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MARIJUANA MOMENT
NEW YORK GOVERNOR SIGNS MARIJUANA TAX CUT BILLS, PROVIDING LOCAL 280E RELIEF FOR
NYC BUSINESSES
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POLITICS
NEW YORK GOVERNOR SIGNS MARIJUANA TAX CUT BILLS, PROVIDING LOCAL 280E RELIEF FOR
NYC BUSINESSES
Published
4 weeks ago
on
November 18, 2023
By
Kyle Jaeger
New York’s governor has signed legislation that to provide tax relief to New
York City marijuana businesses that are currently blocked from making federal
deductions under an Internal Revenue Service (IRS) code known as 280E.
About five months after the Senate and Assembly approved the proposal, and less
than a week after both chambers formally transmitted their identical bills to
Gov. Kathy Hochul (D), she signed them into law on Friday.
While Hochul signed a separate budget bill last year that included provisions
allow state-level cannabis business tax deductions—a partial remedy to the
ongoing federal issue—New York City has its own tax laws that weren’t affected
by that change. The new measure is meant to fill that policy gap.
“This bill would allow a deduction for business expenses, incurred by taxpayers
authorized by the Cannabis Law to engage in the sale, distribution, or
production of adult-use cannabis products or medical cannabis, for purposes of
the unincorporated business tax (UBT), the general corporation tax (GCT), and
the corporate tax of 2015, commonly referred to as the business corporation tax
(BCT),” a summary says.
A section of the city’s tax code would be amended to add sections allowing the
deductions “in an amount equal to any federal deduction disallowed by section
280E of the internal revenue code.”
“This modification to income is appropriate because, while the expenses of
cannabis-related business cannot be deducted for federal purposes, New York law
permits and encourages these businesses akin to any other legitimate business
occurring in the State,” a memo attached to the bill says. “The City’s business
taxes should similarly encourage these business activities.”
It also notes that the reform legislation has the support of New York City Mayor
Eric Adams (D).
Lawmakers in several states have pursued the tax workaround as congressional
marijuana reform legislation continues to stall, leaving state-licensed cannabis
businesses with significantly higher federal effective tax rates under
prohibition.
Last month, for example, the Pennsylvania House approved a large-scale tax
reform bill that contains language to provide state-level relief to medical
marijuana businesses. The reform has drawn the ire of Republican members—who
normally champion tax cuts—as a Democratic giveaway to the cannabis industry.
In August, the governor of Maine signed legislation to decouple the state tax
from the federal policy for cannabis businesses.
The governor of Illinois also signed a budget bill in June that includes
provisions that will allow licensed marijuana businesses to take state tax
deductions that they’re currently prohibited from utilizing under the IRS code.
That same month, the governor of Connecticut also signed budget legislation that
includes provisions to provide state-level tax relief to licensed marijuana
businesses as a federal 280E workaround for the industry.
Also, the governor of New Jersey signed legislation in May to allow licensed
marijuana businesses to deduct certain expenses on their state tax returns as a
partial IRS 280E fix. Lawmakers in Iowa and Virginia have similarly pursued tax
relief for each of their state’s marijuana markets.
—
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policy bills in state legislatures and Congress this year. Patreon supporters
pledging at least $25/month get access to our interactive maps, charts and
hearing calendar so they don’t miss any developments.
Learn more about our marijuana bill tracker and become a supporter on Patreon to
get access.
—
At the congressional level, Rep. Earl Blumenauer (D-OR) reintroduced a bill in
May that would amend the IRS code to allow state-legal marijuana businesses to
finally take federal tax deductions that are available to companies in other
industries.
He told Marijuana Moment that he’s “absolutely convinced when we are able to
fully deduct their business expenses that there actually will be more revenue
collected because people will comply fully with the law.”
For the time being, the marijuana industry continues to face tax policy
challenges under the umbrella of prohibition. And as the Congressional Research
Service (CRS) noted in a 2021 report, IRS “has offered little tax guidance about
the application of Section 280E.”
IRS did provide some guidance in an update in 2020, explaining that while
cannabis businesses can’t take standard deductions, 280E does not “prohibit a
participant in the marijuana industry from reducing its gross receipts by its
properly calculated cost of goods sold to determine its gross income.”
The IRS update seemed to be responsive to a Treasury Department internal
watchdog report that was released in 2020. The department’s inspector general
for tax administration had criticized IRS for failing to adequately advise
taxpayers in the marijuana industry about compliance with federal tax laws. And
it directed the agency to “develop and publicize guidance specific to the
marijuana industry.”
The industry’s 280E problem could also be resolved if the Drug Enforcement
Administration (DEA) accepts the recommendation of the U.S. Department of Health
and Human Services (HHS) and moves marijuana from Schedule I to Schedule III of
the Controlled Substances Act (CSA).
> New South Dakota Marijuana Legalization Ballot Initiative Would Let
> Dispensaries Launch Adult-Use Sales
Marijuana Moment is made possible with support from readers. If you rely on our
cannabis advocacy journalism to stay informed, please consider a monthly Patreon
pledge.
Related Topics:featured
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Kyle Jaeger
Kyle Jaeger is Marijuana Moment's Sacramento-based managing editor. His work has
also appeared in High Times, VICE and attn.
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