280E Win-Win?

January 29, 2014 § 1 Comment

Update June 24, 2014:

Salient taxes are those that taxpayers notice.  Code section 280E’s denial of marketing and other deductions for marijuana businesses could hardly be less salient to consumers.

To retailers, though, it’s highly salient.  That explains the ongoing complaints (Discriminatory!) against 280E.  To be sure, it’s preposterous (and some in the industry agree) to think that Congress (who decides) would repeal 280E and not replace it.  But its replacement (an excise of some sort) would be more salient to consumers – bringing them to the side of industry.

Even considering support of consumers, repeal of 280E might still bring a replacement that brings the industry regrets.  But the industry has no reason to stop complaining about 280E.  The best defense is a good offense.  And 280E is discriminatory.  But we ain’t gonna treat marijuana like milk.

Proposed new Text of 26 U.S.C. § 280E, Expenditures in connection with the illegal sale of drugs:

No deduction or credit other than for cost of goods sold and current employee compensation shall be allowed for, and section 263A shall not apply to, any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law and the law of any State in which such trade or business is conducted.

(Added by Pub. L. 97-248, title III, Sec. 351(a), Sept. 3, 1982, 96 Stat. 640.)  That’s from http://codes.lp.findlaw.com/uscode/26/A/1/B/IX/280E/notes.

To get the conversation started, here’s a straw-person compromise:  allow deduction of salaries – we want to encourage jobs and people making a living.  Clarify CGS in the words of the statute for folks in the marijuana community who want to see it in writing.  Rather than irritate many worried mothers of America, keep advertising and marketing and display areas nondeductible, so disallow the unicap rules.  Beautiful retail space can’t be trained not to appeal to kids; employees can.  Draft language to capitalize legal and accounting fees, licenses, and so on.

I don’t have any idea if this draft is a revenue raiser or loser.

 

§ One Response to 280E Win-Win?

  • Bill Turnier says:

    I think that if, at least, the cost of goods sold was not allowed as a deduction, a good argument could be made that is was not an income tax.

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