Berkeley Patients Group's Delinquent Tax Bill Reduced From $7.5M to $49K

by Frances Dinkelspiel, Berkeleyside

The state Board of Equalization and Berkeley Patients Group (BPG) have worked out a compromise that reduces the dispensary’s delinquent tax bill from $7.5 million to $49,500.

Despite selling millions of dollars in medical cannabis each year and paying its top executives close to $1 million in salaries, BPG told the state it could not afford to pay the taxes and interest it owed for the years 2004 to 2007, according to a document prepared by the Board of Equalization. At its Dec. 18-19, 2012, meeting, the board voted unanimously to accept a compromise payment of $49,500.

“The amount of the accepted offer, $49,500, represents the most the state can expect to collect from the taxpayer’s assets or income within a reasonable period of time,” reads the board’s public record statement prepared on the case. “The taxpayer does not have reasonable prospects of acquiring increased income or assets that would enable the taxpayer to satisfy a greater amount of liability that the compromised account within a reasonable amount of time.”

BPG did not pay taxes from 2004 to 2007 because the laws concerning medical cannabis were murky. BPG and other dispensaries believed cannabis was classified as medicine and therefore was exempt from sales tax. The equalization board ruled in September 2010 that medical cannabis is not a medicine and is not exempt. It audited BPG and informed the dispensary that it was liable for $4.4 million in back taxes plus interest. The Patients’ Care Collective, another Berkeley dispensary, was informed it owned $639,000 in back taxes. Berkeley Patients Group entered into the “Offer in Compromise” program with the board, which allows a corporation or individual to pay off delinquent taxes in installments or work to negotiate down the payment. The staff of the board determines the amount, and the five elected board members can only accept or reject the compromise, not make independent queries, according to Betty T. Yee, who represents Northern California.

“It’s a pretty rigorous program,” said Yee.

Berkeleyside sent Berkeley Patients Group an email about the payment on Friday and followed up with a phone call, but no one from the organization had commented by press time.

While income figures for 2004-07 are not public, the Center for Investigation Reporting obtained internal BPG accounting documents in 2012 and determined that the group grossed $17.4 million in 2008 and $16.4 million in 2009. The cost of goods for 2008 was $10 million and $9 million in 2009, leaving a gross profit margin close to 40%, according to CIR. BPG incurred about $3.3 million in labor costs each year, which included $911,000 in salaries to its then co-directors, Tim Schick, Etienne Fontan and Debby Goldsberry.

In 2010, BPG lent $632,195 to a former director to try to open a string of dispensaires in Maine, which had just legalized medical cannabis.

BPG reached the tax compromise with the equalization board in one of the organization’s bleakest and most financially pressing periods. In May 2012, BPG was forced to move out of its long-time home at 2747 San Pablo Ave. because U.S. attorney Melinda Haag sent a letter to David Mayeri, BPG’s landlord, threatening to seize the property. Haag said BPG was located within 1,000 feet of a school, which made it illegal under state law.

BPG started a medical cannabis delivery service after it closed, but its income fell dramatically from May 2012 until December 2012 when it reopened down the street at 2366 San Pablo Ave. While BPG does not reveal its income, the decline is evident in the amount of money the city of Berkeley collected in cannabis taxes in fiscal year 2013. Berkeley, which taxes dispensaries $25 for every $1,000 sold, only collected $479,255 that year. In FY 2012, when BPG was operating at full strength, Berkeley collected $746,009 in taxes. Three dispensaries pay taxes to the city, but BPG, which had about 10,000 patient members in 2012, is the largest.

BPG is once again facing eviction. Haag sent a forfeiture letter in May to the dispensary’s new landlord, telling her the group is illegally located because it sits close to a preschool. The landlord, Nahai Droubi, as well as BPG, are fighting the lawsuit.

The Berkeley City Council voted last week to file a lawsuit against the federal government to challenge the forfeiture case. No taxpayer money will be used in the suit, said Councilman Darryl Moore. Theshia Naidoo and Tamar Todd from the Drug Policy Alliance will be doing the work pro bono, according to city attorney Zach Cowan.

Moore said Berkeley Patients Group has been a good corporate citizen, generously donating to organizations and non-profits in Berkeley, including the Berkeley Public Schools Fund, the campaign to build the new west branch of the public library and the Center for Early Intervention on Deafness. In addition, they employ a number of Berkeley residents.

The $49,550 payment “is between them and the state Board of Equalization,” said Moore. “If the BOE decided that’s all they have to pay, well I can’t comment on that. That was negotiated. That was the agreement. I still think they’ve been very responsive to the Berkeley community. From what I’ve seen they’ve made some sizeable contributions to nonprofits and organizations.”

The Center for Investigative Reporting said BPG donated $18,083 to local charities in 2009. That same year, BPG gave $253,433 to marijuana advocacy organizations.