Feds Slap 70% Tax on Legal Marijuana Businesses
Legal marijuana sales in Colorado and Washington State have grossed billions, but legal dealers will see little of that thanks to a draconian federal law meant to punish street pushers.
In one of the first years of legal sales, 2015, Colorado moved nearly $1 billion worth of marijuana and is estimated to take in $135 million in taxes on it. Meanwhile, Washington is expected to pull in around $1 billion in revenue from sales taxes between 2015 and 2019. Despite technically being illegal on the federal level, these businesses must file taxes to the Internal Revenue Service—and they may pay as much as 70 percent in taxes to the feds.
That’s thanks to Section 280E of the tax code. Congress passed the measure in 1982 so that businesses who are “trafficking in controlled substances” that are prohibited by federal law may not utilize many tax deductions and credits available to other businesses, like deducting rent and employee-related expenses. That means a marijuana business owner can pay an effective tax rate as high as 70 percent, as opposed to the more typical 30 percent rate.
It came about when a Minneapolis drug dealer named Jeffrey Edmondson tried to argue in court that he should be allowed to write off expenses related to his business. That greedy bastard.
“280E was more a political statement than a model of tax policy,” Pat Oglesby, a North Carolina lawyer who has worked on tax policy for Congress, told The Daily Beast. He said the war on drugs was “raging” and no one bothered to question any laws that made them look tough on drugs.
“The 280E provision was so politically bulletproof that no committee bothered to even hold hearings,” Oglesby said. Drug laws were accepted as quickly as one might accept free drugs.
Despite the fact that marijuana is still a Schedule I controlled substance (illegal), the IRS doesn’t have the capacity to check if every business it deals with is legal on a federal level.
“It’s hard enough to collect taxes, much less make other determinations,” Oglesby said. He also noted that marijuana businesses would be at risk of tax-evasion charges if they didn’t pay proper federal taxes.
Marijuana businesses have to register and incorporate in states and that puts them on the IRS radar. Just because the business is illegal according to federal law doesn’t mean the IRS doesn’t expect them to pay federal taxes, since the states are allowing them to operate and demanding their own cut.
Sky-high federal taxes on top of state taxes can make it almost impossible to operate a legal business.
“When I sat down to read the tax code I was not shocked that such a short paragraph could really be the cause for all the alarm,” Tim Cullen, CEO of the Denver-based marijuana grower and retailer Colorado Harvest Co., told The Daily Beast.
The effect of the tax code has been “nothing short of discrimination,” he added.
“The IRS has placed itself in a position of being both judge and jury,” Cullen said. “They have ruled on the morality of medical marijuana by applying a different set of rules to our business simply because they don’t like it.”
Ian Eisenberg, owners of the Uncle Ike’s cannabis store in Seattle, said he has seen many people getting into the marijuana industry try to create a business model that is far too expensive before realizing they have to scale down.
“Everything from how the stores laid out to merchandising to inventory management, [the tax code] dictates how the business operates,” Eisenberg said. He said he’d love to open a boutique marijuana store with a large floor space and stations for concentrate, edibles, specific growers and more, but the tax burden makes the unreasonable
“Instead it’s more like a 7-Eleven, because it’s all about efficiency,” Eisenberg said. People dream of opening a marijuana palace and they get a marijuana warehouse.
Paul Armentano, the deputy director of the marijuana advocacy organization NORML, told The Daily Beast that national legalization or decriminalization of marijuana likely won’t happen immediately, so the tax code should at least be fixed to let businesses make deductions.
Sen. Ron Wyden (D-OR) and Sen. Rand Paul (R-KY) introduced The Small Business Tax Equity Act last year that would let marijuana businesses that are compliant with state law make standard business deductions. The bill has been stuck in committee since then though.
A representative from the IRS told The Daily Beast that 280E was introduced by Congress, so it is not a policy from the agency.
Armentano also wants to see businesses be allowed to deal with banks, since marijuana companies are being forced to deal in cash because federally insured banks won’t open accounts with them (after all, it’s “drug money”). Legislation has also been introduced to change that.
