USA: Proposed Amendment Would Fix Marijuana Tax Treatment

Authored By: Rod Kight


As Republicans face a looming deadline to pass a tax bill (Bill) that has been roundly condemned, it appears that at least one bit of common sense may find its way into law. Senator Cory Gardner (R-CO) has proposed two amendments (Amendments) to the Bill to fix a problem that has plagued the legal cannabis industry since it inception, section 280E of the tax code. Under 26 U.S. Code § 280E (Expenditures in connection with the illegal sale of drugs) no deductions or credits are allowed for business expenses incurred in connection with selling an illegal drug, including marijuana. This restriction would be removed if Gardner’s Amendments make their way to law.

Section 280E was enacted in 1982 to close a “loophole” that allowed drug dealers to deduct business expenses on their tax returns, notwithstanding that their income was illegally obtained. It came in the wake of a couple of high profile court decisions that authorized notorious traffickers to avoid large tax liabilities by lawfully deducting their business expenses, including mileage, trips, food, entertainment, airfare, telephone calls, rent, and even the cost of the scales used to weigh drugs. At the time of enactment, 280E was non-controversial and seemed the epitome of common sense.

Of course, back when polling figures showed that less than 25% of the American public favored cannabis legalization (as opposed to the current figure of 64%), it did not occur to many that 280E would eventually create an enormous and unfair tax burden on legitimate businesses. Under 280E, your friendly, local, state-legal dispensary is treated the same for tax purposes as the methamphetamine-cooking gang down the street. Among the disincentives for unlawful marijuana dealers to transition into law abiding businesses 280E is at the top of the list. It also puts an enormous burden on legal marijuana businesses. Paying a tax rate of 80-90%, when it should be 30-40%, is difficult to sustain.

Senator Gardner’s Amendments aim to fix the problem. Amendment 1609 would remove the 280E restriction entirely for otherwise illegal business activities that “consist of marijuana sales conducted in compliance with State law”. Its companion, Amendment 1639, sets out specific requirements for a marijuana business to be properly regulated.

I don’t usually report on pending cannabis legislation due to the fact that a lot of it either does not pass or the final laws that do pass are often substantially different from the original bills. However, given both the enormity of this particular issue and the intense pressure of the Republican Party to pass a tax bill, it seems that these Amendments are worth watching.

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Author Bios

Matt Maurer – Minden Gross
Jeff Hergot – Wildboer Dellelce LLP

Costa Rica
Tim Morales – The Cannabis Industry Association Costa Rica

Elvin Rodríguez Fabilena


Julie Godard
Carl L Rowley -Thompson Coburn LLP

Jerry Chesler – Chesler Consulting

Ian Stewart – Wilson Elser Moskowitz Edelman & Dicker LLP
Otis Felder – Wilson Elser Moskowitz Edelman & Dicker LLP
Lance Rogers – Greenspoon Marder – San Diego
Jessica McElfresh -McElfresh Law – San Diego
Tracy Gallegos – Partner – Fox Rothschild

Adam Detsky – Knight Nicastro
Dave Rodman – Dave Rodman Law Group
Peter Fendel – CMR Real Estate Network
Nate Reed – CMR Real Estate Network

Matthew Ginder – Greenspoon Marder
David C. Kotler – Cohen Kotler

William Bogot – Fox Rothschild

Valerio Romano, Attorney – VGR Law Firm, PC

Neal Gidvani – Snr Assoc: Greenspoon Marder
Phillip Silvestri – Snr Assoc: Greenspoon Marder

Tracy Gallegos – Associate Fox Rothschild

New Jersey

Matthew G. Miller – MG Miller Intellectual Property Law LLC
Daniel T. McKillop – Scarinci Hollenbeck, LLC

New York
Gregory J. Ryan, Esq. Tesser, Ryan & Rochman, LLP
Tim Nolen Tesser, Ryan & Rochman, LLP
Cadwalader, Wickersham & Taft LLP

Paul Loney & Kristie Cromwell – Loney Law Group
William Stewart – Half Baked Labs

Andrew B. Sacks – Managing Partner Sacks Weston Diamond
William Roark – Principal Hamburg, Rubin, Mullin, Maxwell & Lupin
Joshua Horn – Partner Fox Rothschild

Washington DC
Teddy Eynon – Partner Fox Rothschild