A new effort to fix a federal tax issue that has created problems for marijuana businesses in Washington and elsewhere is being led by two Oregon Congressional delegates.

Representative Earl Blumenauer (D-OR) and Senator Ron Wyden (D-OR) plan to introduce legislation next week that would let marijuana businesses deduct normal business expenses when they pay federal taxes. Right now, the 280E code doesn’t let legal marijuana businesses deduct the same expenses that non-marijuana companies can.

(Blumenauer , by AP Photo/Statesman Journal, Danielle Peterson)

The code also makes marijuana businesses pay taxes on the excise tax they already pay to the state.

Many local businesses say the code has forced them to raise prices, which makes it difficult for them to compete with the black market.

That issue is coupled with another problem in which marijuana excise taxes in Washington are far higher than other states. Those taxes may be reduced in the state Legislature this session if a pair of bills (2SB5052 and SHB 2036) pass.

If everything works out on both fronts, we could see marijuana prices drop considerably later this year.

I’m attaching the press release and other information below. Check it out!

Cheers,
-SueVo (sue.vorenberg@columbian.com)

Representative Blumenauer and Senator Wyden Announce Commonsense Tax Reform for Legal Marijuana Businesses

PORTLAND, Ore. – Today, Representative Earl Blumenauer (D-OR-03) and Senator Ron Wyden (D-OR) announced plans to introduce bicameral legislation next week that would reconcile state marijuana laws and federal tax law. The Small Business Tax Equity Act, which was introduced last Congress by Congressman Blumenauer, would create an exception to Internal Revenue Code Section 280E to allow marijuana businesses operating in compliance with state law to take deductions associated with the sale of marijuana like any other legal business.

“More than two-thirds of Americans now live in jurisdictions that have legalized either the medical or adult use of marijuana. It’s time for the federal government to catch up,” said Congressman Blumenauer. “Section 280E creates an unequal and unrealistic tax burden on these businesses. I’m excited to work with Senator Wyden in introducing the Small Business Tax Equity Act, which would bring much needed fairness and level the playing field for small businesses that follow state laws and create jobs.”

“Our legislation would provide an overdue update to federal tax law, which has not caught up to the fact that it’s 2015 and Oregonians have voted both to legalize medical marijuana and to regulate marijuana for recreational use,” Senator Wyden said. “This is a question of standing up for the people of Oregon, and ensuring that the federal government respects the decision Oregonians have made at the ballot box.”

Twenty-three states, the District of Columbia and Guam have passed laws allowing for the legal use of medical marijuana. An additional 12 states have passed laws allowing the use of low-THC forms of marijuana to treat certain medical conditions. In many of these jurisdictions, patients can access medicine safely through state-regulated dispensaries.

The federal tax code, however, prohibits anyone selling Schedule I or Schedule II substances from deducting business expenses associated with the sale of marijuana from their taxes. Marijuana is a Schedule I substance. Therefore, even businesses operating in compliance with state law are not allowed to deduct the common expenses of running a small business, such as rent, most utilities and payroll. They cannot claim the Work Opportunity Tax Credit if they hire a veteran, and they are limited in lawful deductions relating to construction or operation costs if they want to remodel a building for their retail operations.

In certain circumstances, legal marijuana businesses can pay federal income tax rates at nearly 90 percent, while the U.S. Small Business Administration estimates that many small businesses pay an effective rate of around 20 percent.

“Congress never intended to impose a gross receipts tax – and that’s pretty much what we have here – on legal business owners decades in the future,” said Grover Norquist, President of Americans for Tax Reform. “The intent of the law was to go after criminals, not law abiding job creators. Congress needs to step up and clarify that this provision has become a case study in unintended consequences.”

“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. “So it’s particularly outrageous that when they to do the right thing by paying their federal taxes, they end up penalized with double and triple tax rates. 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. Rep. Blumenauer and Sen. Wyden are standing up for fairness and support for small business – something everyone should applaud. We certainly do.”

More on the Small Business Tax Equity Act:

The Small Business Tax Equity Act of2015

Congressman Earl Blumenauer ■ Third District of Oregon ■ www.blumenauer.house.gov
Senator Ron Wyden ■ Oregon ■ www.wyden.senate.gov

Background: Currently, the federal tax code prohibits anyone who sells Schedule I or Schedule II substances from deducting their business expenses from their taxes. Congress added this prohibition in 1982 after a drug dealer claimed his yacht and weapon purchases as legitimate business expenses.

Marijuana is a Schedule I substance, and therefore, even businesses operating in compliance with state law are not allowed to deduct the common expenses of running a small business, such as rent, most utilities and payroll. They cannot claim the Work Opportunity Tax Credit if they hire a veteran, and they are limited in lawful deductions relating to construction or operation costs if they want to remodel a building for their retail operations.

Legalization of Medical Marijuana

• Twenty-three states, the District of Columbia and Guam have passed laws allowing for the legal use of medical marijuana. An additional 12 states have passed laws allowing the use of low-THC forms of marijuana to treat certain medical conditions.
• There are over one million legal medical marijuana patients across the country, and in many states, medical marijuana is sold through dispensaries. These dispensaries provide safe, legal facilities for patients who have a recommendation from a physician.

Legalization of Adult Use of Marijuana

• In Colorado, Washington, Oregon, Alaska and the District of Columbia, voters passed measures
allowing for the legal adult use of marijuana.
• Businesses in Colorado and Washington – from the production to retail side of the industry – are already up and running in compliance with state law.

Fairness to these Legal Businesses

• Because marijuana businesses are not allowed to deduct their expenses, this means that in certain circumstances, legal marijuana businesses can pay federal income tax rates at nearly 90 percent, while the U.S. Small Business Administration estimates that many small businesses pay an effective rate of around 20 percent.
• All businesses should pay their fair share of taxes, but not being able to deduct expenses creates a disproportionate burden that can put small marijuana dispensaries out of business and will keep many good actors from entering the industry in the first place, forcing the industry underground.
• Barring the marijuana industry from operating like a normal industry just incentivizes criminal activity and tax evasion.

What the Bill Does:
The Small Business Tax Equity Act of 2015 creates an exception to Internal Revenue Code section 280E to allow businesses operating in compliance with state law to take deductions associated with the sale of marijuana like any other legal business.

This Legislation is Supported By:
Americans for Tax Reform, the National Cannabis Industry Association, Drug Policy Alliance,
Marijuana Policy Project, Americans for Safe Access, NORML