Legal Marijuana Faces Tax Hurdles In Spite of Revenues

100815_Legal Marijuana Faces Tax Hurdles In Spite of Revenues 

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It seems like marijuana businesses are really getting some “special treatment.”

First, banks were not allowed to provide funding to cannabis ventures, lest they want to receive some federal penalties. Now, the Ninth Court of Appeals has ruled that marijuana businesses should pay taxes on 100 percent of their gross income, even though every other business pays taxes only on net profits, once business expenses have already been deducted.

The Ninth Circuit upheld the §280E Tax Court ruling, which stated that legal medical marijuana dispensaries should not deduct ordinary and necessary business expenses before the taxes come in. Even if state laws say otherwise, federal laws trump them all. This leaves marijuana businesses in a dilemma: if they don’t report their taxes, they might be accused of tax evasion. If they report their taxes, they might easily face bankruptcy.

It’s hard to find a solution for such a problem, but Robert Wood of Forbes offers one. “One common answer to this dilemma is for dispensaries to deduct expenses from other businesses distinct from dispensing marijuana,” he said. This would essentially require good record-keeping, but this can help save businesses money in the long run.

“Deduct wages, rents, and repair expenses attributable to production activities. They are part of the cost of goods sold,” Wood said. “But don’t deduct wages, rents, or repair expenses attributable to general business activities or marketing activities that are not part of cost of goods sold.”

Still, marijuana businesses see a ray of light in 2013’s proposed Marijuana Tax Equity Act, which aims to end federal prohibition on cannabis and allow it to be taxed at 50 percent. Though it might seem huge, this percentage is already a slight improvement from taxes on gross revenues.

Here’s to hoping that better marijuana tax laws will be enacted in the near future.

What can you say about the huge taxes imposed upon marijuana enterprises? Voice your opinions in the comments section below – your opinion matters to the nation.

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