Marijuana Law, Policy & Reform

Editor: Douglas A. Berman
Moritz College of Law

Thursday, August 23, 2018

"Harmonizing Federal Tax Law and the State Legalization of Marijuana"

The title of this post is the title of this new paper authored by Daniel Rowe now available via SSRN. Here is its abstract:

As states legalize marijuana and cannabis-derived products, both for medical and recreational use, the punitive federal tax effect of section 280E makes it economically impossible for many marijuana-related businesses to function profitably. By disallowing the deduction of otherwise legitimate business expenditures, the Internal Revenue Code places such businesses in a situation where they are potentially paying federal income tax on their gross receipts despite netting much less in actual income.  This article explores the disproportionate tax burden on marijuana sellers and the growing tension between current federal tax law and states’ legalization of marijuana.

This article recommends the amendment of section 280E to eliminate this burden.  It is structured in four parts.  Part II discusses the history and legislative intent behind section 280E. It delves into the differing tax treatment for illegal drug traffickers versus that of other illegal activities.  Part III describes the effects of section 280E, both intended and unintended, on state-legal marijuana sellers as well as on the overall marijuana industry.  It explains how the original intent of section 280E, specifically as it relates to marijuana sellers, has been undermined by the changing public attitude towards marijuana and the rise of legal medical and recreational marijuana facilities.  This part also considers the onerous tax regime placed on state-legal marijuana businesses due to the inability to deduct ordinary expenses, and how this regime could be counter-productive to overall tax policy.  Part IV describes several alternative solutions to eliminate the reach of section 280E to state-legal marijuana businesses.  It concludes with the recommendation to amend section 280E to make it inapplicable to activities that are statutorily legal in the states in which they are conducted.

http://lawprofessors.typepad.com/marijuana_law/2018/08/harmonizing-federal-tax-law-and-the-state-legalization-of-marijuana.html

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Comments

This law student's article misses a few things.

1. "[E]conomically impossible for many marijuana-related businesses to function profitably"? Sure, not all businesses will make it, but “America’s fastest growing industry” is thriving. https://www.msn.com/en-us/money/markets/secrets-of-americas-fastest-growing-industry/ss-AArojlI

2. Yes, 280E is overbroad, but its nudge against marijuana advertising has a lot to recommend it – and wins plaudits from the world’s oldest marijuana consumer lobby, NORML. https://newrevenue.org/2017/02/16/5139/

Posted by: Pat Oglesby | Aug 23, 2018 11:13:16 AM

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