Tax Code 280E
Federal tax code 280E currently prohibits legal, state-based cannabis businesses from making standard business deductions and claims on their federal tax returns. Under the current system, 280E saddles cannabis businesses with an effective tax burden of 70% - 90%, or higher, creating an uneven playing field for the cannabis industry.
280E was enacted after a U.S. Tax Court case in which a cocaine dealer successfully defended deductions made on telephone, auto, and rental expenses related to his drug dealing business. In response, Congress added Section 280E to the Internal Revenue Code in 1982. Today, 280E is most frequently leveraged against cannabis businesses in complete legal compliance with state law.
The state-legal cannabis industry employs more than 100,000 people in 28 states and the District of Columbia. By 2020, it is estimated that the industry will support more than a quarter-million jobs. The industry has also generated approximately $7 billion in sales in 2016 and is projected to grow to $20-25 billion by 2020. Legal cannabis businesses do not want special treatment; they just want to be treated like any other business and pay their fair share of taxes.
280E is a federal overreach into state-based industry. Tax code should not be used to determine winners and losers in the marketplace. The New Federalism Fund is committed to working with federal officials to fix 280E, creating a fair and equitable tax system for legal cannabis businesses.
Small Business Tax Equity Act of 2017
On March 30th, 2017, Rep. Carlos Curbelo, Rep. Earl Blumenauer, Sen. Ron Wyden and Sen. Rand Paul released the Small Business Tax Equity Act of 2017 in the U.S. House and Senate. The bills will amend 280E to allow legal cannabis businesses in compliance with state law to claim standard deductions and credits on their federal taxes.
Read more about the Senate and House proposals.
State-Based Industry Regulation
Current Department of Justice protocol, as defined by a memo issued in August 2013 by U.S. Deputy Attorney General James Cole, states:
“Enforcement of state law by state and local law enforcement and regulatory bodies should remain the primary means of addressing marijuana-related activity.”
The New Federalism Fund believes in maintaining state and local authority over the regulation and enforcement of state-based cannabis laws. Many states have democratically chosen to legalize cannabis, and federal action to overrule these initiatives is overruling the voice of the American people.
A recent Quinnipiac University National Poll found that 71% of Americans – including majorities in both parties and every age group – oppose federal intervention in legal medical and adult use cannabis states.
A change in current policy would lead to billions of dollars in marijuana sales shifting from state-regulated businesses back to the criminal, underground market.
We are working to secure state-based cannabis regulation that promotes public safety and local economic growth.
