It’s a basic principle of taxation that the code should not pick winners and losers or discriminate unfairly against certain classes of taxpayers. 

That principle is being violated today for a newly legalized industry–cannabis dispensaries.  Unlike any other business type in the country, these firms and these firms alone are not free to deduct “ordinary and necessary” business expenses like wages, equipment, and rent.

In an attempt to deny tax deductions connected to the illegal drug income of street dealers, Congress accidentally imposed a gross receipts tax on legal cannabis dispensaries a generation later.

At a press conference last week, ATR President Grover Norquist called for action to address this discrepancy. Norquist was joined by members of Congress including Rep. Earl Blumenauer (D-Ore.), Rep. Jared Polis (D-Colo.) and Rep. Denny Heck (D-Wash.)

This problem can be addressed by passing H.R. 1855 and S.987, the “Small Business Tax Equity Act of 2015,” sponsored by Congressman Blumenauer and Senator Ron Wyden (D-Ore.). ATR supports this legislation – it is good tax policy and should be cosponsored by all Members of Congress.

There is no reason why the tax code should deny business expenses to legitimate businesses established under state law. The result is an arbitrary and punitive situation where legal employers face very high average effective tax rates that Congress never sought to impose on businesses.