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Originally published Tuesday, December 14, 2010 at 4:32 PM

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APNewsBreak: Wash. tries to collect pot sales tax

The Washington Department of Revenue has launched a statewide effort to collect sales tax from medical marijuana dispensaries - even as some prosecutors and the Health Department maintain such dispensaries are illegal.

The Associated Press

SEATTLE —

The Washington Department of Revenue has launched a statewide effort to collect sales tax from medical marijuana dispensaries - even as some prosecutors and the Health Department maintain such dispensaries are illegal.

Spokesman Mike Gowrylow said Tuesday that the Revenue Department mailed letters to 90 dispensaries and related organizations on Friday, insisting that medical marijuana is not exempt from state sales tax and that dispensaries must collect that money and turn it over to the state.

The letter said dispensaries must also pay the state business and occupation tax.

"We were contacted by a medical marijuana dispensary who was collecting sales tax and said many competitors weren't," Gowrylow said. "We went on the Web and tried to come up with all the names and addresses of medical marijuana dispensaries to inform them they're required to charge sales tax."

Voters approved medical marijuana in Washington in 1998, but the law does not allow for marijuana sales. Instead, patients must grow marijuana themselves or designate a caregiver to grow it for them.

Because growing marijuana can be expensive and difficult, some patients have formed collectives to grow pot together, contributing dues to help pay for costs. In the Seattle area, some of the collectives have dispensaries that serve thousands of members.

The law is silent on such collectives, and prosecutors around the state have taken differing views on whether they're permissible. The state Health Department maintains they're not.

The Revenue Department's letter said medical marijuana isn't exempt from the sales tax - as prescription medications are - because it can't be prescribed under state and federal law. Washington's law instead requires an "authorization" from a medical professional.

The news, first reported by The Associated Press, upset medical marijuana activists.

"My (multiple sclerosis) patients, myself and my AIDS patients, we don't have to pay sales tax on any of our other medications," said Dale Rogers, director of The Compassion Program, a nonprofit patient collective in Seattle. "I don't know where this is coming from. The fiscal responsibility is falling on the most poor and the sickest, and that is not fair."

Seattle medical marijuana attorney Douglas Hiatt noted that authorities in some counties continue to raid dispensaries and prosecute their operators, while those in some other counties - including King County, the state's largest - have allowed them to stay in business.

Requiring dispensaries to register with the state and pay sales tax could expose those involved to criminal prosecution, in violation of their Fifth Amendment right to avoid self-incrimination, Hiatt said.

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Ben Livingston, a Cannabis Defense Coalition board member, said registering with the state is akin to "painting a target on one's head, and we recommend against it at this point."

Hiatt also argued that medical marijuana authorizations are functionally equivalent to a prescription and should thus be exempt from the tax.

Finally, he said, most dispensaries are set up as collectives where patients grow their marijuana together and pay donations or volunteer to offset the costs of the operation. Such donations aren't sales and shouldn't be taxed, he said.

Gowrylow disagreed.

"We're not involved in determining whether selling medical marijuana is illegal or not," he said. "Our job is to administer state tax codes. If you're selling medical marijuana, it's a retail sale."

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