The governor of New York has signed a bill that will allow marijuana businesses in New York City to make federal deductions.
Around five months after the Senate approved the proposal and less than one week after both chambers sent their identical bills to the Governor. Kathy Hochul, a Democrat, signed the bills into law Friday.
Although Hochul signed last year a separate bill that included provisions that allowed state-level cannabis businesses to deduct tax — a partial remedy for the ongoing federal problem– New York City’s own tax laws were not affected by this change. This new measure fills that policy gap.
Summary: “This bill would allow taxpayers who are authorized to sell, distribute, or produce adult-use cannabis or medical cannabis under the Cannabis Law, to deduct their business expenses for the purposes of the Unincorporated Business Tax (UBT), General Corporation Tax (GCT), or the Corporate tax of 2015 (commonly known as the Business Corporation tax, BCT).”
A section of the tax code of the city would be changed into adding sections that allow the deductions in an amount “equal to any federal deduction that is disallowed under section 280E” of the Internal Revenue Code.
A memo that is attached to the bill states: “This modification of income is appropriate, because while expenses for cannabis-related businesses cannot be deducted at federal level, New York Law permits and encourages this business in a similar way to any other legal business taking place in the State.” The City’s tax system should also encourage these activities.
The bill also states that New York City Mayor Eric Adams, a Democrat, has endorsed the reform legislation.
As congressional marijuana reform legislation continues its stalemate, lawmakers in several states have sought a tax workaround. This leaves state-licensed cannabis business with federal effective tax rates that are significantly higher under prohibition.
The Pennsylvania House, for instance, approved last month a tax reform bill that contains language providing state-level relief to medical marijuana businesses . Republicans, who normally support tax cuts, have criticized the reform as a Democratic giveaway of cannabis businesses.
The Governor of Maine, in August, signed legislation that separates the state tax policy from federal policy for cannabis business.
In June, the governor of Illinois signed a budget bill that included provisions that would allow licensed marijuana businesses to take state taxes they are currently prohibited from using 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. Iowa, and Virginia lawmakers have also pursued similar tax relief to benefit their respective marijuana markets.
Marijuana Moment tracks more than 1,000 cannabis and drug policy bills that have been introduced in state legislatures, and Congress. Patreon supporters who pledge at least $25/month gain access to our interactive charts, maps and hearing calendar.
Discover more about our marijuana bills tracker. Become a Patreon supporter to gain access.
—
In May, Rep. Earl Blumenauer of Oregon (D) reintroduced , a bill that would amend IRS code in order to allow marijuana businesses that are legal in their state to take advantage of 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 (a) a participant in marijuana industry to reduce its gross revenue by its correctly calculated cost of goods purchased in order to determine its gross profit.”
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.”
The industry’s 280E issue could be solved if the Drug Enforcement Administration accepts the U.S. Department of Health and Human Services recommendation and moves cannabis from Schedule I into Schedule III of Controlled Substances Act.
New South Dakota Marijuana Legalization Initiative Will Allow Dispensaries to Launch Adult-Use Sale
The post New York State Governor Signs Marijuana tax Cut Bills, Providing Relief for Local 280E Businesses in NYC first appeared on Marijuana Moment.
