Lawsuit Challenges Marijuana Tax Collections

A lawsuit filed by marijuana activists in Denver District Court claims that collecting pot taxes violates the Fifth Amendment of the U.S. Constitution.

The Colorado lawsuit challenges discrepancies between federal and state drug laws. It states that when marijuana growers and sellers pay their taxes, it basically amounts to self-incrimination under federal law.

Attorney and prominent marijuana activist Rob Corry filed the suit. He says pot taxes are too high and that the tax rate means the black market for marijuana persists. Corry argues that the Fifth Amendment should prohibit the collection of such taxes, which include a 15% excise tax and 10% retail tax, because that creates a record of violating federal law, which still treats pot as an illegal substance, despite the fact that Colorado and Washington voters opted to legalize weed in 2012.

"There can be no possible scenario where a person paying ... marijuana-specific taxes can also be in full compliance with federal law," the lawsuit states.

Carolyn Tyler, a spokeswoman for Colorado Attorney General John Suthers, said the office will "aggressively" defend the state against any legal challenge.

"Mr. Corry’s claims are bizarre and lack legal and logical consistency," Tyler said.

Colorado has reaped almost $11 million in sales and excise taxes from recreational marijuana since retail pot shops opened in January, according to figures released this week by the state’s revenue department.  

The case ultimately could force the state and federal governments to address a discrepancy that mostly has been left unresolved. The medical marijuana industry has struggled with legal issues raised by federal and state taxes for decades, and related cases are pending in federal tax court.

A case pending in federal tax court filed by a medical marijuana dispensary in California, for example, argues that dispensaries should be treated just like other small businesses when it comes to paying federal income taxes.

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