This is PRELIMINARY look at revenue from the Marijuana Opportunity Reinvestment and Expungement Act, or MORE Act. Comments welcomed. UPDATES will appear at the top here.
The bill calls for a token 5 percent ad valorem tax on recreational marijuana only, with medical cannabis exempted. It then purports to spend the money that tax brings in. But Oops. At the same time, but by descheduling the drug, the bill repeals the current 280E rule disallowing deductions for the expenses of selling cannabis.
Here’s what Carl Davis of ITEP authorized me to post:
“This bill sure looks like a net tax cut to me.
“If you assume a 37% federal income tax rate, then I think any business paying out more than 13.5% of their revenue in newly-deductible expenses (rent, wages, etc.) should come out ahead.
“For a business with $10m in sales, the 5% tax costs $500,000 per year.
“But if that business starts getting new income tax deductions of $1.35m (13.5% of their revenue), the savings from those deductions against a 37% top rate is $499,500.
“I would guess most of these businesses are paying more than 13.5% of what they earn on expenses that would become newly deductible. Seems like a safe guess. Though I do not have hard data on this point.”
I (Pat Oglesby) would point out that 280E hits primarily retailers, whose now nondeductible selling expenses are significant compared to cost of goods sold. Farmers, growers, cultivators, whatever the label, have insignificant selling expenses, so don’t suffer much from 280E.
It’s clear that “any business paying out more than 6% of their revenue in newly-deductible expenses” would pay less tax under the bill – and 6% of revenue is as a low a guess as I’ve found. See https://newrevenue.org/2017/02/02/5119/.
AND the bill repeals 280E for sellers of medical cannabis, but imposes no excise tax on them, deepening the revenue loss. BUT some retailers, especially start-ups, are in a loss position even now, so 280E hurts them only by reducing their net operating loss carry-forwards.
There’s the official Joint Committee on Taxation estimate for 280E repeal, reprinted at https://newtax.files.wordpress.com/2018/12/370531229-Senator-Gardner-280E-Score-12-04-2017.pdf, of $5 billion over 10 years. But that’s an old number that will grow.
More here on the revenue effect of 280E here: https://newrevenue.org/2017/02/02/5119/