The State of California’s Sixth Appellate District Court ruled Friday that the medical marijuana dispensary Medimarts in San Jose, must pay the city $767,058 in taxes and late fees.

Medimarts has not paid the Marijuana Business Tax (MBT) to the City of San Jose since May of 2012, according to the court filing. Dave Armstrong, president and founding member of Medimarts, says that paying the tax would acknowledge they are violating federal law by selling marijuana.

“My next step is do whatever it takes to maintain my caregiver status for the 10,000 plus, active medical marijuana patients that we serve,” Armstrong says.

He argues that he does not technically sell marijuana. Medimarts is a collective, and according to Armstrong, members or co-owners do not buy marijuana. He says they make an equitable contribution to grow the marijuana for themselves.

The court’s decision comes more than year after an NBC Bay Area Investigative Unit series on Medimarts and other marijuana dispensaries throughout San Jose. The undercover investigation revealed a number of pot shops telling NBC Bay Area’s hidden cameras they were all current on all their taxes. Further reporting revealed dispensaries were actually refusing to pay the city’s marijuana tax.

The battle in court began in December 2014. The City of San Jose sued Medimarts for non-payment of the Marijuana Business Tax. Medimarts responded by filing an injunction in an attempt to prevent San Jose from shutting down the business.

On Wednesday, Armstrong and his attorneys say they will appeal the case to the California Supreme Court.

“You’re not to profit from the sale of a controlled substance according to The Controlled Substance Act,” Armstrong says. As for members of Medimarts, “We all have equal rights to the medicine we make. So when you come in and pick up your medicine, there’s no transfer of ownership. Hence there’s no sale.”

In other words, there should not be a sales tax imposed if there is not a sale to begin with. “That’s how it’s supposed to be done,” Armstrong added.

The Investigative Unit contacted the City of San Jose, who provided the following statement: “Our longstanding goal continues to be both to protect the quality of life for the people and children in our neighborhoods and to ensure that patients who need medical marijuana for their health can have reasonable access to it in our community. The court’s decision has validated the City’s approach to regulation to achieve this goal as we make progress to make sure dispensaries are located properly, comply with operational requirements, and have paid their taxes.”

Meanwhile, Armstrong is standing his ground.

“I don’t owe the city anything,” he says. “I didn’t collect anything I didn’t think was lawful.”