Rep. Earl Blumenauer (D-Oregon) introduced a bill Monday to provide tax breaks only to marijuana sellers.
Labeled the “The Small Business Tax Equity Act,” the bill actually helps only one specific type of small business: those that sell marijuana, in violation of the federal Controlled Substance Act.
As the Congressional Research Service explains, state laws legalizing marijuana are at odds with federal statue:
“It is increasingly common for states to have laws and policies allowing for medical and/or recreational use of marijuana—activities that violate the CSA.”
IRS Code Section 280E says that businesses selling controlled substances (such as marijuana) that violate federal law are not entitled to tax deductions for expenditures:
§280E. Expenditures in connection with the illegal sale of drugs
“No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”
The IRS notes that marijuana may deduct the cost of goods sold, just not overhead expenses:
“While IRS Code Section 280E is clear that all the deductions and credits aren’t allowed for an illegal business, there’s a caveat: Marijuana business owners can deduct their cost of goods sold, which is basically the cost of their inventory. What isn’t deductible are the normal overhead expenses, such as advertising expenses, wages and salaries, and travel expenses, to name a few.”
Blumenauer’s bill removes that restriction, not for other types of controlled substances, but only for marijuana:
To amend the Internal Revenue Code of 1986 to allow deductions and credits relating to expenditures in connection with marijuana sales conducted in compliance with State law.
ALLOWANCE OF DEDUCTIONS AND CREDITS RELATING TO EXPENDITURES IN CONNECTION WITH MARIJUANA SALES CONDUCTED IN COMPLIANCE WITH STATE LAW.
(a) IN GENERAL—Section 280E of the Internal Revenue Code of 1986 is amended by inserting before the period at the end the following: ‘‘, unless such trade or business consists of marijuana sales conducted in compliance with State law’’.
(b) EFFECTIVE DATE—The amendment made by this section shall apply with respect to taxable years ending after the date of the enactment of this Act.
Rep. Blumenauer is co-chair of the Congressional Cannabis Caucus, which he founded in 2017.
March 20 is known as “420 Day,” an unofficial annual holiday, during which enthusiasts celebrate their love of marijuana.
“Henry Hemp” vapes marijuana.
(Getty Images/Jack Taylor)
This content was originally published here.
