Under a bill introduced in Congress on Friday, which seeks to change an IRS regulation known as 280E, businesses involved in the state-legal marijuana market would be eligible to receive the same federal tax deductions that are available to any other corporation. With the 117th Congress’s final days rapidly approaching their end, Rep. Nancy Mace (R-SC) presented the legislation.
Even though the bill’s substance is unavailable at this time, its short title is consistent with prior sessions’ versions of the Small Business Tax Equity Act. Current Internal Revenue Service (IRS) code 280E states that companies whose activities include “trafficking in controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act)” are not eligible to deduct many business expenses from federal taxes or receive tax credits.
Although the provision was originally enacted in 1982 to prevent drug traffickers from deducting business expenses, it is now commonly applied to state-licensed Marijuana growers, processors, and dispensaries, significantly increasing their effective tax rates compared to businesses in other industries.
There have been multiple attempts in previous legislative sessions to rectify this situation by making state-legal marijuana businesses subject to the same regulations as other commercial enterprises. The 118th Congress begins on Tuesday, thus Mace’s bill as submitted will not be moving forward and will need to be reintroduced then.
Earl Blumenauer (D-OR), who is also the co-chair of the Congressional Cannabis Caucus, was the primary sponsor of the most recent version. Many politicians on both sides of the aisle wanted to see a sweeping cannabis banking reform package passed before the end of the year to address the special problems facing the marijuana business.
There have been seven different versions of the Secure and Fair Enforcement (SAFE) Banking Act passed in the House, but none of them have made it through the Senate. Attempts to attach the bill to other pieces of legislation during the lame-duck session also failed. At the same time, a number of states, like New Jersey and Pennsylvania, have taken it upon themselves to ease banking restrictions and tax burdens on the cannabis industry.
This year, hundreds of proposals pertaining to cannabis, psychedelics, and drug policy have been introduced in state legislatures and the United States Congress. Patreon backers who pledge at least $25 a month will gain access to our dynamic maps, charts, and hearing calendar so they never miss a beat.
However, as long as Marijuana is illegal, tax policy issues will persist in the cannabis business.
Furthermore, the Internal Revenue Service “has issued no tax guidance about the applicability of Section 280E,” as stated by the Congressional Research Service (CRS) in a 2021 study. While 280E does not “prohibit a participant in the marijuana industry from reducing its gross receipts by its properly calculated cost of goods sold to determine its gross income,” IRS did provide some guidance in an update in 2020, explaining that while cannabis businesses cannot take standard deductions.
An internal watchdog report from the Treasury Department was published in 2020, and the IRS change appears to be a response to that report. Internal Revenue Service (IRS) was reprimanded by the department’s inspector general for tax administration for providing insufficient guidance to taxpayers in the marijuana industry regarding their legal obligations under federal tax law.
Also, the organization was tasked with “developing and publicly publishing recommendations unique to the marijuana sector.” In fact, Mace isn’t the only lawmaker to introduce legislation to change drug laws at the eleventh hour of the session.
Last week, for instance, Representative Matt Gaetz (R-FL) reintroduced a bill he’s filed for the past few sessions to encourage research on marijuana. To preserve consumer access to kratom, a natural drug that has been used as an opioid substitute and to lessen withdrawal symptoms, senators from both parties have introduced a bill in Congress.