The newly-released federal policy on recreational marijuana has been as a go-ahead by many marijuana-related businesses who feel that
But according to Forbes writer Robert Wood, the new DOJ policies won’t do anything to change how the IRS views marijuana businesses as completely illegal enterprises, nor will it help protect marijuana business owners from violating federal tax laws.
As the article points out, money has become quite a problem for legal medical marijuana dispensaries. Not only do most banks refuse to work with such businesses, the IRS sees them as criminal enterprises. Because of that, these state-legal operations can’t take a single deduction from their federal taxes and are forced to pay about double what any other business would pay in taxes.
And the latest memo from the DOJ isn’t going to change that. IN fact, the only thing that can change it is Congress. See, it was Congress who approved Section 280E of the U.S. Tax Code which denies tax deductions for marijuana-related businesses:
“No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”
The IRS claims their hands are tied because of that language and they have no choice but to enforce the laws. As Forbes points out, several dispensaries have been using clever work arounds to avoid paying the excessive taxes including deducting for parts of their businesses that don’t involve marijuana directly. For example, if only 10 percent of the premises are used to cultivate and sell marijuana, then the other 90 percent of the shop’s rent would be deductible.’ Others have organized themselves as collectives or cooperatives, avoiding the tax laws altogether.
The issue has become so complicated that even Harvard University is offering classes on tax planning for marijuana businesses.
Currently there is a potential fix floating around the halls of Congress in the form of the Marijuana Tax Equity Act sponsored by Colorado Democrat Jared Polis and Oregon Democrat Earl Blumenauer. Under their proposal, marijuana-related businesses would remove cannabis from the controlled substances act as well as establish tax rules (including a federal excise tax) on cannabis.