commercial 
product was marijuana, and federal law denies deductions for the 
expenses of "trafficking in controlled substances."

Olive's lawyer argued that the tax law, which dates from the 1980s, 
shouldn't apply to marijuana businesses legalized by state laws, 
starting with California's Proposition 215 in 1996. The court disagreed.

"If Congress now thinks that the policy embodied in (the tax 
deduction disallowance) is unwise as applied to medical marijuana 
sold in conformance with state law, it can change the statute. We may 
not," said Judge Susan Graber in the 3-0 ruling.

But Olive's lawyer, Henry Wykowski, saw a bright spot in the ruling - 
the court's confirmation of a 2007 U.S. Tax Court decision allowing 
medical marijuana outlets to deduct expenses from other sales, like 
food and services.

"The decision will benefit dispensaries that sell variety of products 
including those that are not cannabis,"
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MAP posted-by: Jay Bergstrom