NYT and 280E — Update 3:37 EDT 9 August 2015

Corrected and updated here or at https://newrevenue.org/2015/08/10/revenue-loss-from-280e/.

The New York Times calls for broad federal cannabis reform, including rescheduling and access to banking. But it doesn’t mention another key demand of reformers – getting Congress to repeal the extraordinary federal tax on cannabis. That’s 280E, which denies deductions to cannabis businesses other than for cost of goods sold.

There are at least three reasons for reformers to put 280E at the bottom of their wish lists.

— As a practical matter, cutting taxes is hard in a time of deficits. Repeal would be a revenue loser, and would have to be paid for. The obvious way to pay for it is a federal marijuana tax. A federal excise tax would apply to even the weakest operations, which aren’t profitable even after 280E hits more successful businesses (Or you could try to steamroll repeal through, saying “Deficits don’t matter.”)

— The most sympathetic case for 280E repeal just went away. The IRS just ruled that 280E basically does not apply to state excise taxes. Washington State jumped through hoops to revise its excise taxes to avoid the 280E problem, only to find there was never a problem at all. It would have been crazy for some state excise taxes to create a 280E penalty, while substantially similar taxes did not.

— 280E acts as a drag on marketing and advertising expenses, which are a frill for legalizers, but anathema to parents.

The cannabis community likes to say 280E is unfair. Indeed, it singles out cannabis among state-legal crops. But repealing it and not replacing it requires federal tax laws to adopt the tomato model for cannabis, which seems politically unlikely in the long run.  That is, total federal legalization without federal taxation seems unlikely.  In time, 280E is likely to be reformed and supplemented, or even repealed and replaced. But the Times editorial, which does not list 280E among unwise laws, gives a hint that that kind of action won’t happen in the near term.

UPDATE: Dale Gieringer of California NORML points out:  “their proposal would in fact eliminate the 280E problem, since they want to deschedule cannabis entirely.”

That’s a great point.  But Times writers don’t make the tax argument explicitly, as so many commentators do.  They don’t list overtaxation as a problem they would solve.  That’s a far cry from the typical industry brief.

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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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