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IPFS News Link • Drug War

Section 280E of the Internal Revenue Code Severely Straining Washington Marijuana...

• http://jonathanturley.org, By Darren Smith

Washington marijuana businesses are becoming financially tenuous in large part due to the imposition of heavy taxation. The matter has been further compounded beyond simply an unsustainable state excise tax of twenty five percent levied at all stages of the supply chain (marijuana producers, processors, and retailers) but a federal tax code that prevents the excise tax and conventional business expenses from being deducted from federal income taxes. This is due to a prohibition specifically applicable to marijuana. The accounting effect of this means marijuana businesses must also pay federal tax on what the business pays in state taxes.

Marijuana retailers have stated in interviews this double taxation alone swallows much of their profits. It shows another formidable challenge to the survivability of the licensed cannabis industry in Washington..

The applicable section of the tax code reads:

26 U.S. Code § 280E – Expenditures in connection with the illegal sale of drugs

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.


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