NORML suggests 280E compromise

Internal Revenue Code section 280E is a Selling Expense Tax – denying income tax deductions for any amounts paid other than cost of goods sold.    It applies only to sales of federally illegal drugs.

So marijuana sellers cannot deduct, for instance, advertising expenses.

The marijuana consumer organization NORML says this as of March 19, 2021:

“NORML supports regulatory controls that seek to limit youth exposure to adult-use cannabis-related advertising and marketing as well as efforts to not incentivize advertising cannabis products through the tax code.” https://norml.org/marijuana/fact-sheets/core-attributes-of-adult-access-regulations/

(Note: The hotlink on “efforts” in that NORML statement links back to this web page.)

An earlier NORML posting pointed out that advertising  is a red flag for prohibitionists, and that maintaining non-deductibility of advertising costs can work against “well funded corporate controlled marijuana companies, which can afford extensive advertising.”

Here’s that full NORML statement, furnished by Political Director Justin Strekal, https://norml.org/about-norml/staff/, twitter @justinstrekal, about earlier legislation that had faded from view, but indicating NORML’s ongoing view of section 280E: 

“The marijuana industry is an economic generator for America. Businesses in this space should be regulated by the federal tax code in a manner that is fair, that will help stimulate economic growth, and that allows the marijuana industry and those who operate in it to avoid unjustified tax penalties.

“However, this legislation could be improved.

“As part of a potential compromise package to allow these deductions, NORML supports the continuation of non-tax-deductibility of marijuana business advertising expenses. For some citizens, advertising is a distraction, or can be a red flag that can cause them to hesitate to support the sound policy of legalization.

“Allowing deductions for rent and employee costs would help the bottom line of small businesses and give incentives for further hiring, while maintaining the non-deductibility of advertising costs can act as a preemptive move against well funded corporate controlled marijuana companies, which can afford extensive advertising. This development would encourage the proliferation of a more diverse array of smaller businesses, as opposed to the consolidation by large corporate interests. A legal industry dominated by smaller businesses in turn would create more competition, thus leading to higher quality and better priced products for the consumer.”

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Here is a link to article detailing some of the benefits of 280E. https://www.brookings.edu/blog/fixgov/2015/12/18/how-bob-dole-got-america-addicted-to-marijuana-taxes/#disqus_thread.

In support of the proposition that advertising helps big businesses more than Mom & Pops, $1 out of every $6 spent on restaurant advertising in America [in one recent year was] done by McDonald’s. https://www.businessinsider.com/this-one-statistic-shows-how-much-mcdonalds-tries-to-entrench-itself-in-everybodys-minds-2012-3.

Brainstorming HB2 Repeal

Proposal:

Repeal HB2 in toto. For bathrooms, revert, as Governor Martin suggests, to “pre-existing law and practice.” Specifically, validate the most favorable pre-Charlotte non-discrimination ordinances (NDOs), and anything in the future that goes just that far, and no further. Continue reading “Brainstorming HB2 Repeal”

TheHill.com piece on Repatriation Amnesty

Big business is holding US jobs hostage — Trump should not pay the ransom

BY PAT OGLESBY, OPINION CONTRIBUTOR – 02/01/17 10:00 AM EST http://thehill.com/blogs/pundits-blog/economy-budget/317227-big-business-is-holding-us-jobs-hostage-trump-should-not

 President Trump wants to create jobs. Global corporations want to trick him into giving them a tax cut. They are holding $2.5 trillion offshore. They’ll bring those trillions home and create jobs, they say. But first, America must give them a $500 billion tax windfall. No tax break, no jobs.

The president should have three problems with this repatriation tax amnesty:

It doesn’t work.
It sells out his base.
It rewards his enemies.

There is an easier way to “make America great again.” President Trump can make companies pay the tax without a tax cut, and then watch them bring the money home. Continue reading “TheHill.com piece on Repatriation Amnesty”

Estimating 280E revenue — data dump

This looks at 280E marijuana tax revenue.  Policy problems with 280E are discussed at the link.

There’s a lot more income tax compliance, regardless of 280E, from legal businesses than from illegal businesses.

