A Final Article on Cannabis and Section 280E

An accountant wrote a very interesting article about accounting for marijuana businesses and Internal Revenue Code Section 280E.  If you own a cannabis business you should read the article.

“I have been a cannabis tax professional for six years now. Initially, I can remember reading articles from organizations like the AICPA, saying that since cannabis was illegal federally, that any accountant that participated in helping those in cannabis were in jeopardy of losing their license. But then what do you expect from an industry that is so far behind, a majority of tax accountants are still printing and mailing tax returns.”

See also “Tax Professionals Need to Talk about the Cannabis Industry.”

By | 2018-01-19T07:02:28+00:00 January 19th, 2018|Stories & Articles, Tax Issues|0 Comments

Guess Which Industry Didn’t Get a Break in the Tax Bill

Leafly:  “The sweeping tax bill passed by the US Senate over the weekend contains all sorts of giveaways to businesses, from generous write-offs for factories and equipment to bargain-basement rates on offshore tax havens. But for all the boons to business it provides, the bill fails to deliver commonsense tax reform to the cannabis industry.  Two separate proposed amendments to the Senate tax bill would have ended a decades-old penalty that currently treats state-legal cannabis businesses like drug cartels. The rule, IRS Section 280E, prevents cannabis businesses from taking tax deductions available to other industries, often pushing their effective tax rates to more than 70%.

By | 2017-12-05T19:10:22+00:00 December 4th, 2017|Stories & Articles, Tax Issues|0 Comments

Cannabis Companies Crossing Fingers For 280E In Tax Vote

Green Report:  “Section 280E, which prevents state-legal marijuana companies from deducting otherwise ordinary business expenses from their total income, is one of the biggest obstacles cannabis entrepreneurs run up against. . . . While most companies in the U.S. pay a standard corporate tax rate of 35 percent, cannabis businesses, thanks to 280E, often face effective tax burdens of 70 percent or more.  But there is hope on the horizon. Just this week, Sen. Cory Gardner’s press secretary said the senator ‘plans to file an amendment’ to the sweeping Senate tax overhaul bill that would reform 280E so it no longer applies to marijuana businesses operating in accordance with state and local laws,”

By | 2017-12-05T18:15:49+00:00 December 1st, 2017|Legal Issues, Stories & Articles, Tax Issues|0 Comments

Support The Gardner Amendment Addressing 280E

Weed News:  “Congress is currently in the middle of a tax overhaul push. To be upfront and clear, I do not support the tax proposal. I think that the math is clear that it will overwhelmingly benefit the richest of rich people, and at the expense of the rest of Americans. The United States House of Representatives has already passed their version of a tax bill, and the Senate is looking like it’s getting closer to a vote of its version of a tax bill with every passing minute.  There is one silver lining in the tax bill that is worth supporting, even if you are like me and you don’t support the overall tax plan. Colorado Senator Cory Gardner has introduced an amendment that alleviates the 280E tax penalty in the federal tax code.”

By | 2017-12-05T18:10:16+00:00 November 30th, 2017|Stories & Articles, Tax Issues, Washington News|0 Comments

Marijuana Stores Would Be As Profitable As Starbucks If Not For Tax Laws

Freshtoast:  “Arcane rule in IRS code prevents cannabis companies from legitimate deductions.  Marijuana retail shops are more profitable than the average Starbucks store if only if they were taxed the same way as traditional retailer, according to a report published by Arcview Market Research.”

By | 2017-12-05T18:55:02+00:00 November 23rd, 2017|Stories & Articles, Tax Issues|0 Comments

Structuring the Ownership of Marijuana Businesses to Minimize Tax Impact

The CPA Journal:  “The IRS has made it daunting for an investor to make an after-tax profit in the marijuana business. Aside from the criminal laws, which are essential to know, trying to understand the tax laws can be a challenge. It is therefore critical to consider the right ways to structure the ownership of these businesses in order to reduce the tax impact for investors.”

