Legislation to Reform Tax Laws for Cannabis Businesses Filed in U.S. House and Senate
U.S. Representative Earl Blumenauer (D-OR) and Senator Ron Wyden (D-OR) have introduced the Small Business Tax Equity Act of 2015 in both the House and the Senate. The bill would end unfair taxation issues faced by legal, state-sanctioned cannabis businesses by altering Section 280E of the federal tax code.
“The small businesses that make up the legal cannabis industry are working overtime to be responsible, contributing members of their communities,” said Aaron Smith, executive director of the National Cannabis Industry Association (NCIA). “So it’s particularly outrageous that when they try to do the right thing by paying their federal taxes, they end up penalized with double and triple tax rates.”
According to NCIA; “The 280E provision was added to the tax code in the 1980s after a convicted cocaine trafficker asserted his right to deduct business expenses from his federal tax filings. The provision was never intended to penalize cannabis businesses operating legally and in compliance state law. However, because it applies to the sale of Schedule I and Schedule II substances under the Controlled Substances Act, cannabis cultivators and dispensaries are prohibited from deducting the common expenses every other legitimate business can deduct, including rent, payroll, and state excise taxes. The result is effective tax rates that can range from 50 to 85%, absolutely crippling for a small business.”
NCIA released a white paper today providing real-world examples of how 280E harms small businesses across the country, which can be found by clicking here.
“Instead of being able to create more jobs, increase salaries, or add benefits for their employees, these businesses are being forced to send more than two-thirds of their profits straight to the federal government,” said Smith.
The Small Business Tax Equity Act – S. 987 and H.R. 1855 – would create an exception to Section 280E which would allow legal cannabis businesses in compliance with state law to take normal business expense deductions like any other legal business. S. 987 has been co-sponsored by Sen. Jeff Merkley (D-OR) and Sen. Michael Bennet (D-CO). H.R. 1855 has been co-sponsored by Reps. Dana Rohrabacher (R-CA), Adam Smith (D-WA), Richard Hanna (R-NY), Jared Polis (D-CO), and Don Young (R-AK).
“Rep. Blumenauer, Sen. Wyden, and their co-sponsors are standing up for fairness and support for small business – something everyone should applaud,” says Smith. “We certainly do.”