In the Tuesday Wall Street Journal, Professor Alan Blinder wrote of his puzzlement at the very slow growth of productivity in the last three years. There is really no mystery. The rate of growth of investment in...
- The Tax Policy Blog
- Tax Code Disallows Business Deductions for Marijuana Sales
Tax Code Disallows Business Deductions for Marijuana Sales
One tax downside to the new legal marijuana industry in Colorado and Washington State is disparate tax code treatment. While all other businesses (including illegal businesses!) can deduct their business expenses from their revenue and pay tax only on the difference, marijuana businesses are explicitly denied the business expense deduction.
It's in the tax code at 26 U.S.C. § 280E:
No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.
Marijuana is currently on Schedule I. The Drug Enforcement Administration (DEA) and the Food and Drug Administration (FDA) determine what substances are on Schedule I and Schedule II, and consequently, which drug businesses can deduct their expenses on their taxes.
This is an unfair and considerable burden -- businesses earn anywhere from 0 to 20 percent or so in profits, and usually tax is paid on some part of that. If marijuana businesses can't deduct their expenses, that means as much as 35 percent federal tax on their receipts, plus the hefty state sales tax.
Subscribe to the Tax Foundation Newsletter
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.
Recent Blog Posts
Related State Articles
- Lessons on Legalizing and Taxing Marijuana from the Colorado and Washington Experience: Testimony to the District of Columbia Committee on Business, Consumer, & Regulatory Affairs and the Committee on Finance & Revenue
- New NerdWallet Report Projects Significant Revenues from Marijuana Legalization
- Taxing Marijuana: The Washington and Colorado Experience
- 1 of 24
- next ›