Question: Must My Nonprofit Arizona Medical Marijuana Dispensary Be a Federal Tax-exempt Organization?
Answer: No and thankfully no! Arizona Revised Statutes Section 36-2806.A states: “A registered nonprofit medical marijuana dispensary need not be recognized as tax-exempt by the Internal Revenue Service.” If Proposition 203 required dispensaries to become tax-exempt organizations, the IRS would deny every application because it would not allow any business engaged in violating federal law to become exempt from federal income taxes. In addition, even if it were possible for a dispensary to obtain a tax exemption, the consequences would be disastrous for most dispensaries. Tax-exempt organizations are prohibited from paying excess benefits to owners, directors, officers and insiders. If excess benefits are paid, the tax penalties are severe – 100% of the excess benefit PER YEAR since the payment until the penalty is paid in full.