U.S. Rep. Earl Blumenauer (D-OR) introduced legislation this week that would allow legal marijuana businesses to take tax deductions like any other legal business.
His bill, the Small Business Tax Equity Act (H.R. 2643), would create an exception to Internal Revenue Code Section 280E to allow marijuana businesses operating in compliance with state laws to take deductions associated with the sale of marijuana. Section 280E of the federal tax code currently prevents cannabis businesses from deducting ordinary expenses associated with running a small business, including rent, utilities, and payroll.
This means they cannot claim the Work Opportunity Tax Credit if they hire a veteran, cannot depreciate their American-made irrigation equipment, and cannot take any credit or deduction relating to construction or operation costs to revitalize a building.
“State-legal cannabis businesses are denied equal treatment under 280E. They cannot fully deduct the cost of doing business, which means they pay two or three times as much as a similar non-cannabis business,” said Blumenauer, founder and co-chair of the Congressional Cannabis Caucus. “This grotesquely unfair treatment incentivizes people to cut corners. If Congress wants to get serious about supporting small businesses and ending the illicit cannabis market, it is commonsense that we allow legal cannabis operations to deduct business expenses, just like any other industry.”
The legislation has the support of several industry organizations, including the Minority Cannabis Business Association, the National Cannabis Roundtable, the National Cannabis Industry Association, and the National Organization for the Reform of Marijuana Laws (NORML).
“The unfair application of the outdated 280E provision on state-licensed cannabis businesses is preventing our industry from reaching its full economic potential and our ability to successfully replace criminal markets in accordance with the will of the voters and state legislators that have implemented modern state marijuana programs across the country,” National Cannabis Industry Association CEO Aaron Smith said. “We commend Congressman Blumenauer and the bill’s original co-sponsors for leading this narrowly crafted, sensible legislation that would resolve this unforeseen consequence and bring our tax code into the 21st century.”