Marijuana Law, Policy & Reform

Editor: Douglas A. Berman
Moritz College of Law

Thursday, September 12, 2013

"Pot bridges partisan divide as lawmakers, lobbyists come together to push for tax deductions"

The title of this post is the headline of this notable new report from the Daily Caller, which gets started this way:

There is nothing like pot to promote bipartisanship.  An unusual coalition of liberal Oregon Democrat Rep. Earl Blumenauer, conservative California Republican Rep. Dana Rohrabacher, and Grover Norquist, the president of Americans for Tax Reform, came together outside the Capitol on a sweltering Thursday afternoon to talk about marijuana.

Once upon a time, as Blumenauer tells it, “a drug dealer, creatively, was trying to deduct the cost of a yacht” on his tax returns. The result of the ensuing outrage was 280E, a provision in the federal tax code that prohibits people who sell controlled substances, like pot, to take tax deductions or credits for that business.

When the provision was written in 1982, it applied mostly to people dealing drugs illegally. But now, with Washington state and Colorado legalizing recreational marijuana, and several other states legalizing the use of the drug for medical purposes, it’s having detrimental effects on legitimate operations. “This is not about a drug dealer and a yacht,” Blumenauer said. “This is about legal businesses.”

Blumenauer and Rohrbacher are pushing for Congress to get rid of 280E. “It’s goofy,” Blumenauer said, calling the provision “perhaps the most insane” of some of the tax laws on the books “because it doesn’t allow legal businesses to operate like other legal businesses.” Blumenauer said he thought this issue could help spur Congress along toward comprehensive tax reform.

Recent related post:

UPDATE:  I just saw, thanks to a blog post via MPP, that Americans for Tax Reform has produced a little"white-paper" on this big tax issue.  This four-page paper is titled "Legal Cannabis Dispensary Taxation: A Textbook Case of Punishing Law-Abiding Businesses Through the Tax Code." Here is the abstract from the paper:

Section 280E of the Internal Revenue Code (IRC) creates a gross receipts tax situation for legal cannabis dispensary small businesses. This is due to an accident of history and a perversion of Congressional intent. ATR supports fixing this mistake. H.R. 2240, the “Small Business Tax Equity Act of 2013” does so. ATR urges all Congressmen to support this common-sense legislation.

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280E is an anomaly, enacted to prove that Congress was mad at drugs. But 280E disallows deductions for marketing and advertising, so it discourages advertising -- a flash point for opponents of marijuana legalization. An outright ban on advertising a legal product is Constitutionally questionable – unlike disallowance of a tax deduction.

To be sure, 280E is overbroad and could be fixed: It disallows deductions for attorneys’ fees, for instance. But it already allows deductions for production and for cost of goods sold. Some federal tax burden on legal marijuana is going to be part of any legalization scheme, and 280E’s anti-advertising bias occupies a middle ground.

Posted by: Pat Oglesby | Sep 13, 2013 4:58:03 AM

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