Dear Congress: 280E isnt a tax break for cannabis companies

(This is a contributed guest column.To be considered as an MJBizDaily guest columnist, please submit your request here.) Rachel Gillette (Photo courtesy of Holland & Hart)The No Deductions for Marijuana Businesses Act, proposed by U.S.

Sens.James Lankford and Pete Ricketts, would codify the application of Section 280E of the Internal Revenue Code against cannabis businesses operating in compliance with state laws – even if marijuana were to be reclassified as a Schedule 3 drug under the Controlled Substances Act.

A few weeks later, seven more congressional Republicans doubled down on this effort, introducing similar legislation seeking to permanently disallow any tax deduction or credit for businesses engaged in selling marijuana. ADVERTISEMENT In practice, 280E taxes cannabis companies at much higher rates than other sectors by disallowing “ordinary and necessary” business deductions allowed under the federal tax code, thereby reducing taxable income.

280E applies only to businesses trafficking in Schedule 1 or Schedule 2 controlled substances, so rescheduling marijuana to Schedule 3 would allow state-compliant cannabis businesses to be taxed the same as mainstream companies.Elimination of the 280E tax burden is by far the biggest impact a Schedule 3 classification would have on the cannabis industry.

Fair taxation not a tax ‘break,’ but 280E is a subsidy … In announcing their effort to maintain 280E, Lankford and Ricketts said that “the federal government should not be subsidizing an industry that profits from addiction and undermines public safety.“This bill ensures that marijuana businesses do not receive tax breaks while they continue to violate federal law,” they said.

Unfortunately, Lankford and Ricketts got two things wrong.First, 280E actually subsidizes the illicit market, not state-regulated cannabis markets.

Those operating illegally typically do not file or pay taxes on ...