Senator Cory Gardner (R-Colo.) has introduced an amendment to the Tax Cuts and Jobs Act that reforms Section 280E of the tax code so that it does not impose the equivalent of a gross receipts tax on legal cannabis businesses. ATR urges a YES vote on this amendment.
Sec. 280E of the tax code was created in 1982 to prevent criminals selling illegal drugs from avoiding a heavy tax liability by claiming expenses as if they were running legitimate businesses. While it was created to stop a clear loophole in the tax code, today it has resulted in unintended tax penalties that are hurting legal businesses across the country.
Today, 29 states plus the District of Columbia have legalized medical use of cannabis and Sec. 280E prevents them from taking deduction as if they were operating illegally. This means that businesses operating legally under state law cannot deduct routine business expenses from taxable income including:
-wages and salaries
-health insurance premiums
-equipment for the business including computers and furniture
-rent and other office expenses
-interest paid on business loans
Every other business is able to deduct these expenses from their taxable income, and there is no reason that a business operating legally under state laws should be denied these deductions.
Sen. Gardner’s amendment is good tax policy and support for the legislation should not be conflated with support or opposition to legalizing cannabis. Instead, this amendment is about ensuring the federal government does not use the tax code to discriminate against legal businesses.
ATR urges a YES vote.