A congressman reintroduced legislation that would amend the Internal Revenue Service code 280E, allowing state-legal marijuana companies to take advantage of federal tax deductions available to other businesses.
Rep. Earl Blumenauer (founder of the Congressional Cannabis Caucus) re-filed the Small Business Tax Equity Act Monday. The Small Business Tax Equity Act has been introduced multiple times in recent sessions, but it never made it to an actual hearing or vote.
Blumenauer stated in a release that “state-legal cannabis business are denied equal treatments under 280E.” They cannot deduct all the costs of running their business, which means that they pay twice or three times more than a non-cannabis similar business.
He said that this grotesquely unjust treatment encourages people to make cuts. If Congress is serious about helping small businesses and reducing the illicit cannabis trade, then it’s common sense that legal cannabis operations can deduct their business expenses just like any other industry.
The IRS code in effect, 280E (the current IRS code), prevents businesses that are involved in “trafficking controlled substances” within the meaning of Schedule I and II to the Controlled Substances Act from deducting most of their business expenses or receiving tax credits. However, they still have to pay federal taxes just like other companies.
This provision was passed in 1982 to stop drug traffickers deducting expenses from their taxes. However, it is now widely used by state-licensed marijuana processors, growers and dispensaries. It increases their effective tax rate compared to other businesses.
Rep. Nancy Mace (R-SC), filed the bill towards the end of last Congress. However, there was not enough time for it to be taken up in the committee.
Mace is co-sponsoring this new version with Blumenauer, Barbara Lee (D. CA) and Dave Joyce(R. OH).
Aaron Smith, CEO of the National Cannabis Industry Association, said that on Monday the “unfair” application of outdated 280E provisions to state-licensed marijuana businesses prevents our industry from reaching their full economic potential. It also hinders our ability replace the criminal market in accordance with voters’ and state legislators’ wills who have implemented modern state cannabis programs across the nation.
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 reflect its correctly calculated cost of goods purchased in order to determine his gross income.”
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.”
Since years, bipartisan and bicameral legislators have worked to pass legislation to treat the cannabis industry like other legitimate businesses. This is through the Secure and Fair Enforcement Banking Act (SAFE), which has passed the House a few times only to be stalled in the Senate.
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The reform was supposed to be part of SAFE Plus, a package of incremental cannabis legislation that was being discussed during the last session. However, this didn’t happen.
Sherrod Brown, the chairman of the Senate Banking Committee (D-OH), said that legislators must act on marijuana banking legislation this year. His Republican counterpart in the panel also agreed that the issue would “come to a resolution likely during this Congress.”
Brown and Sen. Tim Scott, the ranking member of the American Bankers Association Washington Summit (ABA), both spoke one day after the GOP’s lead sponsor of the SAFE Banking Act urged financial institutions to exert pressure on Congress in order to complete the task.
Brown said that, he believes that the White House supports the legislation.
Last month, Senate Majority leader Chuck Schumer (DNY) stated that he is still committed to moving this legislation along with SAFE Banking sponsors Sen. Steve Daines(R-MT), despite a divided Congress in which Republicans control the House.
The House is now under Republican control, and it’s expected that the comprehensive legalization of marijuana will be put aside while lawmakers look for areas of compromise. Small Business Tax Equity Act is an example of this type of legislation.
Morgan Fox, NORML’s Political Director, said: “NORML applauds the sponsors of the legislation for their efforts in ending the unfair federal overtaxation on licensed and regulated cannabis businesses across the country.” The deductions enjoyed by most legitimate businesses will allow the legal cannabis market to compete with the unregulated industry, and will benefit public health.
Several states, including New Jersey, Pennsylvania and others have provided some tax and banking relief to the cannabis industry in their respective borders.
Below, you can read the text relating to the Small Business Tax Equity Act:
The article A new Congressional bill would provide federal tax relief for marijuana businesses by amending IRS’s 280E code first appeared on Marijuana Moment.
