Miscellaneous
Florida's Cannabis News Podcast Wednesday, November 25, 2020 Cannabis Taxation—Part V—Congress Can Deter Drug Use and Raise Revenue By Reforming Section 280E This week, David wraps up Florida’s Cannabis News Podcast’s five part series on Section 280E. In this episode (Part V), we look at what the future holds for Section 280E. Cannabis businesses owners want to pay state and federal taxes. Maintaining a strong working relationship with the IRS legitimizes these businesses, and, in turn, the entire cannabis industry. The current tax regime forces cannabis businesses to either ignore Section 280E on their tax filings, or forego paying taxes altogether. The former forces these businesses to gamble on the IRS overlooking their filing, and the latter evaporates their revenues. Congress can solve this problem in one of two ways: amend the CSA or amend Section 280E. Here are the highlights: The primary reason why state-legal cannabis businesses are required to comply with Section 280E is because their product is a Schedule I substance under federal law. If Congress amended the CSA to include an exception for state legal cannabis businesses, that would alleviate the tax burden cannabis business owners face. This reform is the heart of the Tenth Amendment Through Entrusting States (STATES) Act. Proposed by Senators Cory Gardner (R-CO) and Elizabeth Warren (D-MA), the STATES Act amends the CSA so long as the cannabis business complies with state law, the CSA provisions no longer apply to that business. If enacted, the CSA would be rendered inapplicable to state-legal cannabis businesses, thus making Section 280E also inapplicable to these businesses. Under the STATES Act, selling cannabis will not trigger Section 280E because businesses in compliance with state cannabis laws will not be in violation of the CSA, and therefore would not be “trafficking in controlled substances. The STATES Act does not make cannabis federally legal, or even re-schedule or decriminalize it, but the Act gives state-legal cannabis businesses a fair chance to compete, allow the full development of state markets, and give these businesses the freedom to avail themselves of tax benefits and modern accounting regulations currently denied to them. It allows states who want to move forward in this industry a chance to compete in the global market. With states like California having the sixth largest economy in the world, becoming a global player is a realistic goal. The drafters of the STATES Act understand that ambiguity is an obstacle to cannabis businesses when filing taxes. The other solution is to amend Section 280E itself. This approach is the heart of the Small Business Tax Equity Act of 2017. The legislation, S. 777 and H.R. 1810, exempts cannabis businesses acting in compliance with state law from Section 280E, thereby allowing them to take the ordinary business deductions afforded to all other legal businesses. Under the Small Business Tax Act, Section 280E would read as normal, but include the language, unless such trade or business consists of cannabis sales conducted in compliance with State law, at the end of the rule. This reform more narrowly addresses the unfair impact Section 280E has on states with regulated cannabis markets, without doing an entire overhaul of United States cannabis policy, but the future is not certain for the Small Business Tax Equity Act of 2017, which has not moved since its introduction into Congress in 2017. Tax neutrality is based on the primary goal to raise revenue, not discriminating against certain group of taxpayers. Section 280E is a non-neutral tax policy that punishes state legal businesses by denying them benefits that quite frankly are required for survival in the American economy. Non-neutral tax policy is effective when it halts or hinders activities that are in opposition to public policy, but such policies can be problematic if they are not narrowly tailored and out of date with current markets. Love the show? Rate, Review, Subscribe, and Share with your Friends. Connect on Instagram: @FLCannabisPod Connect on Twitter: @FLCannabisPod Like Our Facebook Page: https://bit.ly/36bGsAQ My Email: David@FloridaCannabisPod.com My YouTube Channel: https://bit.ly/3oPZkOq Donate to My PayPal: https://bit.ly/3ezF92l