Illinois Requires More Tax Revenue From Marijuana Than Alcohol, State Claims – Marijuana Moment
In a new report released this month, Congressional researchers analyze tax policies and restrictions for the marijuana industry–and how those could alter if any range of national reform bills are enacted.
The Congressional Research Service (CRS) analysis concentrates on a part of Internal Revenue Services (IRS) code known as 280E, which divides cannabis companies from accepting certain national tax deductions or credits that are available to other companies, regardless of their state legality. But they’re still obligated to pay taxes on their federally illegal income.
“The Schedule I status of marijuana usually means that marijuana companies are handled differently in many different companies for taxation purposes,” CRS said. However,”Congress has broad authority to change the taxation treatment of marijuana companies.”
The provision was enacted in 1982 as a way to stop drug traffickers from composing expenses off their earnings, but it’s widely applied today on state-licensed grass growers, processors and dispensaries, significantly increasing their tax rates when compared with companies in different industries.
“Recent legislative proposals intention to relax federal restrictions on marijuana or to mitigate the disparity between federal and state marijuana regulation,” the new CRS report says. “Many of these proposals would change the taxation treatment of marijuana companies by re-scheduling or even descheduling bud under the CSA or making marijuana-specific exceptions.”
“Under these proposals, Department 280E would no more prohibit marijuana companies from accepting deductions and credits,” it states.
While several bills were introduced last session to federally legalize cannabis–including the House-passed Marijuana Opportunity,” Reinvestment and Expungement (MORE) Act–they have not been refiled so far this season.
Senate Majority Leader Chuck Schumer (D-NY), Senate Finance Chairman Ron Wyden (D-OR) and Sen. Cory Booker (D-NJ) have been in the process of creating legislation to finish cannabis criminalization and encourage social equity, and they have met with supporters concerning how to draft that proposition.
Several standalone invoices to take out the 280E penalty’s program on marijuana companies also have been filed through time in Congress, but none has ever been given a hearing or a vote.
But for now, the marijuana industry continues to face tax policy challenges beneath the umbrella of prohibition. And CRS said that IRS”has offered little tax advice about the use of Department 280E.”
It did provide some advice in an upgrade last year, explaining that while cannabis companies can not take regular deductions, 280E doesn’t”prohibit a participant in the marijuana industry from decreasing its own gross receipts by its own correctly calculated cost of goods sold to determine its gross income.”
The IRS update seemed to be responsive to some Treasury Department internal watchdog report that was released annually. The department’s inspector general for tax administration had criticized IRS for failing to adequately notify citizens in the marijuana industry about compliance with federal tax laws. And it led the bureau to”promote and develop guidance particular to the marijuana industry.”
One notice that IRS especially wishes to make apparent to cannabis firms is they still must pay income tax. And CRS articulated that in its own report too.
“Like non-marijuana companies, marijuana companies are subject to taxation on all their income,” it stated. By comparison, not all costs are allowable in the taxpayer’s gross revenue .”
But paying these taxes has revealed onerous–equally for cannabis companies and the IRS itself. The head of the bureau told Congress last month that it might”favor” to get state-legal marijuana firms to be able to pay taxes as the present largely cash-based system is complicated and ineffective.
Former Treasury Secretary Steven Mnuchin stated in 2019 that he want to see Congress approve legislation resolving the cannabis banking issue and he pointed to the fact that IRS has had to construct”cash chambers” to deposit taxes from these companies as an example of the problem.
CRS also spoke legislation that’s”attempted to increase marijuana companies’ access to banking and financial support” like the Secure and Fair Enforcement (SAFE) Act, which passed the House in 2019 and also as a part of 2 COVID-19 relief packages. “Many financial institutions have been unwilling to provide state-sanctioned marijuana companies with shared accounting products and financial solutions as a result of federal laws that impose criminal and civil liability on monetary institutions handling money tied to marijuana.”
Although there might be that hesitation, national data published earlier this month indicates that the amount of banks and credit unions which report servicing marijuana businesses appears to be stabilizing.
But the latest report signals that the trend is lifting.
Lawmakers in the Senate and House filed fresh invoices to deal with the marijuana banking issue in recent days.