By | 2017-11-04T09:16:19+00:00 November 4th, 2017|Stories & Articles, Tax Issues|0 Comments

Deductible Business Expenses for Marijuana Dispensaries

The CPA Journal:  “The biggest hurdle for dispensaries is the current tax framework, which treats marijuana growers more adversely than both legal and illegal businesses alike. Under Internal Revenue Code (IRC) section 61, unless specifically excluded, all sources of income are taxable, regardless of their origin. Under the recovery of capital doctrine, taxpayers are allowed to recover their cost of goods sold. In addition, IRC section 162 provides a current deduction for all ordinary and necessary business expenses. . . . . There is, however, an additional limitation for taxpayers engaged in the trafficking of controlled substances. IRC section 280E denies all ordinary and necessary business expenses paid or incurred in connection with the sale or trafficking of controlled substances listed on Schedule I or II of the Controlled Substances Act. Currently, 21 USC 812(c)(10) lists marijuana as a Schedule I drug. Furthermore, the courts have held that the sale of marijuana constitutes trafficking, regardless of legality at the state level. Thus, the ordinary and necessary deductions available to most businesses (both legal and illegal) are denied to the marijuana industry.”

By | 2017-11-04T09:11:27+00:00 November 4th, 2017|Stories & Articles, Tax Issues|0 Comments

For Those Who Have Income from Marijuana: Remaining Silent Before the Tax Man

Bloomberg:  “Does your state permit sales of medical marijuana? If so, will you be prosecuted for filing your tax return and reporting your state medical marijuana income? You could, if you report illegal sources of income and fail to invoke your Fifth Amendment right against self-incrimination. In this article, Ropes and Gray LLP’s Gabrielle G. Hirz and Kathleen Saunders Gregor, and Stefan G. Herlitz of Harvard Law School discuss filing and reporting income, even illegal income, and how the Fifth Amendment applies to tax returns and audits. “

By | 2017-10-01T13:46:12+00:00 October 1st, 2017|Stories & Articles, Tax Issues|0 Comments

Maricopa County Assessor Wants to Tax Marijuana Dispensaries

Phoenix New Times:  “Medical-marijuana businesses in Maricopa County haven’t been paying as much in property tax as they could.  County Assessor Paul Petersen wants to change that.  Over the next few years, his plan to start enforcing business personal property tax on dispensaries and cultivation facilities is expected to yield millions of dollars in new revenue for county schools and community colleges.”

See also “Maricopa County taxman to medical-marijuana businesses: Pay up or else.”

By | 2017-08-27T08:24:38+00:00 August 25th, 2017|Stories & Articles, Tax Issues|0 Comments

Government Ganja Greed: Mass. Seeks to More Than Double Pot Tax

Brietbart:  “Less than a year after Massachusetts voters approved legalizing marijuana and taxing it at a rate of 12 percent, lawmakers already seek a larger take of the dealer’s cut.  In shifting marijuana from decriminalized to legal status, voters permitted a maximum tax of 12 percent on sales of the sweet leaf. Seven months later, the state legislature seeks to grab more of pot profits by permitting taxes as high as 28 percent.”

By | 2017-06-14T07:01:25+00:00 June 14th, 2017|Stories & Articles, Tax Issues|0 Comments

Members Of Congress Seek To Help Cannabis Businesses With Tax Reforms

Forbes.com:  “Members of Congress on Thursday tried to throw the cannabis industry a legislative lifeline on taxes. The Small Business Tax Equity Act of 2017, introduced in the House by Rep. Carlos Curbelo (R-FL) and Rep. Earl Blumenauer (D-OR) and in the Senate by Sen. Ron Wyden (D-OR), Sen. Rand Paul (R-KY), and Sen. Michael Bennet (D-CO) today, would allow state-legal cannabis businesses to take normal business deductions like any other legal business. Known as 280E, the tax code provision prevents cannabis businesses from taking normal business deductions related to sales.

