Internal Revenue Code section 280E denies deductions or credits for expenses in a business involving drugs “prohibited by Federal law or the law of any State in which such trade or business is conducted.” 280E reform is vital if the cannabis industry is ever going to reach its full potential. The section of the tax code known as 280E results in many state-legal cannabis businesses having to pay taxes on their expenses, unlike other non-cannabis businesses. This can result in tax rates of 70 to 85 percent of profits for most of the cannabis industry. For at least one cannabis store in Washington, Cannabis City, 280E rules are hampering success. Per Crosscut.Com:
As of Dec. 4, Cannabis City owed $631,171, one quarter of the shop’s $2,524,685 in total sales, to the state in the form of excise tax, according to state Liquor Control Board figures. Because of the 280E provision this excise tax expense cannot be written off. The Internal Revenue Service would view the $631,171 as income and tax it accordingly.
“I’m being taxed on the tax I’m paying the state of Washington,” Lathrop said.
Dean Guske is an accountant who has about 150 clients in the cannabis industry. He sees the excise tax as a critical challenge for Washington’s marijuana businesses.
“I would say that the biggest problem right now under 502 is the current structure of the excise tax,” he said, referring to Initiative 502, the ballot measure that voters approved in 2012 legalizing recreational marijuana in Washington. “It’s making it extremely difficult for retailers in particular to really be profitable.”
280E reform is not a sexy issue to people that aren’t directly involved in the cannabis industry, and the federal government knows that. Unlike SWAT raids which involve a lot of guns blazing and doors being kicked in which the media loves to cover, 280E reform is boring tax stuff to most people. However, if the cannabis industry is ever to reach its full potential, 280E reform needs to be addressed. The cannabis industry can still be profitable without it, but much less so than if cannabis businesses were allowed to operate on an even playing field with like other industries.
Anthony Johnson
Anthony, a longtime cannabis law reform advocate, was Chief Petitioner and co-author of Measure 91, Oregon's cannabis legalization effort. He served as director of both the New Approach Oregon and Vote Yes on 91 PACs, the political action committees responsible for the state's legalization campaign. As director of New Approach Oregon, Anthony continues to work towards effectively implementing the cannabis legalization system while protecting small business owners and the rights of patients. He sits on the Oregon Marijuana Rules Advisory Committee and fights for sensible rules at the legislature as well as city councils and county commissions across the state. Anthony helps cannabis business comply with Oregon's laws and advises advocates across the country. He also serves as content director of both the International Cannabis Business Conference and the Oregon Marijuana Business Conference, helping share the vision of moving the cannabis industry forward in a way that maintains the focus on keeping people out of prison and protecting patients. He was a member of the Oregon Health Authority Rules Advisory Committee, assisting the drafting of the administrative rules governing Oregon’s state-licensed medical marijuana facilities. He first co-authored and helped pass successful marijuana law reform measures while a law student at the University of Missouri-Columbia School of Law. He passed the Oregon Bar in 2005 and practiced criminal defense for two years before transitioning to working full-time in the political advocacy realm. His blogs on Marijuana Politics are personal in nature and don't speak for or reflect the opinions of any group or organization.
