Olive v. CommissionerOlive v. Commissioner
GRABER, Circuit Judge:
Pеtitioner Martin Olive appeals the Tax Court‘s decision assessing deficiencies and penalties for tax years 2004 and 2005, which arise from Petitioner‘s operation of the Vapor Room Herbal Center (“Vapor Room“), a mediсal marijuana dispensary in San Francisco. The Tax Court held, among other things, that
The Vapor Room is set up much like a community center, with couchеs, chairs, and tables located throughout the establishment. Games, books, and art supplies are available for patrons’ general use. The Vapor Room also offers services such as yoga, movies, and massage therapy. Customers can drink complimentary tea or water during their visits, or they can eat complimentary snacks, including pizza and sandwiches. The Vapor Room offers these activities and amenities for free.
Each of the Vapоr Room‘s staff members is permitted under California law to receive and consume medical marijuana. Petitioner purchases, for cash, the Vapor Room‘s inventory from licensed medical marijuana suppliers. Patrons who visit the Vapor Room can buy marijuana and use the vaporizers at no charge, or they can use the vaporizers (again, at no charge) with marijuana that they bought elsewhere. Sometimes, staff members or patrons sample Vаpor Room inventory for free. When staff members interact with customers, occasionally one-on-one, they discuss illnesses; provide counseling on various personal, legal, or political matters related to medicаl marijuana; and educate patrons on how to use the vaporizers and consume medical marijuana responsibly. All these services are provided to patrons at no charge.
Petitioner filed business income tax returns for tax years 2004 and 2005, which reported the Vapor Room‘s net income during those years as $64,670 and $33,778, respectively. Although Petitioner reported $236,502 and $417,569 in Vapor Room business expenses for 2004 and 2005, the Tax Court concluded that
The Internal Revenue Code provides that, for the purpose of computing taxable income, an individual‘s or a business‘s “gross income” includes “all income from whatever source derived,” including “income derived from business.”
We turn first to the text of
The test for determining whether an activity constitutes a “trade or business” is “whether the activity ‘was entered into with the dominant hope and intent of realizing a profit.‘” United States v. Am. Bar Endowment, 477 U.S. 105, 110 n. 1, 106 S.Ct. 2426, 91 L.Ed.2d 89 (1986) (quoting Brannen v. Comm‘r, 722 F.2d 695, 704 (11th Cir. 1984)); see also Vorsheck v. Comm‘r, 933 F.2d 757, 758 (9th Cir. 1991) (per curiam) (applying the same standard to
Given the limited scope of Petitioner‘s “trade or business,” we conclude that the business “consist[ed] of trafficking in controlled substances ... prohibited by Federal law.” The income-generating activities in which the Vapor Room engaged consisted solely of trafficking in medical marijuana which, as noted, is prohibited under federal law. Under
Petitioner‘s argument relies primarily on the phrase “consists of,” rather than on the phrase “trade or business.” According to Petitioner, the use of the words “consists of” is most appropriate “when a listing is meant to be exhaustive“; the word “consisting,” he argues, is not synonymous with the word “including.” Relying on that proposition, Petitioner contends that, for
To support that line of reasoning, Petitioner cites the Tax Court‘s decision in Californians Helping to Alleviate Medical Problems, Inc. v. Commissioner (CHAMP), 128 T.C. 173 (2007). His reliance on CHAMP is misplaced. In CHAMP, the petitioner‘s income-generating business included the provision not only of medical marijuana, but also of “extensive” counseling and caregiving services. Id. at 175. The Tax Court noted that the business‘s “primary purpose was to provide caregiving services to its members” and that its “secondary purpose was to provide its members with medical marijuana.” Id. at 174. The court found, after considering the “degree of economic interrelationship between the two undertakings,” that the petitioner was involved in “more than one trade or business.” Id. at 183. That is not the case here. Petitioner does not provide counseling, caregiving, snacks, and so forth for a separate fee; the only “business” in which he engages is selling medical marijuana.
Petitioner‘s arguments related to congressional intent and public policy are similarly unavailing. He contends that
That Congress might not have imagined what some states would do in future years has no bearing on our analysis. It is common for statutes to apply to new situations. And here, application of the statute is clear. See Chamber of Commerce of U.S. v. Whiting, 563 U.S. 582, 131 S.Ct. 1968, 1980, 179 L.Ed.2d 1031 (2011) (stating that “Congress‘s authoritative statement is the statutory text” (internal quotation marks omitted)). Application of the statute does not depend on the illegality of marijuana sales under state law; the only question Congress allows us to ask is whether marijuana is a controlled substance “prohibited by Federal law.”
Finally, for threе reasons, we are not persuaded by Petitioner‘s argument that section 538 of the Consolidated and Further Continuing Appropriations Act, 2015, Pub.L. No. 113-235, 128 Stat. 2130, precludes the government from continuing to defend Petitioner‘s appeal. First, statements by a later Congress do not inform us about the intent of a previous Congress. See Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 840, 108 S.Ct. 2182, 100 L.Ed.2d 836 (1988) (“The views of a subsequent Congress form a hazardous basis for inferring the intent of an earlier one.” (internal quotation marks and brackets omitted)). Second, a dеcision not to expend funds to enforce a particular statute says nothing about the meaning of that statute. “What one house of Congress thinks, in the 2010s, about enforcement priorities for the agency is entirely uninformative about the intent of Congress when it enacted a statute in [an earlier year].” Navarro v. Encino Motorcars, LLC, 780 F.3d 1267, 1277 n. 5 (9th Cir. 2015). Third, section 538 does not apply. It provides that certain funds may not be used to prevent states, such as California, “from implementing their own State laws that authorize the usе, distribution, possession, or cultivation of medical marijua
In summary, the Tax Court properly concluded that
AFFIRMED.