While thinking about loosening 280E to allow tax deductions for everything but advertising, you need to define advertising. This is in connection with an article on 280E as applied in California, here or http://marijuanalegalization.about.com/od/RelatedIssues/fl/Down-the-Rabbit-Hole-of-Cannabis-Taxation-and-Advertising.htm, where this post appears as a hot link.
Defining advertising, for tax purposes, has been done. There have been lots of proposals to disallow deductions for advertising by requiring amortization of amounts paid to advertise. A recent one came from Republican Ways and Means Chair Dave Camp, and another came from Democratic Senate Finance Chair Max Baucus. To make that reform happen, you need to define advertising. (This is a Tax Reform staple.
The theory is that advertising has a useful life of more than one year. I still remember jingles from my youth, in the 1950s.)
Here is the definition from Mr. Camp’s discussion draft, which could serve as a starting point:
- (2) SPECIFIED ADVERTISING EXPENSES.—The
- 14 term ‘specified advertising expenses’ means any
- 15 amount paid or incurred for the development, pro-
- 16 duction, or placement (including any form of trans-
- 17 mission, broadcast, publication, display, or distribu-
- 18 tion) of any communication to the general public (or
- 19 portions thereof) which is intended to promote the
- 20 taxpayer or a trade or business of the taxpayer (or
- 21 any service, facility, or product provided pursuant to
- 22 such trade or business).
- 23 ‘‘(3) EXCEPTIONS.—The term ‘specified adver-
- 24 tising expenses’ shall not include—
‘‘(A) CERTAIN WAGES.—Wages paid or in-
curred to any employee unless the services rendered by such employee are primarily related to—
‘‘(i) an activity described in paragraph (2) (other than the direct sale of goods or services to customers of the taxpayer), or
‘‘(ii) the direct supervision of employees rendering services primarily related to such an activity.
‘‘(B) DEPRECIATION OF TANGIBLE PROP-
ERTY.—In the case of any tangible property, any amount for which a deduction is allowed for depreciation under section 167.
‘‘(C) AMORTIZABLE SECTION 197 INTANGI- BLES.—Any amount for which a deduction is allowed for amortization under section 197.
‘‘(D) DISCOUNTS, ETC.—Any discount, coupon, rebate, slotting allowance, sample, prize, loyalty reward point, or any item deter- mined by the Secretary to be similar to any of the foregoing (other than any amount paid or incurred to promote any of the foregoing).
‘‘(E) CERTAIN COMMUNICATIONS ON TAX- PAYER’S PROPERTY.—Any amount paid or incurred with respect to any communication ap-
pearing on tangible property of the taxpayer which—
‘‘(i) is of a character subject to the allowance for depreciation, or
‘‘(ii) is properly treated as inventory for purposes of section 471.
‘‘(F) CREATION OF LOGOS, TRADE NAMES,
ETC.—Any amount paid or incurred for the cre- ation of any logo, trademark, or trade name.
‘‘(G) PACKAGE DESIGN.—Any amount to which section 263A(i) applies.
‘‘(H) MARKETING RESEARCH.—Any amount paid or incurred for marketing re- search.
‘‘(I) BUSINESS MEALS.—Any amount paid or incurred for meals.
‘‘(J) QUALIFIED SPONSORSHIP PAY- MENTS.—Any amount paid or incurred as a qualified sponsorship payment (as defined in section 513(i)(2)) with respect to an organiza- tion subject to the tax imposed by section 511.
To focus more, I asked Rachel Barry, a member of the Regulatory and Tax Structure Working Group of California’s Blue Ribbon Commission on Marijuana Legalization, what a definition of advertising should look like. Rachel has studied tobacco advertising in detail. Here are excerpts from an email chain, which she gave me permission to quote:
Where could I learn about ways the tobacco companies get around rules against “advertising,” as defined legally, with Point of Sale displays and the like. They can’t sponsor sporting events, right? There must be other ways they try to beat the rules.
Hi Pat. That is correct after the MSA settlement agreement, tobacco companies were no longer allowed to sponsor sporting events. The information can be found here: http://oag.ca.gov/tobacco/resources/msasumm
. . .
Tobacco companies have been prohibited from marketing their products via radio and television since 1971 after President Nixon signed into law the Public Health Cigarette Smoking Act pushed by the FCC. An externality of this act as that the tobacco companies no longer had to pay for public health advertisements against cigarettes under the Fairness Doctrine. Twenty-seven years later, the MSA was settled which was a compromise between the tobacco lawyers and states attorneys general. If you look at the Global Settlement Agreement paper published by Michael Givel found here: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1448231/http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1448231/
This is a great overview of the MSA.
The MSA did not however prohibit tobacco companies from advertising and marketing in retail stores, in print magazines etc as you point out. The tobacco companies are really good at inventing new ways of marketing and advertising their products. There is a literature on how tobacco companies work with retailers to advertise their products at the point of sale. I can get that to you later on . . .
