Intro:
The University of Michigan Law School explores the challenges cannabis businesses face under federal tax law, particularly IRS Section 280E. Despite the legal status of cannabis in many states, federal law still classifies cannabis as an illegal substance, which creates significant tax burdens.
Key Points:
- What is Section 280E?
Section 280E of the federal tax code prevents businesses dealing with federally illegal substances, like cannabis, from deducting most business expenses. - How It Affects Cannabis Businesses:
- Cannabis businesses can only deduct the cost of goods sold (e.g., raw materials).
- Other typical business expenses, like rent and salaries, are not deductible.
- This results in effective tax rates that are much higher than those of other businesses.
- Impact on the Industry:
- Smaller cannabis businesses struggle to stay afloat.
- Many companies have to raise prices, impacting consumers.
The VitalPoint for Patients:
Understanding how taxation affects cannabis businesses helps patients see why medical cannabis can be costly. The fight for federal reform could lower these costs in the future.
Link:
Read more at https://repository.law.umich.edu/articles/2320/