GREEN COLLAR CLUB, RAINIER XPRESS, individually, and TRIPLE C COLLECTIVE, LLC, Appellants,
STATE OF WASHINGTON, DEPARTMENT OF REVENUE, Respondent.
Xpress (RX), Green Collar Club (GCC), and Triple C
Collective, LLC (TCC) (collectively "Taxpayers")
appeal the superior court's order denying their summary
judgment motion and the order granting summary judgment to
the Department of Revenue (DOR). At issue is whether the
Taxpayers engaged in taxable retail sales of medical
marijuana between 2011 and 2014. First, the Taxpayers argue
that GCC and TCC were not engaged in "retail
sales." Second, the Taxpayers argue that the
transactions were exempt from sales tax under either the
prescription drug or medicine of botanical origin exemptions.
We hold that as a matter of law, the Taxpayers engaged in
retail sales that were not tax exempt. Accordingly, we
Background: Community Garden Operations
Taxpayers are businesses involved with community gardens
established under former RCW 69.51A.085 (2011). Former RCW
69.51A.085(1) provided that "[qualifying patients may
create and participate in collective gardens for the purpose
of producing, processing, transporting, and delivering
cannabis for medical use subject to" enumerated
conditions. RX admits that it sold products containing
medical marijuana to collective garden members. GCC and TCC
deny involvement with such sales.
and TCC's community garden formation agreements provided
that "members" of the collective garden would
acquire and supply resources to produce, process, and share
medical marijuana. The agreements also provided that the
members would establish a "management entity
which will direct and oversee the day to day operations of
the Collective Garden for the benefit of its members."
Clerk's Papers (CP) at 83, 288. A maximum of 10 members
who were qualified to obtain medical marijuana under ch.
69.51 A RCW could participate in a collective garden at any
one time. And each garden's formation agreement provided
that the garden would have 3 "permanent" members
and 7 memberships reserved for nonpermanent members.
TCC submitted substantively identical declarations describing
the nature of their medical marijuana business operations.
The declarations assert that GCC and TCC provide
"management services" to community gardens pursuant
to "management agreements." CP at 77, 282. Under
the management agreements, GCC and TCC staffed each
garden's "meeting place" during "regular
hours, " controlled access to the facility so only
members could obtain medical marijuana, maintained membership
applications and resignations, verified and confirmed that
members were authorized to obtain medical marijuana,
maintained records, and produced reports of the management
company's expenditures made on behalf of the garden. CP
at 77, 282. The offices that GCC and TCC operated were
locations where "the participating patient members
access" the medical marijuana and "make the ongoing
contributions necessary to keep a supply of medicine for the
participating patient members." CP at 78, 283.
obtain medical marijuana at the collective gardens'
meeting places, patients authorized to obtain medical
marijuana approached an attendant at a window and furnished
valid documentation. GCC and TCC management company employees
and garden members staffed the window. Once staff confirmed
the valid documentation, the prospective member signed a
membership agreement and completed a membership application.
Members of the collective garden could select from various
marijuana products and then make "an appropriate
contribution to the garden" for the marijuana
selections. CP at 80, 285.
TCC provided "menus" containing descriptions of
marijuana products and associated prices for specific amounts
of each product. Most people contributed money in exchange
for the medical marijuana products. Other types of
contributions included assisting members in making
selections, contributing hardware, and providing labor at the
grow site or processing facility. GCC and TCC declared gross
income of tens of thousands of dollars per month for medical
marijuana sales during the relevant taxing period on their
excise tax returns.
selecting their medical marijuana and making their
"contribution, " nonpermanent members were required
to "formally resign their membership." CP at 79,
284. Any person seeking medical marijuana at the collective
gardens, whether new or returning, needed to complete this
process each time so that others could become nonpermanent
members and obtain marijuana.
notified the Taxpayers that medical marijuana sales are
subject to sales tax. The Taxpayers paid the taxes for
transactions that occurred between 2011 and 2014. Then they
requested refunds. The DOR denied the refund requests.
