Dude, Can Marijuana Beat The Tax Man?

Mar 13, 2013

Aren’t mar­i­juana grow­ers, deal­ers and dis­pen­saries just try­ing to pay their taxes and make a profit like every­body else? In the staid world of tax law, it can seem down­right strange to be wor­ried whether some­one has “traf­fick­ing” tax prob­lems. Such is the odd sym­bio­sis between con­flict­ing fed­eral and state laws. Fed­eral law still out­laws mar­i­juana even in states that legal­ize it. Rem­i­nis­cent of Al Capone, that makes taxes a big prob­lem. 18 states and the Dis­trict of Colum­bia allow med­ical mar­i­juana. Mass­a­chu­setts was most recent. See Med­ical mar­i­juana law passes in Mass­a­chu­setts. Col­orado and Wash­ing­ton legal­ized even recre­ational use. See Col­orado, Wash­ing­ton First States to Legal­ize Recre­ational Pot. But legal dis­pen­saries are still drug traf­fick­ers to the feds, so Sec­tion 280E of the tax code denies their tax deduc­tions. Intended to pre­vent tax deduc­tions by drug deal­ers, it cov­ers med­ical mar­i­juana too. The IRS says it must enforce Sec­tion 280E no mat­ter what state law says. Indeed, of all the fed­eral enforce­ment efforts, taxes hurt most. “The fed­eral tax sit­u­a­tion is the biggest threat to busi­nesses and could push the entire indus­try under­ground,” the lead­ing trade pub­li­ca­tion for the mar­i­juana indus­try reports. One answer is for dis­pen­saries to deduct other expenses dis­tinct from dis­pens­ing mar­i­juana. See Cal­i­for­ni­ans Help­ing to Alle­vi­ate Med­ical Prob­lems Inc. v. Com­mis­sioner. If a dis­pen­sary sells mar­i­juana and is in the sep­a­rate busi­ness of care-giving, the care-giving expenses are deductible. If only 10% of the premises are used to dis­pense mar­i­juana, most of the rent is deductible. Good record-keeping is essen­tial. See Med­ical Mar­i­juana Dis­pen­saries Per­sist Despite Tax Obsta­cles. Another idea is that Mar­i­juana sell­ers might oper­ate as non­profit social wel­fare orga­ni­za­tions. See Grow­ing the Busi­ness: How Legal Mar­i­juana Sell­ers Can Beat a Dra­con­ian Tax. That way Sec­tion 280E shouldn’t apply. A social wel­fare orga­ni­za­tion must pro­mote the com­mon good and gen­eral wel­fare of peo­ple in its neigh­bor­hood or com­mu­nity. Oper­at­ing busi­nesses in dis­tressed neigh­bor­hoods to pro­vide jobs and job-training for res­i­dents? That could fit a dis­pen­sary nicely. Mean­while, Con­gress­men Jared Polis (D-CO) and Earl Blu­me­nauer (D-OR) intro­duced a bill to end the fed­eral pro­hi­bi­tion on mar­i­juana and allow it to be taxed. This leg­is­la­tion would remove mar­i­juana from the Con­trolled Sub­stances Act. That way grow­ers, sell­ers and users could no longer fear vio­lat­ing fed­eral law. Their Mar­i­juana Tax Equity Act would also impose an excise tax on cannabis sales and an annual occu­pa­tional tax on work­ers deal­ing in the grow­ing field of legal mar­i­juana. Robert W. Wood prac­tices law with Wood LLP, in San Fran­cisco. The author of more than 30 books, includ­ing Tax­a­tion of Dam­age Awards & Set­tle­ment Pay­ments (4th Ed. 2009 with 2012 Sup­ple­ment, Tax Insti­tute), he can be reached at Wood@​WoodLLP.​com. This dis­cus­sion is not intended as legal advice, and can­not be relied upon for any pur­pose with­out the ser­vices of a qual­i­fied pro­fes­sional. Source: Forbes Mag­a­zine (US) Author: Robert W. Wood, Con­trib­u­tor Pub­lished: March 13, 2013 Copy­right: 2013 Forbes Inc. Con­tact: readers@​forbes.​com Web­site: http://​www​.forbes​.com/

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Dude, Can Mar­i­juana Beat The Tax Man?

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