By | 2017-04-01T09:05:47+00:00 April 1st, 2017|Stories & Articles, Tax Issues|0 Comments

Cannabis Taxes: Introduction to Marijuana Taxation

Craig W. Smalley, who has a Masters in Taxation, wrote a three part article on how Internal Revenue Code Section 280E affects the federal income taxation of businesses that grow or sell marijuana.  The first article starts with:

“Following the 2016 elections, marijuana is now legal in some capacity in 28 states. However, even though it’s legal in certain states, the federal government considers the drug an illegal Schedule I narcotic. Resultingly, business owners in the marijuana industry have hit a wall with IRC §280E, which states:

‘No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted’.”

See Part 1, Part 2 and Part 3.

By | 2017-04-01T08:47:54+00:00 April 1st, 2017|Stories & Articles, Tax Issues|0 Comments

Legalize Marijuana for the Taxes? It’s no Pot of Gold

Arizona Republic:  “Proponents arguing that Arizonans should vote for this initiative dangle before voters the prospect that marijuana, once “regulated like alcohol,” will bring in massive tax revenues: between $40 million and $113 million, as reported by The Arizona Republic, if the act goes into effect. But these estimates fail to account for the undercutting effect of Arizona’s medical-marijuana market on the sale of recreational marijuana.  Unless Arizona does something to rein in medical marijuana taxation, it’ll just be chasing smoke.

By | 2016-06-23T19:04:15+00:00 June 21st, 2016|Stories & Articles, Tax Issues|Comments Off on Legalize Marijuana for the Taxes? It’s no Pot of Gold

Recreational Cannabis — Section 280E and Tax Efficient Structuring

Lane Powell PC:  “Section 280E provides: ‘No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.’ Section 280E will cease to apply to cannabis businesses if and when cannabis is no longer classified as a Schedule I or Schedule II controlled substance.

Cannabis businesses have developed two approaches to minimize the impact of section 280E:  First, taxpayers have tried separating their trade or business activities into two sets of businesses: businesses that consist of “drug trafficking” and businesses that do not. . . . The second approach to minimizing the impact of section 280E is characterize as many costs as possible as COGS rather than operating expenses.

By | 2016-06-23T19:32:58+00:00 June 15th, 2016|Stories & Articles, Tax Issues|Comments Off on Recreational Cannabis — Section 280E and Tax Efficient Structuring

Stakes Are High As Medical Marijuana Test Case Heads To Tax Court

Forbes:  “A test case challenging the Internal Revenue Service (IRS) interpretation of expenses related to the sale of medical marijuana is headed to court: on Monday, June 6, Harborside Health Center, the country’s largest medical marijuana dispensary, will be in Tax Court to argue the application of section 280E of the Internal Revenue Code.  Under current federal law, marijuana is classified as a Schedule I drug, putting it in the same category as heroin, . . . the IRS sent Harborside a bill for $2.4 million. The reason for the tax bill? The IRS declared Harborside (and thus all medical marijuana dispensaries) to be drug trafficking organizations (DTOs) and therefore subject to a special tax rule found at Section 280E of the tax code. That rule says that expenses connected with the sale of certain illegal drugs – including Schedule I drugs, like marijuana – are disallowed

By | 2016-06-15T06:44:42+00:00 June 5th, 2016|Stories & Articles, Tax Issues|Comments Off on Stakes Are High As Medical Marijuana Test Case Heads To Tax Court

Legalizing Marijuana in Arizona Might Add $113 Million in Tax Revenue

Arizona Republic:  “Arizona could see as much as $113 million in new tax revenue if it legalized marijuana for recreational use and imposed a 15 percent levy on the drug, a new study found.  The study by the non-partisan Tax Foundation comes as cannabis supporters in Arizona prepare to turn in hundreds of thousands of signatures to try to put their legalization effort before voters in November.”

