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California To Regulate Medical Marijuana

  • Oct 11, 2012 | Gail Cole

Medical marijuana has been a controversial issue in California since voters approved Proposition 215 in 1996. Proposition 215 legalizes medical marijuana, but marijuana remains illegal under federal law. Furthermore, "California state law is not explicit one way or another on the legality of a marijuana 'sale'." (The Huffington Post).

Because of this, "a tax revolt could be brewing." (The Huffington Post).

A Special Notice released by the California Board of Equalization in June of 2007 states that "[t]he sale of medical marijuana has always been considered taxable." Why? Because anyone "selling tangible personal property in California ... is required to … report and pay the taxes due on their sales."

Nonprofit Collectives and Cooperatives

However, some storefront marijuana businesses operate as "nonprofit collectives or cooperatives under laws and guidelines passed by the legislature and Governor Jerry Brown." Dale Hodges, founder and operator of San Jose's All American Cannabis Club, claims that since his collective takes donations and does not conduct sales, it is not liable for sales tax. While Hodges has paid state sales tax "in order to appease the Board of Equalization," he is seeking reimbursement from the state -- about $11,000. According to the state, Hodges' owes California almost $250,000 in back taxes. (The Huffington Post). Information on Sales Tax and Registration for Medical Marijuana Sellers released by the Board of Equalization states that not making a profit "does not relieve a seller of his or her sales tax liability."

Federal Crackdown

A potential tax revolt is not the only issue here. In October of 2011, the Department of Justice launched a crack down on medical marijuana dispensaries throughout California. The Huffington Post reports that since that time, "hundreds of dispensaries from San Diego to Yuba County have been forced to shut down." As a result, thousands of people have lost their jobs, and "California is losing out on much-needed sales tax revenue."

Americans for Safe Access, which promotes legal access to marijuana, reports that "in 2007, more than $100 million in sales tax was collected by [medical marijuana dispensaries] and provided to the state." With a $15+ billion budget deficit, California could use that revenue.

State Regulation

Earlier this year, San Francisco Assemblymember Tom Ammiano authored a bill that would "create the first statewide regulatory framework for the medical cannabis industry." Ammiano spokesman Quintin Mecke told The Huffington Post that creating regulations would remove justification for the Department of Justice's crackdown on the state's $1.3 billion industry.

Assembly Bill No. 2312, scheduled to take effect January 1, 2013, "creates the Board of Medical Marijuana Enforcement … to oversee and regulate the medical marijuana industry in California. It would also authorize local governments to impose an excise tax." (Ammiano).

Read about sales tax and medical marijuana in Connecticut and Maine.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.