Issues With The $50 Alaska Marijuana Excise Tax And What Can Be Done
The Alaska Cannabis Growers’ Association (ACGA) opposes current legislative proposals in the Alaska State House and Senate to impose a marijuana excise tax of $50/oz on transfers of marijuana from producers or brokers to marijuana processors or retailers. Instead, the ACGA believes that the state legislature should support measures that will help bring about the normalization of the marijuana industry and incentivize compliance with the new regulatory efforts. The legislature should not support measures that, contrary to the clear dictate of Alaska voters, encourage industry participants to remain unlicensed, in back alleys and parking lots like modern day moonshiners.
The marijuana excise tax has this affect because of an antiquated federal tax law under Internal Revenue Code Section 280E. Under that rule, taxpayers in a state licensed marijuana trafficking enterprise may not deduct their ordinary and necessary business expenses for federal income tax purposes. Because of this rule, there is a second hidden layer of incremental federal income tax of $15/oz (assuming a 30% marginal tax rate) on producers and brokers subject to the excise tax.
Sophisticated tax planning techniques do enable well advised growers and brokers to capitalize the excise taxes paid to their cost of goods and thereby make them deductible. The ACGA doesn’t believe the state legislature should be passing rules that will make it hard for a small producer or broker to survive because they haven’t employed high priced lawyers and accountants. The ACGA could support a marijuana sales tax as an acceptable mechanism to generate revenue needed to regulate the new industry. The ACGA also helps members access tax planning services at reduced rates.