By | 2016-06-23T19:07:31+00:00 May 24th, 2016|Stories & Articles, Tax Issues|Comments Off on Legalizing Marijuana in Arizona Might Add $113 Million in Tax Revenue

Oregon Law Allows Oregon Taxpayers to Deduct Pot Expenses

JD Supra:  “Measure 91, officially called the Control, Regulation, and Taxation of Marijuana and Industrial Hemp Act, passed by Oregon voters, appears to have alleviated some of the impact of Code Section 280E as it relates to Oregon taxable income. Specifically:

  1. Section 71 of Measure 91 provides that Code Section 280E does not apply for purposes of determining Oregon taxable income or loss under our corporate income tax regime. This provision sets forth no specific effective date. So, in accordance with Sections 81 and 82 of Measure 91, it became effective on July 1, 2015.
  2. Section 74 of Measure 91 provides that Code Section 280E does not apply for purposes of determining Oregon taxable income or loss under our individual income tax regime. This provision of Measure 91 specifically provides that the change became effective for tax years beginning on or after January 1, 2015.”
By | 2016-03-19T07:05:32+00:00 March 19th, 2016|Stories & Articles, Tax Issues|Comments Off on Oregon Law Allows Oregon Taxpayers to Deduct Pot Expenses

A Guide to Internal Revenue Code Section 280E

The National Cannabis Industry Association (NCIA) recently released a 280E white paper that explains Internal Revenue Code Section 280E. The paper has an informative frequently asked questions section.  All Arizona medical marijuana dispensaries should get a free copy of the paper.

By | 2017-02-12T07:41:24+00:00 February 9th, 2016|Stories & Articles, Tax Issues|Comments Off on A Guide to Internal Revenue Code Section 280E

How Bob Dole got America Addicted to Marijuana Taxes

Brookings:  “As states legalize marijuana, more marijuana businesses are opening across the country. An obscure 1982 brainchild of Bob Dole’s Senate Finance Committee, section 280E of the federal tax code, is hitting state-legal marijuana sellers in the pocketbook—right now. 280E, which says taxpayers cannot deduct costs of selling federally illegal drugs, is not just helping fund the federal government. It’s also hampering marijuana advertising and marketing—to the satisfaction of nervous parents, and to the consternation of profit-seeking marijuana promoters.  280E was more a political statement than a model of tax policy, and it can’t eliminate marijuana advertising. But it does discourage that advertising, so it may be one of the most useful marijuana tax laws we can imagine. And while some anti-advertising proposals run afoul of the commercial free speech doctrine, 280E is constitutional. So 280E may help slow down Big Marijuana. If so, an anti-advertising tax rule like 280E might come in handy if the public ever musters the strength to take on Big Alcohol and Big Tobacco.

By | 2017-02-04T07:38:56+00:00 December 18th, 2015|Stories & Articles, Tax Issues|Comments Off on How Bob Dole got America Addicted to Marijuana Taxes

Tax Court Spanks Another Dispenary

The U.S. Tax Court in an October 22, 2015, memorandum decision called Canna Care, Inc., vs. Commissioner ruled that a California medical marijuana dispensary owed back federal income taxes of $229,473, $304,090, and $339,604 for 2006, 2007, and 2008, respectively.  The IRS used Internal Revenue Code Section 280E to disallow deductions that would be otherwise have been deductible if Canna Care’s businesses did not involve “trafficing” in a controlled substance.

Section 280E states:

[n]o deduction . . . shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

It is indisputable that marijuana is a schedule I controlled substance.

Section 280E applies to deny deductions if all of the following facts exist:  (1) there is a trade or business; (2) that involves trafficking in (3) a controlled substance.  The Tax Court found that all three elements exited with respect to Canna Care, Inc., for the years at issue and denied all deductions.

