280E and fees — Withdrawn and superseded

April 15, 2015: I take this back. A more useful post is here: https://newrevenue.org/2015/04/15/280e-and-fees-arkley/

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Drafters of state marijuana revenue proposals might try to help the industry by making sure state taxes are federally income-tax-deductible under Code section 280E. That could be tricky. Lots more here.

State fees, as opposed to taxes, have a big advantage for states: A state can collect fees for licenses and applications and so on up front — to finance the operation of putting a new system in place.  The state needs to spend money to make money, but up-front fees can limit the early drain on cash flow. Taxes have to wait until production has happened and sales are taking place – at least to go into cost of goods sold and be deductible under 280E

But I’m thinking that state and local fees are not deductible under 280E.  And that there is no way to rig them to be.

So the state faces a dilemma: (1) Charge significant fees, and finance the new regulatory scheme up front, and in effect put a surcharge (in the form of the federal 280E burden) on those fees, or (2) Charge small fees, and finance the set-up of the new system by other taxes or by borrowing.

Reminder: making state taxes deductible is not the work of a moment. URL is https://newrevenue.org/2014/12/04/wa-fix-for-280e-problem/.

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Author: patoglesby

From 1982 to 1990, I worked in tax policy for Committees of the United States Congress. In recent years, I was Adjunct Lecturer at UNC-Chapel Hill's Business School and then Adjunct Professor at its Law School.

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