Despite attempts to ensure the drug would be a legal aspect of our society, the United States Tax Court issued a statement that the legal marijuana industry will still be collectively viewed as a drug smuggling operation. In a firestorm case, the Court determined that Harborside Health Center in Oakland, California (one of the best cannabis stores in the United States) will be forced to pay millions of tax dollars (from disallowed business deductions) between 2007 and 2012. While store officials have argued that the deductions were necessary to pay for rent, phone bills, security, and more, the Court has decided that, unless Congress declares otherwise, an unlicensed dispensary is no different than a crook selling pennies on a street corner. Let’s take a closer look at this bizarre situation and find out more information.
Expense Deductions Are a No-No!
Overall, businesses rely on cost deductions from tax liability for the purpose of paying rent, purchasing inventory, and establishing security (among other activities). Whether legal or illegal (in the case of the marijuana industry), the IRS still requires businesses to pay income taxes. So how did this cautious attitude come about?
Back in the 1980s, the IRS permitted a drug dealer (convicted) to use business deductions to pay rent and phone bills, a move that ultimately enraged the Reagan administration. Eventually, Congress approved a law that prevented these deductions for individuals who took part in drug trafficking. As a result, Section 280E was integrated into the existing tax codes.
Introducing New Laws in 2019
Interestingly, Section 280E diminished in the wake of the 2018 Congress, but officials have urged for its return sometime in 2019. In the ruling conducted yesterday, several members of Congress urged the IRS to issue guidance and proclaimed that medical marijuana stores should not have to be subject to the 280E code. However, the IRS reassured Congress that no action of this sort would be taken unless Congress edited the Controlled Substances Act or Code.
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