Harborside Dispensary Being Audited by IRS

In what The Bay Citizen is calling “an ominous portent of the clash between federal and state law over medical marijuana the IRS is auditing the Bay Area’s largest medical pot dispensary, Harborside Health Center… .”  According to today’s piece,

The IRS audits large companies on a regular basis, but in looking at Harborside, DeAngelo believes the agency will be raising questions about a section of tax code known as 280e. The section, which was aimed at nabbing drug kingpins, prohibits companies from deducting any expenses if they are “trafficking in controlled substances.”

“Our contention is that what were doing is legal and not trafficking, and it’s not appropriate to apply it to us,” said DeAngelo. “This is an industry-wide issue.”

Bob McEligot, a partner at the San Francisco tax firm Calegari & Morris, explained that normal companies just pay tax on their profits after deducting expenses such as payroll and rent. But if the IRS found a medical pot dispensary to be trafficking in controlled substances, then “they would be paying on their gross income with no deductions at all,” said McEligot.

The difference could be enormous. A company the size of Harborside could be paying taxes at a rate of about 35 percent without being allowed to deduct expenses.

In addition, some lawyers contend that since federal law makes marijuana illegal, that forcing a dispensary to pay taxes is a form of self incrimination.  The attorneys argue that when a dispensary pays taxes they are forced to state that they are selling a controlled substance and state how much they sell which could be used as evidence against them in a federal court.




Photo of Stephen DeAngelo, Executive Director of Harborside.


  • Yeah, this could be a problem.

    • Get ready for a wild ride as the Feds consider whether to try to stuff the pot genie back in the bottle. But there are already so many micro grows that it would take an effort that would make the war on drugs look like a peace and freedom fest.

      Steve DeAngelo and Harborside got some stones to take this head on. Feds prolly want to make him another Marc Emery.

  • D’Angelo has always struck me as courageous. He’s been an activist from way back. I hope he figures out a way to survive.

  • Some may want to consider that rule 155 of the U.S. Tax code took effect march 2008. In that ruling the trial judge stated that all dispensing expenses were 100% taxable, but that the cost of goods sold could still be deducted so as to avoid a constitutional challange. While the dispensing aspect is costly, it can be done with good book-keeping to keep your nose clean. tony

  • Fiance here:

    What about the Oaksterdam guy…..he says he pays mega taxes…..

    • He’s a flag waving, self-proclaimed capitalist who kisses politico ass. They’ll leave him alone, if he’s not one of them working a big inside already. And he’s all for bullying disgruntled oaktown black folk into hiding, to maintain that pristine gentrified look about “his” neighborhood. The guy is from texas and openly hates on “hippies” for chrissake…it’s like a reverse stereotype.

      • Random guy, tell me more. I was blown away at how openly Lee disdained where sensimilla came from, and his unconcern for the economy when he came up to Ukiah to chat with pot people this past Spring. His attitude was not even diplomatic–just Southern in the sense of “All you pore ole’ little dirt hippies, bless your hearts.”

        I guess it’s no wonder no one else put in money for his campaign. But it’s odd the pubic didn’t hear a little about how unpleasant he can be.

  • The guy is from texas and openly hates on “hippies” for chrissake.

    –just Southern in the sense of “All you pore ole’ little dirt hippies, bless your hearts.”

    -a couple of clear examples of local bias against Texans and Southerners.

    • ha…my point was that he literally mocks “hippies”, the word alone paints a well known stereotype…but in doing so comes across as a stereotype himself, that of the texas tycoon who hates long hairs and doesn’t care about anything but his money. I got family from texas, yo. Not blood relatives though, heck naw I ain’t no cowpoke…

      longwind I’ve only read interviews with him… What kind of people >explicitly< say they don't want everybody to have equal rights about growing and handling marijuana? That only the wealthiest few are worthy, so they can build an even bigger profit machine for themselves? And then to spin the story that anybody who opposes his factory plan must be doing so for their own selfish profit? Propaganda 19 in a nutshell.

      I know a few people who met him mebby at the same thing you were at…mixed reactions…did he try to plug his proposition? It was well in the works at the time, first and foremost on their mind during their little field trip to research the emerald triangle.

  • Yeah, he was explaining how great it was, and how our low quality meant no future for us, except maybe in industrial hash. I was surprised how politely he was received. Propaganda 19 indeed.

    Suzy, my family’s interbred with crackers for years (and some of my best friends are rednecks). I think I can imitate false concern at least as correctly as you imitate political correctness. A cultural observation is not a criticism. Further, Lee’s Southern-style passive aggression may mesh too well with California-style passive aggression. Ever notice how it’s done in California, Ms. PC?

  • -some of the typical lame rationalizations that prejudiced people use to excuse their biases are: “some of my best friends are (fill in the blank)” or, “my family … ” etc.

  • Fiance here: Ok, lets not go dissing on Texans and Southerners. I am one…an old Texas hippie as a matter of fact………Lets not do the stereotype thing, OK. What is it these days with Humboldtians dissing on Texans? There is even a letter in the Redwood Times about Texas bringing abou the downfall of California…….the oil thing….it costs more to refine it there because of your regualtions so they charge more…..duh! I mean, I have issues with some Humboldtians that are in fact growers but I don’t assume that all growers in Humboldt are just like them. Gimme a break.

  • …psh, southern pride.


  • Fiance here: ……psh…..SoHum snobbery!

  • everybody who grows up in california knows…watch out driving through texas with california plates!

    • Fiance here: I’m thinking everyone should know to watch out driving through every other state with California plates if you transporting.

  • Fuck texas.

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