For 280E, there’s a ton of guesswork, but a conservative answer is that 280E should be bringing in at least about $180 million this year. Less conservatively, double that.

There are two pieces of the puzzle:

  1. How much tax does 280E bring in on a typical sale?
  2. How big is the market? That is, what is the dollar value of sales?

Continue reading “Estimating 280E revenue — data dump”

Trump Shouldn’t Fall for Repatriation Amnesty

Full text is now at https://newrevenue.org/2017/02/11/5124/.

Here’s a new piece on Repatriation Tax Amnesty Windfall: http://thehill.com/blogs/pundits-blog/economy-budget/317227-big-business-is-holding-us-jobs-hostage-trump-should-not.

The publisher wants me to induce clicks, but here are rejected titles and the intro: 

How Trump Gets Jobs without Paying Tax Ransom
How Corporate America Demands $500 Billion Ransom to Create Jobs

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President Trump wants to create jobs.  Global corporations want to trick him into giving them a tax cut.  They are holding $2.5 trillion untaxed offshore.  They’ll bring those trillions home and create jobs, they say.  But first, America must give them a $500 billion tax windfall.  No tax break, no jobs.  The President should have three problems with this Repatriation Tax Amnesty:

It doesn’t work.
It mocks his base.
It rewards his enemies.

There is an easier way to “make American great again.”  President Trump can make companies pay the tax without a tax cut, and then watch them bring the money home.

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After 7 years of studying taxation of cannabis, I’m repeating myself a lot. So I’m taking a sabbatical, back to my earlier field of international tax.

Dr. Paul Gallis Joins New Revenue Board

I’m happy to announce that my friend and retired policy expert Paul Gallis, Ph.D., has joined the Board of Advisors of the Center for New Revenue. Paul’s unvarnished advice and punchy writing suggestions have helped me informally over the years. I’m delighted to have him agree to join this (still quite informal) Board.

Paul’s illustrious career is described in this Statement in the Congressional Record by Congressman John Tanner of Tennessee: https://www.gpo.gov/fdsys/pkg/CREC-2008-06-11/html/CREC-2008-06-11-pt1-PgE1200-2.htm Continue reading “Dr. Paul Gallis Joins New Revenue Board”

Unforced tax error in Colorado

[UPDATE:  That 8 percent rate never took effect — not for a day.  Colorado reversed course  entirely, pushing the rate up to 15 percent instead.  Here’s the new rule: (ephemeral state site: https://www.colorado.gov/pacific/tax/marijuana-taxes-file; saved version: Copy of Regs on unaffiliated sales in CO 2017 SB192):   “Effective August 9, 2017, . . . unaffiliated retail marijuana business will calculate their excise tax at 15% of the contract rate.”  See also Fact Sheet saved at CO unaffiliated tax Aug 2017.]

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The decision of the Colorado Legislature in 2015 to decrease the state’s marijuana retail tax from 10 percent to 8 percent, effective mid-2017, was inexplicable. The industry needs low rates in the early days, not later.

So Gov. Hickenlooper’s call to let the effective date expire meaninglessly, and for an increase to 12 percent, is sensible, and not surprising.  Here’s that story: Continue reading “Unforced tax error in Colorado”

Fake History of 280E

This is Fake History: “The original sponsor of 280E, former Rep. Pete Stark (D-CA) . . . .” I see that statement that Mr. Stark sponsored 280E, for example, in Brett Stone’s newsgroup, https://groups.yahoo.com/neo/groups/mmjnews/conversations/topics/37712.

Mr. Stark now opposes 280E, which well he might, but that doesn’t make him the, or an, “original sponsor.” 280E originated in the Senate Finance Committee in 1982, when Bob Dole chaired it, as the legislative history, from the Joint Committee on Taxation Blue Book indicates: https://newrevenue.org/wp-content/uploads/2013/03/1982-blue-book.pdf.  For a balanced view of 280E, see https://www.brookings.edu/blog/fixgov/2015/12/18/how-bob-dole-got-america-addicted-to-marijuana-taxes/.  For a middle ground compromise, suggested by NORML, between current law and repeal, see https://newrevenue.org/2017/02/16/5139/.  And it’s 280E, not 280e, not 280(e).  It comes right before 280F. Continue reading “Fake History of 280E”

Do you want your taxes smooth or spiky?

