Earl Blumenauer, Oregon Representative in the U.S. House of Representatives this week, introduced legislation that allows regulated cannabis businesses to enjoy tax deductions similar to those enjoyed by other companies in different industries. Blumenauer introduced the bill known as Small Business Tax Equity Act on Monday. It was co-sponsored by Republican David Joyce and South Carolina Representative Nancy Mace, along with fellow Democrat Barbara Lee.
Section 280E, the federal tax code denies cannabis companies most of the tax deductions that are available to other businesses. Cannabis businesses operating in states that allow for the sale of marijuana are allowed to deduct their costs. However, other expenses such as rent, salaries, and utilities, are not tax deductible.
They cannot fully deduct the cost of doing business, which means they pay two or three times as much as a similar non-cannabis business. The cost of running a business is not fully deducted, so they are paying two to three times more than a non-cannabis similar business,” Blumenauer, , founder of the bipartisan Congressional Cannabis Caucus , said in a statement released on Monday. This grotesquely unjust treatment encourages people to make cuts. It is only common sense that if Congress really wants to support small business and end the illicit cannabis trade, they allow cannabis businesses to deduct their expenses just as any other industry.
Small Business Tax Equity Act creates an exception to Section 280E that allows marijuana businesses in compliance with State Law to deduct the sales of marijuana as any other legal business.
Blumenauer wrote that “without this legislation Section 280E” of the federal income tax code prohibits cannabis companies from claiming ordinary business expenses, such as rent, utility bills, and salaries. They cannot depreciate American-made irrigation equipment, or claim Work Opportunity Tax Credits if their business hires veterans.
Reform groups, including the National Organization for the Reform of Marijuana Laws, have praised Blumenauer’s proposal to give standard tax deductions for companies operating in the regulated cannabis industry. They note that businesses struggle with high taxes, regulatory fees and the competition of an underground marijuana market.
Morgan Fox, NORML’s political director said that the organization commended the bill sponsors for ending the unfair federal taxation on licensed and state-regulated marijuana businesses across the nation. Allowing them to claim the same federal tax breaks as other businesses will create new opportunities for the legal cannabis market and will make it more competitive against the unregulated industry, directly benefiting consumer safety and health.
The two biggest challenges facing cannabis entrepreneurs today are their lack of capital access and unfair taxes burdens, said Saphira Gaolob, Executive Director of the National Cannabis Roundtable. By eliminating the impact on state-legal marijuana operations of the 280E, Congress will give these businesses the chance to be financially viable, to invest in their communities and employees, as well as to receive tax deductions and credits that are offered routinely to other industries. The relief provided is vital for an industry which employs thousands of Americans and pays billions in state and federal tax each year, despite not having access to conventional financial resources.
In states where cannabis is legal, the push to remove the effect of 280E has also begun. Many of these use federal tax codes as the foundation for their state tax laws. As of now, 19 states decoupled tax laws and 280E. Other states, including Connecticut are considering a similar measure. Lucas C. McCann Ph.D. is the co-founder of cannabis consulting company CannDelta Inc. and the chief scientific officer. He welcomed efforts to eliminate the Section 280E rules at state levels.
McCann, in an email sent to High Times wrote: “The decoupling 280E will allow cannabis-related business to claim basic operating expenses.” Failure to comply will lead to insolvency for many businesses, and this will help the illegal market continue to flourish as it did before legalization.
High Times published the first article House lawmakers introduce bipartisan cannabis business tax relief bill.
