Ben Leff, the tax professor who wanted nonprofit marijuana businesses to be exempt from federal income tax, just concludes that state and municipal stores seem to solve the problem. Not just the 280E problem — they pay no tax at all.
“The Case for Government-Owned Marijuana Stores”
Benjamin Moses Leff
Last spring (3/7/15), a little store called the Cannabis Corner opened up in the small town of North Bonneville, Washington, about an hour by car from Portland, Oregon. If you’re trying to keep track of the crazy world of federal taxation of marijuana businesses, this little store might interest you, even if you live three thousand miles away, as I do. To my knowledge, it is the first marijuana store to be operated by a “public development authority.” A public development authority is an independent entity created by a state or local government. Why is it interesting that the Cannabis Corner is the first marijuana store to be operated by a public development authority? Because it means that the Cannabis Corner does not have to pay federal income tax on any of its profits. In the marijuana industry, avoiding federal income tax is especially desirable because section 280E of the Internal Revenue Code prevents traffickers of schedule I controlled substances from deducting many of their ordinary and necessary business expenses, and marijuana is still a schedule I controlled substance. Therefore, federal income taxes of marijuana stores are likely to be especially high. The Cannabis Corner has solved the federal income tax problem faced by other marijuana sellers.
More at http://www.law.indiana.edu/instruction/tax-policy/assets/leff-government-owned.pdf