Eisenberg said as a marijuana business owner who follows the industry closely, he’d love to see the tax code changed, but he doesn’t see it happening. You can’t blame him for not believing in the power of congressional expediency. He said he worries about legalizing marijuana federally, because then large out-of-state businesses could come in and create major competition. As the taxes and laws stand, business owners have to be quiet and take a beating.
If the government fails to cut businesses a break, legal marijuana could be sold on the black market to dodge taxes—just like cigarettes bought down South and sold in high-tax New York. We’re moving toward more-common sense drug regulations after the height of the war on drugs, but there is still a lot of madness left to clean up.
#1: buckeroo To: Gatlin (#0)
buckeroo posted on 2016-05-24 20:45:35 Reply Private Reply
#2: GrandIsland To: Gatlin (#0)
Get the scumbags hooked... and then tax them to death.
lol
GrandIsland posted on 2016-05-24 20:49:00 Reply Private Reply
#3: buckeroo To: GrandIsland (#2)
We should tax private owners with an "arsenal" of 50,000+ primers held in their mother's basement at the highest tax rate possible on a per primer basis. About USD$100.00/annum per primer to get our hard tax payer dollars back from over paid, illerate, retired elementary school crosswalk guards.
It won't solve the federal debt lickity-split but BY GOD it would make my day!
buckeroo posted on 2016-05-24 21:10:05 Reply Private Reply
#4: calcon To: Gatlin (#0)
Only the aholes sucking down beer and wine have to pay local taxes.
GET OFF THE BOTTLE AND TRY SOME WEED, it's way better for you.
calcon posted on 2016-05-24 21:11:35 Reply Private Reply
#5: Fred Mertz To: calcon (#4)
What about us aluminum can guys? We get a rebate at the recycle center.
Fred Mertz posted on 2016-05-24 21:13:54 Reply Private Reply
#6: GrandIsland To: buckeroo (#3)
Grow a set, You be the first to collect that tax at my door.
GrandIsland posted on 2016-05-24 21:18:19 Reply Private Reply
#7: buckeroo To: GrandIsland (#6)
Just to piss you off, we will have 0bama leading the charge with his tax collectors right behind him at your door.
buckeroo posted on 2016-05-24 21:34:20 Reply Private Reply
#8: Roscoe To: GrandIsland (#2)
Roscoe posted on 2016-05-25 00:48:39 Reply Private Reply
#9: Gatlin To: buckeroo, GrandIsland (#3)
You can have a great day every day if you would only stop obsessing about things.
With that in mind, there is one specific action that you can do to really squeeze the most juice out of your life. You need to read something that inspires you.
Rather than distract yourself with everything you see as bad news that only adds to your stress, fill your quieter moments with a book that is uplifting and will help you aspire to be your best.
Read this: Crippled America: How to Make America Great Again by Donald Trump.
Gatlin posted on 2016-05-25 02:03:48 Reply Private Reply
#10: Pinguinite To: GrandIsland (#2)
You mean like with ordinary cigarettes?
Pinguinite posted on 2016-05-25 03:34:18 Reply Private Reply
#11: GrandIsland To: buckeroo (#7)
Don't be a pussy and hide behind the urban two legged zoo animal.
GrandIsland posted on 2016-05-25 06:54:55 Reply Private Reply
#12: GrandIsland To: Pinguinite (#10)
Every box of lung darts has a clear a simple warning printed on the box. Even a brain dead, constantly high millennial Xbox playing future career criminal Deckard loving shitbag knows the dangers of WILLINGLY sucking smoke into your lungs. Play stupid games... win cancer prizes.
Sucking ANY KIND OF carcinogen, weed or Marlboro, is a stupid game... and you drug lovers deserve to win cancer prizes.
GrandIsland posted on 2016-05-25 07:04:19 Reply Private Reply
#13: Pinguinite To: GrandIsland (#12)
Well, excuse me, GI, but if I remember right, you used to smoke these "lung darts". I never have, so between the two of us, YOU are the drug lover, not me.
