By Marisa DeZara
The marijuana industry faces obstacles that other legal businesses do not have to overcome, including Section 280E of the Internal Revenue Code. Bruce Nassau, a dispensary owner in Colorado, suffered the consequences of not being able to take federal income tax deductions. The IRS gained a small fortune from Nassau, according to The New York Times.
“I had to write a check for $275,000 … . Unbelievable,” Nassau told the Times.
Serious tax reformation is in order if legal marijuana shops are expected to thrive. Forking out a quarter-million dollars to the IRS is a massive loss for any business. As noted in the Times, “shops say they are being forced to pay crippling federal income taxes because of a decades-old law aimed at preventing drug dealers from claiming their smuggling costs and couriers as business expenses on their tax returns.”
Marijuana Tax: Section 280E, implemented in 1982, indicates that any business involved with the “trafficking [of] controlled substances” cannot receive tax deductions and credit. The language contained within this clause is problematic in that it denotes the marijuana business as an entirely illegal trade. The industry is not legal on a federal level, but on a state-by-state basis. This fragmentation makes it extremely complicated to standardize the industry.
This tax provision prevents legal marijuana business owners in Colorado from deducting their rent, employee salaries and utility bills. In turn, employers are forced to dish out far more income tax than businesses of a similar caliber that happen to operate in an entirely legal space.
Although the tax law comes as a shock to many entrepreneurs, measures are being taken to challenge this unfair policy. On April 16, 2015, Rep. Earl Blumenauer and Sen. Ron Wyden of Oregon, introduced the Small Business Tax Equity Act of 2015 to Congress in an attempt to amend Section 280E of the Internal Revenue Code. Because a marijuana business cannot take deductions, it can owe up to 90 percent or more of its profits.
“It’s affecting thousands of businesses, and it’s doubling, tripling, quadrupling their taxes,” Blumenauer told the Times. “It just cripples them.”
The marijuana industry, although illegal on a federal level, takes pride in paying taxes. It wants legitimacy. However, the industry is hindered by outdated tax laws. If Blumenauer and Wyden’s bill passes, it would remove the industry’s 280E obstacle and jumpstart standardization on the macro level.