State Finds Berkeley Patients Group Liable for Unpaid Taxes

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In a hearing with the State Board of Equalization Tuesday, the city's oldest dispensary, Berkeley Patients Group, was found liable for over $6.4 million in taxes on its medical cannabis sales from 2004 to 2007, though the group could still negotiate the payment down to a lower amount.

The dispensary owes the state about $4.4 million in retroactive taxes and $2 million in interest built up since 2004, and although the dispensary was found accountable for those taxes, it qualifies for the Offer in Compromise program - which assesses a business's ability to pay liabilities to the board and adjusts the amount accordingly. The dispensary has been paying taxes since May 2007 after the board notified the group of the requirement to pay taxes on medical cannabis.

"Between 2007 and now, Berkeley Patients Group exhausted all of their opportunities to challenge the tax - they challenged and lost," said Elisabeth Jewel, a lobbyist with the firm Aroner, Jewel and Ellis, which has represented the dispensary over the past three months.

Given that the not-for-profit organization Berkeley Patients Group is prohibited from setting money aside for rainy days, news of the $6.4 million audit prompted the dispensary to fight on the grounds that the framework for medical cannabis taxation was unclear, according to Brad Senesac, chief marketing officer for the group. The group claimed that state tax laws did not specify the rules for taxation of those sales.

"When you get a bill like this, there's no way - the money is just not there," Jewel said. "If the board of equalization said ... 'You have to pay $6 million,' that would put Berkeley Patients Group out of business."

During the hearing, the dispensary was denied a request that it only be charged for the taxes dating back to October 2005 - when the board began issuing seller's permits to medical marijuana dispensaries. According to the hearing summary, the request was deemed invalid given that the board never included medical cannabis sales under its medicinal exemptions.

The board also denied the group's request to have the $2 million in interest relieved, as well as a request to exempt from its liability a number of nontaxable services - including medical advice, acupuncture therapy, hospice services, fitness advice, massage therapy and yoga - that would have accompanied medical cannabis sales over the three-year period.

While the board maintained that the group should be liable for unclaimed taxes over the three-year period, it recommended the dispensary apply for the compromise program to ensure that it not fall into bankruptcy. The group plans to send its application sometime this week, according to Jewel.

"The state decided it's not its interest or desire to put businesses out of business," Jewel said.

She added that the $6.4 million will most likely be significantly reduced through the program, although there is no guarantee that the group's application will be approved and result in a lower payment. The dispensary expects a recommendation within 180 days of completion of the application process, according to board documents.

In September, Berkeley Patients Care Collective - another Berkeley dispensary - was found liable for $600,000 in retroactive taxes.


Sara Mohamed covers city government. Contact her at [email protected]

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