Cliffs, Discontinuities, Thresholds:

Don Marron illustrates that cliffs make  little sense for soda taxes here or at http://www.taxpolicycenter.org/taxvox/building-better-soda-tax.

Cliffs create problems for the income tax here —http://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=9520&context=penn_law_review

For marijuana grows, cliffs’ problems are discussed here or at https://newrevenue.org/2015/10/07/humboldts-principled-cannabis-tax/ Continue reading “Do you want your taxes smooth or spiky?”

Transfer pricing explained

Transfer pricing explained, by the Nicholas Confessore of the New York Times:

What Oesterlund [a wealthy individual hiding assets during a divorce] had done is known as “transfer pricing,” a practice that has come under growing criticism in recent years. Multinational corporations use it to shift their costs to high-tax countries and their profits to low-tax countries. Often, there is little or no economic reality to these transactions. Continue reading “Transfer pricing explained”

280E revenue cost

If you believe numbers from the marijuana industry, repeal of federal tax Code section 280E might cost some $1.3 billion in 2020 alone, and then rise steadily after that.

Right now, section 280E says sellers of federally illegal drugs can’t deduct advertising, marketing, or selling expenses. They can deduct only cost of goods sold. They deduct product cost – what they pay to grow marijuana, or to buy it from a grower or reseller.

Once marijuana is no longer a federally illegal drug, 280E ceases to apply, and its revenue disappears.

How much revenue would 280E’s disappearance lose?  That’s a tough question, and I don’t know.  According to some industry numbers, though, repeal could cost over $1 billion a year in federal tax revenue by 2020. Continue reading “280E revenue cost”

Avoiding drafting blunders

The field of marijuana taxation turned into the field of cannabis revenue, and now it’s getting down to the level of Technical Corrections. Keith Humphreys explains a Prop 64 drafting blunder. (https://www.washingtonpost.com/news/wonk/wp/2016/11/16/the-marijuana-initiative-blunder-that-could-cost-california-millions/).

No one’s perfect. I do some proofreading and editing for hire,  Continue reading “Avoiding drafting blunders”

$50 million “blunder” in Prop 64?

California Board of Equalization elected Member Jerome Horton, an opponent of Proposition 64, came up with an October surprise to illustrate a weakness in the proposal. That weakness didn’t prevent its passage, but it lingers.

Member Horton alleged that a tiny, technical, last-minute drafting change in the California 2016 marijuana initiative could cost the state $50 million, starting in November. Indeed, the Board of Equalization has adopted his view and officially confirmed that the current sales tax on medical marijuana just disappears – for a while.

I don’t know how anyone would have standing to sue to reverse that ruling. So, apparently, unless the Legislature acts, the total tax on medical cannabis, over time, will be:

— 7.5%, (through the November 8 Election) then
— 0% (from certification of ballot results through 12-31-17), then
— 15% plus weight tax (starting 1-1-18).

That makes no sense to me. It’s a roller coaster ride, with no discernable rationale.  A “blunder.” Continue reading “$50 million “blunder” in Prop 64?”

Groundswell for local marijuana taxes in California

Drug Policy Forum of California provides these results of local California ballot measures, where it looks like every stand-alone marijuana tax increase passed.  CORRECTION:   The town of Colfax voted 63% for a tax measure that required a 2/3 majority.  That’s the only loser.  http://www.drugsense.org/dpfca/votersguide1116.html#LOCALS

Beyond percentage of price, tax bases include:
Canopy, with different rates for indoor, outdoor, and sometimes mixed light.
Weight, with different rates for bud and trim.

Some remembered indexing. One phases out canopy taxes when the State sets up a weighing program.

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Here’s the story, quoted from the Drug Policy Forum of California:

LOCAL BALLOT MEASURES

Adelanto – Measure R would impose an excise tax of up to 5% on all types of commercial marijuana activities. PASSED 67-33% Continue reading “Groundswell for local marijuana taxes in California”