The federal gov’t restricts marketing under the Family Prevention and Tobacco Control Act of 2009, which is limited, information found here: http://www.fda.gov/tobaccoproducts/guidancecomplianceregulatoryinformation/ucm246129.htm. However, it does not preempt local and state governments from enacting stronger restrictions. Therefore, if the state government does not preempt the retail sales environment, then local gov’ts have the authority to further restrict marketing and advertising of cigarettes. Just recently, Chicago passed law that prohibits sales of flavored tobacco products, including menthol and e-cigarette flavors, within 500 feet of schools, to prevent youth initiation. This is an illustration of what local gov’ts can do if not preempted by state law. In California, local gov’ts have been prohibiting coupons, samples, advertising, marketing, flavors, minimum price, minimum amount sold (ie can’t sell loose cigarettes) through their licensing laws. See ChangeLab solutions model policy here for more information: http://changelabsolutions.org/publications/model-TRL-Ordinance
I gave you the public health side so let me get back to you later today on the tobacco companies’ response to getting around these rules.
The US Federal gov’t does not have a definition for advertising for tobacco products and I don’t think any state or locality does either. However, the WHO has a definition which is found here: http://www.who.int/tobacco/publications/building_capacity/training_package/tp3_tobacco_advertising.pdf
“Tobacco advertising and promotion: any form of commercial communication, recommendation, or action with the aim, effect or likely effect of promoting a tobacco product or tobacco use either directly or indirectly.”
Your larger question as to how the tobacco companies get around marketing restrictions, well let’s say that the State Attorneys General suit was a compromise and the Master Settlement Agreement did not go as far as the AGs wanted to go. Therefore, restrictions on advertising and marketing are not strong and only encompass sponsorship, billboards etc. I believe the Colorado law on advertising is modeled on the restrictions outlined in the MSA. So we could go further with marijuana and accomplish what we couldn’t get with tobacco at the time.
The tobacco companies like I said are really good at figuring out new ways to promote their products. For instance, the tobacco companies have close relationships with retailers and use them to ensure that their products are advertised in stores in prime locations (near the front, 3 feet from the ground at child’s height, near candy): http://tobaccocontrol.bmj.com/content/12/2/184.full.pdf
Additionally, the tobacco companies have increasingly focused their marketing and advertising expenditures at the retail sales environment: http://tobaccocontrol.bmj.com/content/10/2/184.full.pdf
In that paper, the tobacco companies transferred their spending on marketing to the point of sale (called POP in this paper) from 28% of spending in 1985 to 47% of spending in 1999, following the MSA, whereas outdoor or print advertising accounted for only 11% of the budget in 1997. I want to point out that advertising in stores in theory is a violation of the MSA given that the tobacco companies are not supposed to advertise or target children. Restrictions of all advertising in stores that were non-adult-only would be a perfect world.
So what have state and local governments done to reduce the impact of tobacco advertising on youth and young adults? In 2009, the Tobacco Control Act granted authority for state and local governments to further restrict the retail sales environment and local governments have used this power to prohibit self-service displays, restrict the time, place, and manner of tobacco advertisements, restrict the content, messages or imagery within some tobacco advertisements, and restrict all advertisements. Here is a good summary from the Tobacco Control Legal Consortium: http://publichealthlawcenter.org/sites/default/files/resources/tclc-guide-restricttobadvert-2011.pdf
One point to remember is that some state laws preempt local gov’ts from passing stronger retail licensing laws dating back to the 1990s when the tobacco companies used youth access restrictions as a strategy to preempt local authority. Fortunately in California we do not preempt local tobacco retail licensing laws and in fact several gov’ts have very strong laws found here: http://center4tobaccopolicy.org/wp-content/uploads/2013/09/Matrix-of-Strong-Local-Tobacco-Retailer-Licensing-Ordinances-September-2013.pdf
In NYC, Mayor Bloomberg tried to pass a series of tobacco point of sale restrictions but was blocked by the tobacco companies, only being able to pass a law restricting sales to persons 21 years of age or over. Here is what the proposed law looked like before Bloomberg pulled it in 2013: http://countertobacco.org/tobacco-product-display-restriction http://countertobacco.org/tobacco-product-display-restriction
Please let me know what else I can research if this does not answer your question completely. We are going to run into first amendment rights issues with advertising but I wonder does it really apply given marijuana is a legal product at the federal level? For tobacco, governments have been sued by the tobacco companies for marketing and advertising restrictions: http://www.tobaccofreekids.org/research/factsheets/pdf/0280.pdf
This has also taken place in Uruguay who now prohibits all tobacco advertising and has plain packaging for both tobacco and marijuana: http://www.independent.co.uk/news/business/analysis-and-features/big-tobacco-puts-countries-on-trial-as-concerns-over-ttip-deals-mount-9807478.html
Same thing is taking place in Australia who also has plain packaging (better term is discouraging advertising) http://www.ft.com/cms/s/0/82886136-a243-11e4-bbb8-00144feab7de.html
The plain packaging is a different issue than you originally raised but it is a form of advertising in itself.