If there is any single industry that could generate billions of dollars for state and federal government coffers, it would have to be medical marijuana. Already legal for use in 18 states and Washington D.C., marijuana has the potential to inject some much needed funds into the communities where it is legalized, which would seem to make legalization efforts something of a no-brainer.
However, things aren’t always as clear-cut as they would seem, which is often the case when it comes to dealing with both state and federal laws. Under somewhat bizarre circumstances, marijuana may be legal according to the aforementioned 18 states and in Washington D.C., but it remains a controlled substance at the federal level. While residents of those states may be able to use medical marijuana without fear of local prosecution, they are still essentially regarded as criminals as far as the federal government is concerned. Let’s examine the reasons of this and the resulting implications.
Providing Medical Marijuana is a “Taxing” Job
In the early 1980s, a provision was added to the U.S. tax code that basically prevented those involved in the illegal drug trade from filing tax deductions on business related expenses. Known as Section 280E, the provision was proposed in the wake of a disastrous case in which a convicted drug trafficker was able to file deductions for a yacht and even weapons. Aimed at curbing tax-related criminal elements, Section 280E would also inadvertently affect owners of legal medical marijuana dispensaries.
Because marijuana is still a controlled substance as far as the federal government –including the IRS– is concerned, dispensary owners cannot file for deductions on any of their business related expenses. This means that the standard tax deductions that should apply to any normal business simply aren’t available to dispensary owners. As a result, dispensary owners tend to pay much higher taxes than their counterparts in other legal trade fields. In fact, it has been estimated that dispensary owners pay as much as 75% more on average than owners of other businesses.
Given that these businesses perform an essential service to the community and bring in much-needed tax dollars, the tax laws may appear overly restrictive. That being said, there are ways by which legal dispensary owners can leverage the system to their benefit.
By offering a service auxiliary to the business of providing marijuana, legal dispensary owners may be able to claim deductions trough the offered services instead of directly through the dispensary itself. A dispensary may also offer caregiving or counseling services for instance, for which they may be able to claim tax deductions that would otherwise be unavailable to them.
Additional deductions maybe claimed if only a small portion of the property is actually used in distributing marijuana. With marijuana dispensary services constrained to less than 10% of the property for example, dispensary owners may be entitled to tax deductions on the remaining portion of the property.
A Time for Change
Until tax laws or federal policy toward marijuana is changed, these loopholes might be the only options for dispensary owners. Change of this nature can be a huge undertaking, however, knowledge is power. By sharing facts and presenting information in a logical, structured, and professional manner, the path for reform in the industry of medical marijuana is being paved daily.