I know your vast experience as a police officer has given you a fail-safe sense of who's guilty of what without need of the formality of a trial, but in this case, your fail-safe sense is wrong.
Pinguinite posted on 2016-05-25 14:40:23 Reply Private Reply
#14: GrandIsland To: Pinguinite (#13)
What's your point? Yes I use to smoke. I quit August 9th, 2008. It changes nothing about the point I was making. IF I developed cancer when I smoked or IF I get cancer because I smoked... I DESERVE MY STUPID PRIZES for playing stupid games.
GrandIsland posted on 2016-05-25 22:31:12 Reply Private Reply
#15: Pinguinite To: GrandIsland (#14)
For someone who used to be addicted, you sure have a lot of disdain for others who are addicted.
I do congratulate you on being smoke free for so long, and I mean that sincerely. But I never started smoking. I only occasionally have alcohol (a glass of wine or maybe two) and I don't like beer. I don't smoke marijuana and certainly don't do any hard drugs. I don't even like taking prescription drugs, as they are synthetic and too often have bad side effects. I strive to live a healthy life, and I feel being free from prescription drugs has been a plus for me.
So don't call me a "drug lover". I do not favor prosecution of people over cannabis, which is a naturally occurring plant, far more natural than Monsanto's GMO's that people are expected to eat, but just because I favor decriminalization of cannabis does not mean I think everyone should smoke it.
Like you, I favor personal responsibility. If someone is stupid enough to do drugs of whatever sort that harms their body, they should be responsible for that decision. We agree on that. It is in fact a libertarian principle.
If you can one day finally take off those colored glasses permanently affixed to your head that make you think you understand people you've never met -- those same glasses you earned in law enforcement -- your character will improve.
Best....
Pinguinite posted on 2016-05-26 14:24:10 Reply Private Reply
#16: GrandIsland To: Pinguinite (#15)
Is that your libtarded Nobel peace prize retort? Because I was addicted to nicotine in the past, I can't shun those that still are?
Look, I started that addiction by my own hand. I quit it by my own hand. I did so because it was playing a stupid game... and I did not want to win stupid prizes. I, more than most others, have a right to shun addicts. To wit; I did live in servitude too tobacco. I suffered on my own to QUIT. Any person can do what I did... and if they don't, THEN THEY DESERVE THEIR DEMISE. That goes for drug, gambling... any addiction.
GrandIsland posted on 2016-05-26 17:40:38 Reply Private Reply
#17: GrandIsland To: Pinguinite (#15)
If you defend or make excuses for dugs users, addicts or have jumped on the libtarded political platform of legal drugs for all... then you are a drug lover.
GrandIsland posted on 2016-05-26 17:43:54 Reply Private Reply
#18: Pinguinite To: GrandIsland (#16)
Of course you can. I'm not saying you can't be a hypocrite. If that's what floats your boat, have at it.
Same goes for hurling abuses at someone who showed you a little respect. Go for it, if that's the best you can do.
Pinguinite posted on 2016-05-26 17:49:38 Reply Private Reply
#19: GrandIsland To: Pinguinite (#18)
Negative. What would make me a "hypocrite" is if I smoke cigs and I shun you for smoking cigs. When I QUIT smoking because I decided to be responsible about the choices I make... and others continue to play stupid games is the very reason why i'm qualified to call you retarded and hope you win stupid prizes.
As far as abuses, I hurl nothing at you in that way. Maybe if you were an asshole Bucky or a douche bag Pukard... then yes. I have no desire to "abuse" you. I just have an overwhelming desire to either SET YOU STRAIGHT OR REQUEST THAT YOU FUND THE THINGS THAT MAKE YOU FEEL BETTER... don't expect me to.
GrandIsland posted on 2016-05-26 20:57:38 Reply Private Reply
#20: Hank Rearden To: Gatlin (#0)
Screw the feds; they just want to steal your money and piss it away. Keep your money.
Hank Rearden posted on 2016-06-01 14:08:36 Reply Private Reply