Lead image via Philip Taylor
Colorado Republican Senator Cory Gardner has announced that he is co-sponsoring a new bill that would allow any state-legal canna-business to claim the same tax deductions and credits as other small businesses. The Small Business Tax Equity Act, introduced by Democratic Sen. Ron Wyden and Republican Sen. Rand Paul, would put an end to IRS Code 280E, a 1980s-era tax rule stating that “no deduction or credit shall be allowed” to any individual or business involved in “trafficking in controlled substances.”
“Our current tax code puts thousands of legal marijuana businesses throughout Colorado at a disadvantage by treating them differently than other businesses across the state,” said Gardner in a statement. “Coloradans made their voices heard in 2012 when they legalized marijuana and it’s time for the federal government to allow Colorado businesses to compete. This commonsense, bipartisan bill will allow small businesses in Colorado and other states that have legal marijuana businesses to grow their operations, create jobs, and boost the economy.”
In a recent op-ed written for The Cannabist, Florida Representative Matt Gaetz explains that while “vitamin companies and health businesses can deduct research and development costs from their taxes…canna-businesses cannot. Nor can they deduct wages paid to employees, the cost of office space, or any deduction available to nearly every other American business.” Gaetz adds that “small dispensaries effectively pay higher tax rates than Bill Gates or Walmart,” thanks to this outdated tax rule.
"Because of section 280E of the tax code, marijuana businesses operating legally under state law face a federal income tax rate of 80 percent,” said Grover Norquist, founder and president of Americans for Tax Reform. Earlier this year, Colorado dispensary The Green Solution LLC sued the IRS over being prevented from claim standard business tax deductions, arguing that the company would “suffer irreparable harm” from not being allowed to invoke them. The Tenth Circuit Court of Appeals sided with the IRS in this matter, but the dispensary intends to continue their legal challenge.
The Small Business Tax Equity Act would protect businesses like The Green Solution, allowing them to operate competitively without handing most of their profits over to the federal government. The Senate version of the bill, S. 777, has currently been referred to the Committee on Finance, and an identical House version of the bill, H.R. 1810, has been referred to the House Committee on Ways and Means.