The Governor of Maine signed a bill that allows licensed marijuana businesses to deduct state taxes as a partial solution to the Internal Revenue Service code 280E, which prohibits these deductions on the federal level.
Gov. Last week, Janet Mills gave her final approval to Sen. Teresa Pierce’s (D), legislation. The bill expands an existing policy which already provides tax relief to operators in the medical cannabis industry of California.
The newly passed law allows the state to use a portion of its tax revenue from marijuana sales in order to compensate for the revenue lost due to the new tax deductions for “business expenses incurred by a registered caregiver or dispensary, or manufacturing facility” and “a
The bill states that deductions are for “an amount equivalent to the deduction which would otherwise be allowed under this part to the extent the deduction is not allowable under the Code, Section 280E.”
The contrast between the tax code and its implementation is shocking. Businesses that can deduct business expenses pay an effective tax rate of about 40 percent. In comparison, the effective rate of tax for businesses who are not allowed to deduct their ordinary business expenses is about 70 percent of their gross income,” Pierce said, in testimony given before a joint legislative committee in March. This unfair tax code means that business owners will lose 30 percent of their ability to invest in their businesses, to hire and retain good employees and to offer better benefits to existing employees.
She said, “The Maine medical cannabis industry is able utilize this tax benefit.” It seems fair and reasonable that both of our cannabis industries should have this opportunity.
According to a fiscal analysis, the law will reduce general fund revenues by $1.14 in 2023-24 and $1.44 in 2024-25. The legislation would also reduce local government fund revenues by $60,000 in the fiscal years 2023-23, and $76,000 in those of 2024-25.
After the Governor signed the bill, the Office of Cannabis Policy stated that the reform would allow licensees “to take business expenses on their Maine tax return like any other legal businesses and improve parity in the state for medical and adult-use cannabis businesses
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While Congress works to normalize federal marijuana policy, an increasing number of states are taking it upon themselves in order to provide relief to the cannabis industry.
The governor of Illinois, for example, signed a budget law in the month of June which includes provisions that allow licensed marijuana businesses the ability to claim state tax deductions. This is something that’s currently not allowed under the IRS code.
The governor of Connecticut signed a budget bill that included provisions for state-level tax relief for licensed marijuana businesses. This was a workaround to the federal 280E regulations.
The governor of New Jersey also signed legislation to allow licensed marijuana business to deduct some expenses on their state taxes as a partial IRS fix 280E. Lawmakers from Iowa New York Pennsylvania, and Virginia also pursued similar tax reliefs for their respective marijuana markets.
In June, the New York Senate approved a bill to fix the 280E tax for cannabis companies in New York City on a local level. This was because the statewide reform had already been implemented and did not affect the city’s The bill was also passed by the Assembly in June and returned to the Senate.
In May, Rep. Earl Blumenauer of Oregon (D) introduced at the federal level. This bill would amend IRS code in order to allow marijuana businesses that are legal in their state to take advantage of the federal tax deductions available to other companies.
He told Marijuana Moment he is “absolutely certain that when we can fully deduct the business expenses of people that actually there will be more revenue collected , because they will comply with the law.”
The marijuana industry is still facing tax policy challenges as a result of the prohibition. The Congressional Research Service (CRS), in a report from 2021, noted that IRS “has provided little tax guidance regarding the application of Section 280E.”
In a 2020 update, the IRS provided some guidance. It explained that, while cannabis businesses cannot take standard deductions for their gross receipts, 280E doesn’t “prohibit an individual in the marijuana business from reducing his gross receipts to
The IRS update appeared to be in response to a Treasury Department Internal Watchdog Report released in 2020. IRS was criticized by the department’s inspector for tax administration for not adequately advising taxpayers in marijuana businesses about federal tax laws. It also directed the agency “to develop and publicize specific guidance for the marijuana industry”.
In Maine, the legislature also passed several other cannabis reforms, such as bills championed a GOP rookie lawmaker who worked previously as a marijuana advocate, to protect the gun rights of cannabis consumers and to increase the number plants that adults are allowed grow for their personal use.
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