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Monday, April 25, 2016
Sec 280E: How the IRS Becomes Senior Partner in Marijuana Dispensaries
By Selected News Articles @ 1:48 PM :: 4682 Views :: Taxes, Drugs

Why the IRS Taxes State-Licensed Marijuana Merchants on Nonexistent Profits

A rule aimed at drug traffickers plagues businesses deemed legitimate under state law.

by Jacob Sullum, Reason, April 25, 2016 (excerpt)

…(in 1982) Congress enacted Section 280E of the Internal Revenue Code which... imposes a heavy burden on state-legal cannabusinesses across the country.

To give you a sense of how heavy that burden is, the Tax Foundation's Joseph Henchman cites a Colorado medical marijuana business that paid an effective tax rate of 55 percent, compared to the 30 percent that an identically situated business not covered by Section 280E would pay. A new Arizona medical marijuana provider with high startup costs was not allowed to deduct any of them or any of its routine business expenses (except for the cost of goods sold, which is outside the scope of Section 280E). The result: The dispensary paid $189,781 in taxes on a loss of $310,829. A non-marijuana-related business (even an illegal one) with exactly the same income and expenses would have owed no tax at all.

According to a 2015 Fortune report, effective tax rates for state-legal marijuana businesses range from 40 percent to 70 percent, "compared to the typical corporate tax rate of around 35%." Last year Seattle medical marijuana supplier John Davis told The New York Times he made $53,369 after expenses in 2014 and paid $46,340 in taxes—an effective rate of 86 percent….

Tax Foundation: Marijuana Legalization and Taxes: The Impact of Section 280E

read … Reason

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