9th Cir. Affirms: Taxes, But No Business Deductions, For Pot

Yesterday the Ninth Circuit affirmed: the U.S. can tax marijuana sales, but pot dispensaries may not take business deductions, because the sale of marijuana violates federal law. As a result, the Vapor Room, a medical marijuana dispensary in San Francisco, lost over $600,000 in business expenses for 2004 and 2005.

The Vapor Room argued that they provide separate services free of charge, including "the provision of vaporizers, food and drink, yoga, games, movies, and counseling," and that their business therefore did not consist solely of pot sales.

The Ninth Circuit rejected the argument, comparing pot dispensaries to upscale book stores:

Bookstore A sells books. It also provides some complimentary amenities: Patrons can sit in comfortable seating areas while considering whether to buy a book; they can drink coffee or tea and eat cookies, all of which the bookstore offers at no charge; they can obtain advice from the staff about new authors, book clubs, community events, and the like; they can bring their children to a weekend story time or an after-school reading circle. The “trade or business” of Bookstore A “consists of” selling books.

Bummer.