How should taxpayers and the IRS treat logos under 280E?
A cannabis seller’s removable logo may leave the object to which it is affixed deductible. A non-removable logo, I’d guess not, but I’d welcome hearing the other side of the question.
Tax law so far has put little weight on the line between cost of goods sold and selling expenses. A singular exception is section 280E: Sellers of cannabis can deduct only cost of goods sold, so advertising and marketing expenses lose out. Plain packaging of cannabis is deductible, but how about packages with branding, or logos?
Though tax authorities may be scarce, there’s an accounting concept: “In general, any branded items such as gift boxes, paper bags or even printed ribbons should included as a marketing expense.” I got that from an abandoned website, http://www.retailpackaging.com/blog/2009/06/book-keeping-and-packaging/. I suppose it’s still accurate, though.
If that concept applies for tax, then I’d say printed branding ribbons are a marketing expense – but not purely decorative ribbons with no logo.
So I’ve heard of cannabis companies hiring local artists to make logo-free art to include with cannabis sales. Labor costs for hand-done art on logo-free individual packages should be tax deductible. Those costs are for a product sold; they are not advertising, so they are not non-tax-deductible, but the packages might give consumers a good feeling about the seller. They might even become collector’s items.
Whether taxpayers take return positions trying to deduct branded packaging, I don’t know. If I were working for the IRS, I think I’d go after that. But after a marijuana policy conference in New York, Manelle Martino said, “What about stickers?” (Conferences sometimes help me.) That is, a cannabis seller could produce or buy an attractive package without a logo, and stick the logo on it via adhesive – and deduct the cost of the package, but not the cost of the sticker. Is that different from buying a bag (deductible) and sending it out for printing (nondeductible)? If the logo is removable, it doesn’t permanently combine its prestige with the quality or attractiveness of the bag, and is not a marketing gimmick or expense.
Some basics of CGS, From http://www.retailpackaging.com/blog/2009/06/book-keeping-and-packaging/:
When To Include Packaging In COGS
Perhaps you’ve recently purchased a series of antique china vases. To make these containers really get noticed on display you’ve adorned them with bow ribbons. In fact, the presentation generates so much interest for the vases that you include the bow with each purchase. In this instance, you would include the bow as a cost of goods sold.
Here’s another example involving florists. When designing a beautiful floral display, ribbons, cello and enclosure cards are an inseparable part of the total creation. Again, these items would be tallied in COGS.
In general, any packaging that is included as part of the final product will be counted toward COGS.
When To Count Packaging As A Marketing Expense
There are exceptions to including packaging as part of COGS. Lets take the previous florist example, this savvy business owner decides to include their logo on the stationary cards, and have the company name printed on the ribbons used to hold the bouquet together. In this case, these items would be counted as a marketing expense.
In general, any branded items such as gift boxes, paper bags or even printed ribbons should included as a marketing expense.
This is the kind of thing tax people like to think about. If you think this is ridiculous, look at the rules in the U.K. for whether dog food is subject to the Value Added Tax:
|Dog food is standard-rated if it is, for example, for||Dog food (other than biscuit or meal) is zero-rated if it is exclusively for|
|sheepdog breeds – Old English, German shepherd, Collie||working sheep dogs of any breed|
|Labradors, Pointers, Retrievers||dogs trained and used as gun dogs|