U.S. Representative Earl Blumenauer (D-OR) and Senator Ron Wyden (D-OR) have introduced the Small Business Tax Equity Act of 2015 in both the House and the Senate. The bills, which have bipartisan co-sponsors and have been endorsed by the National Cannabis Industry Association (NCIA), Americans for Tax Reform, and other advocacy groups, would end the punishing and unfair taxation levels legal cannabis businesses face because of Section 280E of the federal tax code.
“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 NCIA. “So it’s particularly outrageous that when they try to do the right thing by paying their federal taxes, they end up penalized with double and triple tax rates.”
The 280E provision was added to the tax code in the 1980s after a convicted cocaine trafficker asserted his right to deduct business expenses from his federal tax filings. The provision was never intended to penalize cannabis businesses operating legally and in compliance state law. However, because it applies to the sale of Schedule I and Schedule II substances under the Controlled Substances Act, cannabis cultivators and dispensaries are prohibited from deducting the common expenses every other legitimate business can deduct, including rent, payroll, and state excise taxes. The result is effective tax rates that can range from 50 to 85%, absolutely crippling for a small business.
NCIA released a white paper today providing real-world examples of how 280E harms small businesses across the country.
“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,” said Smith.
The Small Business Tax Equity Act - S. 987 and H.R. 1855 - would create an exception to Section 280E which would allow legal cannabis businesses in compliance with state law to take normal business expense deductions like any other legal business. S. 987 has been co-sponsored by Sen. Jeff Merkley (D-OR) and Sen. Michael Bennet (D-CO). H.R. 1855 has been co-sponsored by Reps. Dana Rohrabacher (R-CA), Adam Smith (D-WA), Richard Hanna (R-NY), Jared Polis (D-CO), and Don Young (R-AK).
“Rep. Blumenauer, Sen. Wyden, and their co-sponsors are standing up for fairness and support for small business – something everyone should applaud,” said Smith. “We certainly do.”
On April 28-30, dozens of cannabis industry professionals will travel to Washington, D.C., for NCIA’s annual Member Lobby Days. During an all-day symposium on April 28, cannabis policy experts will discuss the state of federal marijuana policy and train attendees on effective lobbying. The symposium will also feature a fireside chat with Rep. Blumenauer and Americans for Tax Reform President Grover Norquist, who will both discuss their support for 280E reform.
On April 29 and 30, in meetings with members of Congress and their staffs, cannabis business owners will share how federal policies like 280E and a lack of access to banking hurt their ability to build a responsible, legitimate industry and contribute to their local economies.