Court Says Medical Marijuana Dispensary Can’t Deduct Business Expenses |

The action was one of a series of enforcement efforts pursued by U.S. Attorney Melinda Haag of Northern California against dispensaries located near schools or parks. Olives lawyer, Henry Wykowski, said the Vapor Room has operated as a medical cannabis delivery service since then and is now considering reopening in another location. The tax case concerned Olives business income in 2004 and 2005, when he operated the facility as a sole proprietorship. In 2006, the dispensary was incorporated as the Vapor Room Cooperative. On his business tax returns, Olive listed net income of $65,000 and $34,000 for those two years, together with business expenses of $237,000 and $418,000 for those years. He appealed to the San Francisco-based appeals court after a tax court judge denied the expense deductions. Olive claimed in his appeal the law prohibiting deductions didnt apply to him because the Vapor Room provided other services, such as free counseling, education and snacks, in addition to the sale of marijuana. He argued the laws use of the phrase consists of meant that the ban on expense deductions should apply only to a business whose sole service was drug sales. But the appeals court said Olive couldnt deduct expenses for the other services because he didnt charge any money for them.

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