Taxpayers then filed actions for tax refunds under RCW
82.32.180. The superior court consolidated the three refund
actions. The Taxpayers and the DOR filed cross motions for
summary judgment. The superior court granted summary judgment
to the DOR and denied summary judgment to the Taxpayers. The
Medical Marijuana and Collective Gardens
1998, Washington voters approved Initiative 692 (1-692),
which was later codified at ch. 69.51 A RCW. Laws of 1999,
ch. 2 (1-692, approved November 3, 1998). Under this chapter,
"qualifying patients" could possess medical
marijuana and have an affirmative defense against criminal
offenses for marijuana production, possession, and use if
they meet specific statutory conditions. Former RCW
69.51A.040 (2011); State v. Reis, 183 Wn.2d 197,
204-05, 351 P.3d 127 (2015). A person was a "qualifying
patient" if a Washington licensed health care
professional diagnosed a patient with a terminal or
debilitating medical condition, advised the patient of the
benefits and risks of marijuana, and provided "[v]alid
documentation" indicating that "in the health care
professional's professional opinion, the patient may
benefit from the medical use of marijuana." Former RCW
69.51A.010(4)(a)-(e), (7)(a) (2010). To assert the affirmative
defense, a qualifying patient who is not registered with the
department of health must present the patient's
"valid documentation" to any law enforcement
official questioning the asserted medical use or possession
of marijuana. Former RCW 69.51 A.043.
care professionals who comply with enumerated conditions do
not commit a crime under state law when they advise patients
about the risks and benefits of medical use of marijuana,
state that the patient may benefit from it, or provide them
with valid documentation to obtain medical marijuana. Former
RCW 69.51A.030 (2011).
patients may participate in "collective gardens" to
pool resources and grow medical marijuana for their own use.
Former RCW 69.51A.085(1); Cannabis Action Coal. v. City
of Kent, 183 Wn.2d 219, 221-22, 351 P.3d 151 (2015). No
more than 10 qualifying patients may participate in a single
collective garden at one time. Former RCW 69.51A.085(1)(a).
and federal law provide comprehensive statutory schemes to
control the manufacture, distribution, and use of controlled
substances. Uniform Controlled Substances Act, 21 U.S.C.
§§ 801-904 (2012); ch. 69.50 RCW. Individuals who
violate these laws are subject to penalties. 21 U.S.C.
§§ 841-865; RCW 69.50.401-.465.
bodies of law place controlled substances in numerical
schedules I to V. 21 U.S.C. §§ 811-812; RCW
69.50.203-.212. Substances on schedule I are illegal under
all circumstances except for research, and they have no
accepted medical use. 21 U.S.C. § 812(b)(1)(B)-(C),
§§ 841-865 (establishing offenses and penalties);
§ 823(a)(1) (providing an exception for approved
research); RCW 69.50.203; RCW 69.50.401-.465.
federal and state statutes list marijuana as a schedule I
controlled substance. RCW 69.50.204(c)(22); 21 C.F.R. §
1308.1 l(d)(23); 21 U.S.C. § 812(c), sched. I, cl.
(c)(10); Seeley v. State, 132 Wn.2d 776, 782-83, 940
P.2d 604 (1997). Under federal law, as a schedule I drug,
marijuana cannot be lawfully prescribed. 21 U.S.C.
§§ 822-23; former RCW 69.50.308 (2013);
Seeley, 132 Wn.2d at 782-83. In Washington,
controlled substances may be prescribed only under specific
statutory conditions, and schedule I drugs are not prescribed
under the relevant statute. See former RCW
professionals who prescribe controlled substances must be
registered with the Drug Enforcement Administration, and a
registration to prescribe controlled substances can be
obtained only for substances on schedules II to IV. 21 C.F.R.
§ 1301.11; 21 C.F.R. § 1301.13. Pharmacies and
pharmacists are required to distribute drugs approved by
federal law for distribution by pharmacies, subject to narrow
exceptions. WAC 246-869-010; WAC 246-863-095. Physicians who
prescribe marijuana in violation of federal law may have
their registration to prescribe controlled substances
revoked. Conant v. Walters,309 F.3d 629, 632 (9th
Cir. 2002). But under the First Amendment of the United