Canna Care is a California mutual benefit corporation that is prohibited by California law from distributing marijuana for profit.  Nevertheless, the non for profit medical marijuana dispensary business was very, very good to its shareholders Bryan Davies and Lanette Davies.

“Petitioner had 10 employees in 2006 and 2007 and 6 employees in 2008. Mr. Davies determined salaries. During the years at issue the shareholders’ salaries far exceeded the salaries paid to any other employees. Mr. Cowen was paid $88,700, $152,900, and $144,000 during 2006, 2007, and 2008, respectively. Mr. Davies was paid $79,200, $160,900, and $146,200 during 2006, 2007, and 2008, respectively. In addition to their salaries, petitioner made payments for its shareholders’ automobiles in the amounts of $31,459, $24,609, and $23,942 during 2006, 2007, and 2008, respectively. Petitioner’s manager, its highest paid nonshareholder employee, was paid $36,000, $55,600, and $52,000 in 2006, 2007, and 2008, respectively. Mrs. Davies was paid $27,000, $66,480, and $74,000 during 2006, 2007, and 2008, respectively. Petitioner’s other employees made an average of $24,494.17, $12,173, and $12,314.29 during 2006, 2007, and 2008, respectively.”

The Tax Court ruled that “section 280E prohibits petitioner from deducting any amounts paid or incurred during the years at issue in connection with its trade or business that respondent disallowed.”

Section 280E imposes a very heavy and some would argue an unfair price on businesses that sell marijuana in states that have legalized the drug.

By | 2017-02-04T07:38:56+00:00 October 29th, 2015|AZ Marijuana Law Lawsuits, California News, Stories & Articles, Tax Issues|Comments Off on Tax Court Spanks Another Dispenary
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Appellate Court Confirms Tax Court’s Decision in Olive vs. Commissioner

Section 280E of the Internal Revenue Code is legalized marijuana businesses worst nightmare.  This statute disallows deductions from federal taxable income of all typical business expenses except the cost of goods sold.  See my previous articles below:

After losing in the U.S. Tax Court, the Vapor Room’s owner appealed to the 9th Circuit Court of Appeals.  On July 9, 2015, the Court of Appeals issued its opinion Olive vs. Commissioner,  and affirmed the Tax Court’s decision.

In a Forbes.com article called “Big Court Defeat For Marijuana Despite Record Tax Harvests” the author said,

“Should marijuana businesses pay tax on gross profits or net profits? It sounds like a silly question. Virtually every business in every country pays tax only on net profits, after expenses. But the topsy-turvy rules for marijuana seem to defy logic. . . . Now, in another blow to the budding industry, is the IRS has convinced the influential Ninth Circuit Court of Appeals that marijuana dispensaries cannot deduct business expenses, must pay taxes on 100% of their gross income. The case, Olive v. Commissioner, was an appeal from a U.S. Tax Court decision.”

Another Forbes.com article called “Ninth Circuit: Legal Or Not, Marijuana Facility Cannot Deduct Its Expenses” states,

“a decades-old provision of the federal tax code remains firmly in place, threatening to administer a painful amount of tax on marijuana facilities, and serving as a greater barrier to entry into the industry than any outdated notion of moral or ethical impropriety. The IRS has been wielding a little known Code section — Section 280E, to be exact — to wage war on medicinal and recreational  marijuana facilities. Section 280E provides that no deduction — other than the cost to purchase or grow the marijuana inventory, or Cost of Goods Sold (COGS) — shall be allowed for any amount incurred in a business that consists of ‘trafficking in controlled substances’.”

