Medical Marijuana Advocates Stand United For 280E Tax Code Reform by Chris Tucker
Our country’s founders established that excessive and punitive British taxes were abhorrent, yet still today these same excessive taxes are being applied to our country’s medical cannabis providers. Only this time it is called IRS Code Section 280E, and there is an ongoing battle to reform it. Taxes are the new stronghold when it comes to the federal war on medical marijuana and if reform is not brought about, the medical marijuana community will be more prevalent to such attacks from the IRS. If any change is to come from this, medical marijuana supporters need to stand up and try to bring this reform full circle. All businesses, including nonprofit dispensaries, pay taxes every year. IRS Code Section 280E, however, creates a disconnection between federal and state laws. Since President Ronald Reagan declared the “War on Drugs” and enacted Section 280E in 1982, 18 states and the District of Columbia have legalized or decriminalized medical marijuana (12 states are pending) but while 280E has remained intact, it has also come in direct conflict with a growing number of state laws. It was supposed to ban deductions related to “trafficking of controlled substances.” However, the IRS is now using 280E to stop medical cannabis businesses from making standard business deductions, which leaves them with a substantial tax bill they cannot afford. This is resulting in dispensaries being forced to shut down as a result of a growing number of IRS audits. SECTION 280E: “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.”
There are legitimate medical cannabis businesses that want and expect to pay their fair share of taxes. In addition to federal taxes, dispensaries also pay state and/or local taxes. Section 280E was never intended to be applied to legal businesses that file tax returns. It was originally passed in order to seize ill-gotten gains. The IRS has taken the position that medical cannabis providers are to be considered drugtrafficking organizations, and therefore fall under the purview of Section 280E. Accordingly, the IRS denies deductions for all expenses, including normally deductible items such as rent, payroll and health insurance for employees. Businesses and citizens alike are expected to file and pay taxes to the IRS each year. The difference is that businesses are allowed to reduce their taxable income by taking standard deductions, such as the rent they pay for their space, their payroll, utilities, insurance, and so on. If Section 280E is not changed, the IRS is on course to close more legal provider of medical cannabis in the United States. This means that patients would lose safe access to laboratorytested medicine and would be forced back to the criminal market. They would have to purchase medicine in unregulated and unsafe circumstances, and be exposed to robbery or possible injury. Tens of thousands of wellpaying jobs in the legitimate medical marijuana industry would be abolished, and hundreds of millions of dollars in state tax revenue would be eliminated. Instead of creating jobs and taxes for revenue, it would create a downfall effect of epic proportions in which the medical marijuana industry would have to divert back to black market operations. 280E is endangering the very life-blood of the medical marijuana industry. The IRS is currently auditing multiple medical marijuana organizations nationwide, with more and more coming every week. Most medical cannabis providers are unable to pay these “target taxes” and would be forced to close their doors if these regulations are imposed upon them. Massive closures of legal providers in medical marijuana states could leave patients with no alternative other than the illegal marketplace. Add in to the factor that legitimate businesses will be forced to shut down for no reason and we are left to wonder – does 280E benefit anyone but the IRS?
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