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Setback for marijuana dealers in Colorado dispensary owners being slapped with a massive income taxes on the seeing federal tax rates up to 7%.
The ridiculous rate stem from a tax roll -- more than thirty years ago prevent illegal drug trafficker has been conducting related expense -- Other income taxes and restaurant that was ever possible make sense of -- all of this.
I have an advocate.
If I -- trying to make sense of all of it and I advocates taxing marijuana but at the rate that high went up it's just gonna push -- back.
Into the black market joining me now.
He had an accountant who specializes in medical marijuana taxes.
Have helped these sort out everything I tried to just say and even what's going on here how tax rate possibly be.
65 to 75%.
Or some dealers and get.
Well your comments absolutely corrected it relates to a tax law that was passed in 1986.
-- in response to a tax court case that the IRS lost to a a drug dealer.
And they wanted to fix that so they fix it with act of congress and IRS provision called code section 280.
Which allows for the deduction of the drugs themselves.
Or didn't and our case here the cost of growing medical marijuana.
But it denies the overhead costs such as.
Cell phones in cars and and other overhead type costs.
And so what that translates to here in Colorado where we have a a legal retail business.
Is that all the costs of growing the plant are deductible and that would include.
Warehouse rent and utilities and nutrients and irrigation systems and and lights.
But it denies them the deduction for their retail costs of advertising.
Retail labor and retail.
-- -- Just -- vacuum just a little bit how was it that.
Was in court fighting attacks -- army wasn't he an illegal drug dealer.
That's true but US citizens are all tax on their worldwide income -- -- -- about arrived from legal or illegal sources so.
Even if you're in illegal business you still need to file a tax return.
And so people actually do that I mean you're gonna get your -- -- didn't admitting you're an illegal business and about the advantage to being an illegal business among of the things is that you're not paying taxes.
Well sometimes they do it after the fact now okay our -- so.
Is there any way around that's because -- many of the problem like you know I was thought.
It makes sense to legalize and tax it and that way you did the government can collect revenue -- -- deal with the addiction problem deal with some of the other problems.
Because you're not gonna make it go away but at this rate if you're taxing people and effective rate of 75%.
It seems to me you're gonna drive it back underground in the black market so that they can avoid paying taxes -- Well that is very true this industry has a natural -- -- -- that if you make it too expensive or too heavily taxed it it would go back to the black market.
Would working hard in Colorado to try to bring it out of the black market and make it safe legal and tax for adults here in Colorado.
-- -- is there any way to get around this or what are you doing about it.
Well there's not a lot of agreement.
I I do the tax returns for several dozen dispensary clients in Colorado we have an integrated model which means that.
The dispensaries have to grow their own medicine for their patience as we call it medicine here in Colorado.
And so they -- required to do that by state law.
And they -- they're taking the position that this law should not apply to them.
The IRS is vigorously enforcing this law in Colorado.
And under audits and I do consult with many of these businesses and help them with -- IRS audits.
The IRS takes the position that this law does apply to them.
And therefore they have to pay tax on their gross profit.
Which is sales less cost of goods sold and not their net profit.
Effectively putting them in a 65 to 75%.
And in 2013.
There will be cases that go to either tax court -- federal district court here in Denver.
Challenging the IRS -- at this at this point the IRS in this industry agree to disagree.
Well it will be interesting to watch because if you -- and you get your tax of that much are gonna drive up the price so that they can still stay in business that's gonna drive more people the black market and -- no matter how you slice it it's sort of defeats the purpose 175%.
Tax rate -- Anyway are gonna watch -- story Jim thanks for coming on.
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