Critics of the 280E marijuana Selling Expense Tax point out that it was conceived by advocates of the discredited War on Drugs: “Section 280E was born of politics – at the height of the war on drugs, in 1982.” Yeah, well, in some way, 280E is illegitimate. But a child born out of wedlock might turn out to be Alexander Hamilton.
The 280E Selling Expense Tax is overbroad, for sure, but it has three big things going for it – from the perspective of much of the marijuana community.
1.
Advertising and glitzy marketing appeal to kids – and irritate their parents, to the detriment of legalization efforts. “Marijuana sells itself,” the saying goes. The commercial free speech doctrine says we can’t ban ads, but sophisticated consumers don’t need the ads or glitz – or the celebrity endorsements. The 280E Selling Expense Tax makes those kinds of things non-tax-deductible.
2.
Big Business advertises and promotes sales more than small business. Mom & Pop – and social equity licensees – can’t afford the billboards, or deploy the marketing know-how that corporate giants specialize in. Think Budweiser ads. And recently, “$1 out of every $6 spent on restaurant advertising in America [was] done by McDonald’s.” That doesn’t count Burger King, or KFC. Mom & Pop rely on word of mouth. Big Marijuana wants to start deducting ad expenses — and Big Alcohol and Big Tobacco want to get in on the game.
Small business relies more on free word of mouth than does Big Business. Small business rarely pays for celebrity endorsements, which are nondeductible thanks to 280E.
3.
The 280E Selling Expense Tax barely grazes growers because it allows a deduction for “cost of goods sold” – what the taxpayer pays to produce or buy the product. So while retailers and distributors can’t deduct wages and rent, growers can deduct wages of workers who grow the product and rent of grow houses and almost everything, because their costs are production costs. Middlemen and advertisers take a hit from 280E, and so do high-end retail landlords.
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The marijuana community, and especially small businesses and growers, might consider not so much the parentage of 280E, but its qualities and defects (yes, it’s overbroad in denying deductions for wages of retail clerks – a selling expense). But some tax is going to replace 280E — with a more direct hit on consumers if not growers.
Not all bastards deserve condemnation. For a longer though primitive look at 280E, see this Brookings piece, https://www.brookings.edu/blog/fixgov/2015/12/18/how-bob-dole-got-america-addicted-to-marijuana-taxes/#disqus_thread.
2023 Update: In some ways, the 280E selling expense tax may hit small businesses harder than large ones. Capital costs tend to be higher for small businesses, for instance, and there will be a certain amount of security costs, no matter how small the business. Big businesses may get quantity discounts on advertising and other marketing costs. Lots to think about. This may be updated further.
The Center for New Revenue 