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BOE Chairman Supports Targeting Medical Cannabis Tax Evasion

The BOE has identified 935 active cannabis businesses in the City of Los Angeles of which approximately 258, or 28 percent, were found to be operating without a BOE seller’s permit.
The BOE has identified 935 active cannabis businesses in the City of Los Angeles of which approximately 258, or 28 percent, were found to be operating without a BOE seller’s permit.

Board of Equalization (BOE) Chairman Jerome E. Horton announces his support for a “Cannabis Tax Enforcement ‘Eliot Ness’ Plan,” which is intended to educate, investigate, audit, arrest, and force cannabis sellers to pay their fair share of taxes. Horton is sponsoring new legislation authored by Assemblyman Mike Gipson, “The Cannabis Tax Amnesty Act,” which is an important part of this plan to encourage cannabis operators to comply with current laws and regulations.

“Because of the illegal aspect of cannabis sales and their potential to fund illegal activities in our communities, it is important that we distinguish between the responsible and irresponsible growers, distributors, vendors and consumers, and enforce the law to its fullest extent for those who choose to violate existing law,” said Chairman Horton. “The Cannabis Tax Amnesty Act is an opportunity for those not in compliance to bring themselves out of the shadows of the underground economy and in line with existing law.”

“Amnesty programs have proven to be helpful in reducing crime, increasing compliance, and leveling the playing field for legitimate operators,” said Assemblyman Gipson. “If passed, cannabis operators will have two options: comply with the law or risk imprisonment, as gangster Al Capone did for tax evasion.”

The BOE has identified 935 active cannabis businesses in the City of Los Angeles of which approximately 258, or 28 percent, were found to be operating without a BOE seller’s permit. The passage of Los Angeles Proposition D in 2013 imposed a limit of 135 dispensaries. These operators may have immunity from prosecution, according to the Los Angeles City Attorney.

Although Californians passed Proposition 215 in 1996, legalizing the cultivation and sale of marijuana for medicinal purposes, the possession and cultivation of marijuana for other unauthorized purposes remains illegal – subject to various penalties. For example, possession of less than one ounce of marijuana is an infraction punishable by a fine, while selling marijuana is a felony and may result in imprisonment.

“In Sullivan v. United States, the U.S. Supreme Court declared that income from illegal activities is subject to income tax,” Horton said. “Whether sales of cannabis are legal or illegal; income, sales, and payroll taxes are due and payable under existing law.”

Chairman Horton supports leveraging the collaboration of the BOE with the Franchise Tax Board, Employment Development Department, Department of Justice, and other government agencies to identify illegal medical cannabis businesses in Los Angeles. The Tax Recovery and Criminal Enforcement (TRaCE) Task Force, and other underground economy task forces, will collaborate with local law enforcement to track down the cannabis entities connected to organized crime.

Chairman Horton will host two events in Los Angeles to facilitate compliance in the medical cannabis industry: a Medical Cannabis Telephone Town Hall on August 18, 2015, from 3 p.m. to 4 p.m., and a Medical Cannabis Business Seminar on September 9, 2015, from 1 p.m. to 3 p.m. Both events will be open to the public. The Telephone Town Hall will provide a brief overview of state and federal requirements and links to government agencies frequently asked questions. The Medical Cannabis Business Seminar will explain how to complete the registration with various government agencies. In addition, an online medical cannabis compliance tutorial series will be available on Horton’s website by September 26, 2015. To obtain more information on the Telephone Town Hall meeting or the live presentation, or to register, go towww.boe.ca.gov/horton or call 1-888-847-9652.

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