Marijuana as Criminal Business Means Higher Federal Taxes

Advocates urging marijuana legalization at the federal level are hoping to reform current federal tax code that treats state-approved cannabis stores as criminal enterprises. The change could take place in a mere matter of months. Currently, the IRS prevents any business that sells Schedule I or II illegal drugs from deducting expenses associated with sales. This means that state-legalized cannabis stores are not able to deduct expenses related to salaries, leases, advertising, marketing and other business expenses. Marijuana dispensaries and other distributors pay a tax rate of 70% more than other businesses.

An Oregon representative has sponsored the Small Business Tax Equity Act, which would exempt state-licensed dispensaries from 280E, the section of the tax code that governs the issue. As part of the “war on drugs” Congress approved the section in 1982. As more states begin to legalize medical and recreational use, there is more incentive and momentum to protect small business owners and to level the playing field. Currently Colorado, Washington, and the District of Columbia have approved the recreational use of marijuana. Another 23 states have approved licenses for legal medical marijuana use. Nine other states passed bills allowing limited use of cannabis extract oil for individuals with epilepsy in 2014.

The movement towards legalization in states has not been mirrored by any action at the federal level and selling or distributing marijuana remains a crime. With voters at the local and state levels showing clear support in favor legalization for medical and/or recreational use, many advocates believe that it is time for the federal government to take action. In addition to the bill that would equalize tax rights for marijuana businesses, another bill would give marijuana businesses full access to banking services. Many believe that it is “high time” for Congress to act, but they are not making significant moves to help marijuana businesses.

While hopeful, advocates admit that getting these bills passed at the federal level can be complicated. In addition to critics who are against lending any support to marijuana businesses, it is likely that any bill related to marijuana will be part of a larger piece of legislation. To succeed at passing any legislation that would impact the rights of users or businesses, there must be some comprehensive legislation as well as some kind of consensus in Congress about the drug itself, whether as a recreational drug or as a medical treatment option. Still, some expect that the tax package to exempt businesses in Colorado and Washington could potentially pass in the next few weeks.

Marijuana businesses are not only at risk of local and state regulatory violations but federal criminal liability as well. Our Orange County marijuana attorneys are committed to protecting the rights of individuals and entities throughout California. We are experienced in providing sound counsel to dispensary owners as well as advocacy in the event of a criminal investigation. While marijuana laws remain in flux, it is important to stay abreast of legislative changes and to protect your rights.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients and those facing marijuana charges. Call us at 949-375-4734.

More Blog Entries:
Getting Started in the Medical Marijuana Industry, May 15, 2014, Los Angeles Marijuana Lawyer Blog
United States Marijuana Laws Influencing Other Countries
, February 14, 2014, Los Angeles Marijuana Lawyer Blog

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