Colorado Marijuana Group Sues over Tax

A group of marijuana proponents in Colorado have filed a lawsuit seeking to block the state from collecting certain taxes on weed sales.

marijuana_blunt_moneyAttorney Rob Corry filed the suit in Denver District Court. In it, he claims pot providers in Colorado could incriminate themselves under federal law by paying taxes.

Colorado has had medical marijuana since 2000, and voters there legalized recreational weed in 2012. The state’s cannabis law, which took effect last year, includes two state taxes, as well as taxes at the local level. It all adds up to a 29 percent tax on consumers.

The suit seeks to reduce those costs and block any taxes that only apply to the marijuana industry. Paying those taxes could amount to an admission of guilt under federal law, which bans all weed, the suit claims.

“They’re open records, and they are admitting to a federal crime,” Corry said. “It’s still a federal crime to sell marijuana, and I don’t agree with that law, but it is the law.”

The Obama administration announced last year that it would take a hands-off approach to states that legalize medical or recreational pot and to businesses that serve those markets legally under state law.

But raids of medical marijuana dispensaries and weed cultivators have continued unabated by the new policy. That has led to fears throughout the industry that federal agents could interfere at any time.

The Fifth Amendment to the U.S. Constitution prevents the government from compelling citizens to provide evidence against themselves. The suit argues the Colorado taxes force the industry to provide evidence of guilt under federal law.

Corry represents the six plaintiffs who filed the lawsuit, some of them using pseudonyms. Defendants include the state, the Colorado Department of Revenue, Gov. John Hickenlooper, Denver Mayor Michael Hancock, and the Denver Treasury Division.

In the suit, Corry says that federal laws preempt state laws, putting people in the marijuana industry at risk of federal prosecution despite the fact that weed is legal in Colorado.

“The underlying rationale of the preemption doctrine is that the Supremacy Clause [of the Constitution] invalidates state laws that interfere with, or are contrary to, the laws of Congress,” Corry said. “The fact that there are marijuana-specific taxes puts every single one of these businesses owners and every single one of these consumers in danger of federal prosecution, potentially. That’s a violation of the Fifth Amendment.”

irsBut Amanda Cruser, a Denver area tax attorney, said even if the state taxes are nullified, cannabis businesses would still have to pay taxes to the federal government. Even criminals must pay federal taxes, and weed providers already face the dilemma of telling the truth on their returns and facing drug charges or lying about their income and risking tax-evasion charges.

“This question of the tension between federal law and state law is the question that confronts the marijuana community every day,” Corry said. “Our governor has been essentially impotent. He should demand that Congress should do something about this and we hope this lawsuit, by depriving them from tax revenue, will cause that to happen.”

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  1. Court Rejects Attempt to Overturn Weed Taxes in Colorado | Marijuana and Taxes - September 2, 2014

    […] lawsuit claims the 25 percent tax is unconstitutional because it forces pot providers to incriminate themselves on their tax returns. If they pay taxes on weed that’s illegal under federal law, the argument […]

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