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%“

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  They want the law changed, saying it’s discriminatory and outdated as more states move to legalize marijuana.”

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.”

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

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.”

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“