Martin Olive argued that even though he could not deduct expenses arising from his marijuana business he should able to deduct expenses attributable to his side businesses that did not involve selling marijuana.  The Court of Appeals acknowledged the concept, but after giving an example of multiple businesses it concluded that Martin Olive did not, in fact, have any business other than the marijuana business.  The Court gave the following hypotheticals:

“An analogy may help to illustrate the difference between the Vapor Room and the business at issue in CHAMP. Bookstore A sells books. It also supplies some complimentary amenities: patrons can sit in comfortable seating areas while considering whether to buy a book; they can drink coffee or tea and eat cookies, all of which the bookstore offers at no charge; they can obtain advice from the staff about new authors, book clubs, community events, and the like; they can bring their children to a weekend story time or an after-school reading circle. The ‘trade or business’ of Bookstore A ‘consists of’ selling books. It’s many amenities do not alter that conclusion; presumably, the owner hopes to attract buyers of books by creating an alluring atmosphere. By contrast, Bookstore B sells books but also sells coffee and pastries, which customers can consume in a café-like seating area. Bookstore B has two ‘trades or businesses,’ one of which consists of selling books and the other of which ‘consists of’ selling food and beverages.

CHAMP

[the tax payer in a Tax Court case where the court found the taxpayer had more than one line of businesses], the court concluded, was Bookstore B. The Vapor Room, on the other hand, was Bookstore A.

See also “Why Your Dispensary Needs to Rent More Space than Needed for its Retail Store,” which discusses the CHAMP case.

By | 2017-02-04T07:38:56+00:00 July 9th, 2015|Stories & Articles, Tax Issues|Comments Off on Appellate Court Confirms Tax Court’s Decision in Olive vs. Commissioner

IRS Grants Tax Exemption to First Church of Cannabis

USA Today:  “Emotions appeared to be sky high at the newly formed First Church of Cannabis after the Internal Revenue Service granted it nonprofit status.  The designation means donors can deduct gifts to the church on their federal tax returns if they itemize and the church is eligible for a property-tax exemption in Indiana. The organization has raised $10,905 in a gofundme.com solicitation but has not found a home yet.  “What a GLORIOUS DAY it is folks,” the founder and grand poohbah, Bill Levin, wrote May 26 in a Facebook post announcing the church’s IRS approval as 501 (c) (3) charitable organization.

By | 2017-02-04T07:38:56+00:00 June 6th, 2015|Legal Issues, Stories & Articles, Tax Issues|Comments Off on IRS Grants Tax Exemption to First Church of Cannabis

Marijuana Industry’s IRS Battle

Fortune: “Legalized marijuana sales are spreading across the U.S., but the industry’s businesses are facing steep federal tax bills thanks to a wrinkle in the tax code dating back to the 1980’s. . . . In 1982, Congress enacted Section 280E of the federal Tax Code to prevent drug traffickers from being able to claim business expenses related to illicit dealings on their federal tax returns. . . . many marijuana business owners end up paying effective tax rates of anywhere from 40% to 70%

By | 2015-04-16T06:45:45+00:00 April 16th, 2015|Stories & Articles, Tax Issues|Comments Off on Marijuana Industry’s IRS Battle

Tax Day is an Unhappy Day for Marijuana Industry

McClatchyDC:  “For owners of marijuana businesses, April 15 is one big downer.  While most business owners rush to meet the federal tax deadline and cash in on a plethora of deductions, pot store owners and growers complain that they can’t write off a single expense, even if they have state licenses.  They want the law changed, saying it’s discriminatory and outdated as more states move to legalize marijuana.”

By | 2015-04-15T06:56:58+00:00 April 15th, 2015|Stories & Articles, Tax Issues|Comments Off on Tax Day is an Unhappy Day for Marijuana Industry

Top Pols Vexed by Marijuana Income Taxes

Portland Tribune:  “This week, Rep. Earl Blumenauer (D-Ore.) and Sen. Ron Wyden (D-Ore.) will introduce bicameral legislation to reconcile state marijuana laws and federal tax law — particularly Section 280E.  The sensible-sounding Small Business Tax Equity Act would allow marijuana businesses operating in compliance with state law to take deductions associated with the sale of marijuana like any other legal business.  Currently, legitimate sellers of medical marijuana cannot declare such common items as rent, utilities and professional services (accounting) as expenses on their federal tax forms. They end up in a 70- to 90-percent tax bracket, instead of the more usual 20 percent for small businesses that the U.S. Small Business Administration estimates.”

By | 2015-04-14T19:46:24+00:00 April 14th, 2015|Stories & Articles, Tax Issues|Comments Off on Top Pols Vexed by Marijuana Income Taxes

Bill to be Introduced in Congress to Amend Section 280E

eNews Park Forest:  “Representative Earl Blumenauer (D-OR-03) and Senator Ron Wyden (D-OR) announced plans to introduce bicameral legislation next week that would reconcile state marijuana laws and federal tax law. The Small Business Tax Equity Act, which was introduced last Congress by Congressman Blumenauer, would create an exception to Internal Revenue Code Section 280E to allow marijuana businesses operating in compliance with state law to take deductions associated with the sale of marijuana like any other legal business.”

Here’s the text of Congressman Blumenauer’s and Senator Wyden’s press release:

The Small Business Tax Equity Act of 2015

Congressman Earl Blumenauer ■ Third District of Oregon ■ www.blumenauer.house.gov
Senator Ron Wyden ■ Oregon ■ www.wyden.senate.gov

Background : Currently, the federal tax code prohibits anyone who sells Schedule I or Schedule II substances from deducting their business expenses from their taxes. Congress added this prohibition in 1982 after a drug dealer claimed his yacht and weapon purchases as legitimate business expenses.

Marijuana is a Schedule I substance , and therefore , even businesses operating in compliance with state law are not allowed to deduct the common expenses of running a small business , like rent, most utilities and payroll . They cannot claim the Work Opportunity Tax Credit if they hire a veteran, and they are limited in lawful deduction s relating to construction or operation costs if they want to remodel a building for their retail operations.

Legalization of Medical Marijuana

  • Twenty – three states, the District of Columbia and Guam have passed laws allowing for the legal use of medical marijuana. A n additional 12 states have passed laws allowing the use of low – THC forms of marijuana to treat certain medical conditions.
  • There are over one million legal medical marijuana patients across the country , and in many states, medical marijuana is sold through dispensaries . These dispensaries provide safe, legal facilities for patients who have a recommendation from a physician.

Legalization of Adult Use of Marijuana

  • In Colorado, Washington, Oregon, Alaska and the District of Columbia, voters passed measures allowing for the legal adult use of marijuana.
  • Businesses in Colorado and Washington – from the production to retail side of the industry – are already up and running in compliance with state law.

Fairness to these Legal Businesses

  • Because marijuana businesses are not allowed to deduct their expenses, this means that in certain circumstances, legal marijuana businesses can pay federal income tax rates at nearly 90 percent, while the U.S. Small Business Administration estimates that many small businesses pay an effective rate of around 20 percent.
  • All businesses should pay their fair share of taxes, but not being able to deduct expenses creates a disproportionate burden that can put small marijuana dispensaries out of business and will keep many good actors from entering the industry in the first place, forcing the industry underground.
  • Barring the marijuana industry from operating like a normal industry just incentivizes criminal activity and tax evasion.

What the Bill Does:  The Small Business Tax Equity Act of 2015 creates an exception to Internal Revenue Code section 280E to allow businesses operating in compliance with state law to take deductions associated with the sale of marijuana like any other legal business.

This Legislation is Supported By: Americans for Tax Reform, the National Cannabis Industry Association, Drug Policy Alliance, Marijuana Policy Project, Americans for Safe Access, NORML

For further information about the Small  Business Tax Equity Act, please contact:
Stephanie Phillips in Congressman Blumenauer’s office at (202) 225-­4811
Charlie Pope with the Senate Finance Committee at (202) 224-­4515

By | 2017-02-12T07:40:49+00:00 April 9th, 2015|Stories & Articles, Tax Issues|Comments Off on Bill to be Introduced in Congress to Amend Section 280E

Nothing Is Certain Except Death And (Marijuana) Taxes

Above the Law:  “In addition to their many other challenges, cannabis businesses must also contend with punitive federal tax rules. In 1982, Congress enacted Section 280E of the Tax Code as a way to punish drug traffickers. . . . . IRC 280E negatively impacts just about all marijuana businesses.”

By | 2015-02-16T07:09:29+00:00 February 14th, 2015|Stories & Articles, Tax Issues|Comments Off on Nothing Is Certain Except Death And (Marijuana) Taxes

IRS Prepares to Audit, Raid Dispensaries

The Leaf Online:  “A byzantine legal memo of potentially disastrous implications has been released by the Internal Revenue Service, articulating a new theory of the tax code which could result in punitive audits, crippling tax bills and even federal raids for state-legal cannabis retailers — though, curiously, not necessarily for growers.  The federal memo [Warning: extremely esoteric — Ed.], released on January 23rd, poses an existential threat to state-legal dispensaries and adult-use retail stores which have heretofore operated under the largesse of US Tax Court decisions like Californians Helping to Alleviate Medical Problems, Inc. v. Commissioner of Internal Revenue

By | 2015-01-28T22:07:54+00:00 January 28th, 2015|Stories & Articles, Tax Issues|Comments Off on IRS Prepares to Audit, Raid Dispensaries

IRS Limits Deductions For State-Legal Marijuana Businesses

Forbes.com:  Internal Revenue Code “Section 280E provides that ‘no deduction is allowed for any amount incurred in a business that consists of trafficking in controlled substances.’ Because marijuana finds itself on Schedule I of the Controlled Substances Act, the IRS has the ammunition necessary to deny the deductions of any facility that sells the drug.  And it does. Regularly.  On Friday, the IRS released Chief Counsel Memorandum 201504011, which sheds some interesting new light on what expenses a seller of marijuana businesses may and may not deduct, but in order to understand the memo’s impact, we’ve got to take a tour through several Internal Revenue Code provisions – namely Sections 61, 471, and 263A — and understand how they interplay with Section 280E.”

The following questions and answers are from Chief Counsel Memorandum 201504011:

(1) How does a taxpayer trafficking in a Schedule I or Schedule II controlled substance determine cost of goods sold (‘COGS’) for the purposes of §280E of the Internal Revenue Code (‘Code’)?

(2) May Examination or Appeals require a taxpayer trafficking in a Schedule I or Schedule II controlled substance to change to an inventory method for that controlled substance when the taxpayer currently deducts otherwise inventoriable costs from gross income?

CONCLUSION

(1) A taxpayer trafficking in a Schedule I or Schedule II controlled substance determines COGS using the applicable inventory – costing regulations under §471 as they existed when §280E was enacted.

(2) Yes, unless the taxpayer is properly using a non-inventory method to account for the Schedule I or Schedule II controlled substance pursuant to the Code, Regulations, or other published guidance.

By | 2015-01-27T07:41:00+00:00 January 27th, 2015|Stories & Articles, Tax Issues|Comments Off on IRS Limits Deductions For State-Legal Marijuana Businesses

Feds Taxing Marijuana Businesses to Death

Vox:  “Due to a section of the tax code known as 280E, many state-legal marijuana businesses have to pay taxes on their expenses — unlike other legal businesses, which are allowed to deduct them. For some businesses, this can drive their effective tax rates to 70 to 85 percent of their profits, which is enough to force many shops and growers out of business.  ‘It’s basically a dagger at the throat of the entire legal cannabis industry,’ said Steve DeAngelo, co-founder of California-based medical marijuana dispensary Harborside Health Center.”

By | 2015-01-28T22:15:35+00:00 November 17th, 2014|Stories & Articles, Tax Issues|Comments Off on Feds Taxing Marijuana Businesses to Death