New York Governor Signs Marijuana Tax Cut Laws Providing Local 280E Relief for NYC Businesses

New York’s governor has signed legislation to provide tax breaks to New York City marijuana businesses, which currently prohibit federal withholding under the Internal Revenue Service (IRS) code known as Section 280E.

Nearly five months after the Senate and Assembly approved the proposal, and less than a week after both chambers formally sent their identical bills to Gov. Cathy Hochul (D), she signed the bill into law Friday.

Although Hochul signed a separate budget bill last year with provisions allowing state-level cannabis business tax deductions — a partial solution to an ongoing federal issue — New York has its own tax laws unaffected by the change. The new measure is meant to fill that policy gap.

“This bill would allow a deduction for business expenses incurred for non-corporate business tax (UBT) purposes by taxpayers authorized to engage in the sale, distribution or manufacture of cannabis products or medical cannabis to minors under the cannabis law. A general corporation tax (GCT) and corporation tax 2015, commonly referred to as business corporation tax (BCT),” the summary reads.

Sections would be added to part of the city’s tax code allowing deductions “in an amount equal to any federal deduction disallowed by section 280E of the internal revenue code.”

“This change in income is appropriate because, while cannabis-related business expenses are not deductible for federal purposes, New York law allows and encourages these businesses to conduct any other legal business in the state,” a memo added to the bill. he says. “The city’s business taxes should likewise encourage these business activities.”

He also notes that the reform legislation has the support of New York Mayor Eric Adams (D).

Lawmakers in several states have sought tax solutions as congressional marijuana reform legislation continues to stall, leaving state-licensed cannabis businesses under the ban with significantly higher federal effective tax rates.

For example, last month the Pennsylvania House approved a sweeping tax reform bill that included language to provide state-level relief to the medical marijuana business. The reform drew the ire of Republican members, who typically champion tax cuts — as a gift from the Democratic party to the cannabis industry.

In August, Maine’s governor signed legislation to separate the state tax from federal policy for the cannabis business.

The governor of Illinois also signed a budget bill in June that included provisions that would allow licensed marijuana businesses to receive state tax breaks that are prohibited under IRS code.

That same month, Connecticut’s governor also signed budget legislation that included provisions to provide state-level tax breaks to licensed marijuana businesses as a federal 280E solution for the industry.

Also, New Jersey’s governor signed legislation in May allowing licensed marijuana businesses to deduct certain expenses on their state tax returns, in part as an amendment to IRS 280E. Lawmakers in Iowa and Virginia have similarly introduced tax breaks for each of their state’s marijuana markets.

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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 breaks available to other industry companies.

He told Marijuana Moment that “when we can fully deduct their business expenses, it’s absolutely certain that people will fully comply with the law because actually more revenue will be collected.”

For now, the marijuana industry continues to face tax policy challenges under the umbrella of prohibition. As the Congressional Research Service (CRS) noted in a 2021 report, the IRS “has offered little tax guidance regarding the application of Section 280E.”

The IRS provided some guidance in a 2020 update, explaining that while cannabis businesses cannot take standard deductions, 280E “does not prohibit a marijuana industry participant from reducing their gross receipts by the properly calculated cost of goods sold to determine their income. gross income.”

The IRS update was in response to the Treasury Department’s 2020 internal watchdog report. The department’s inspector general for tax administration has criticized the IRS for failing to properly advise taxpayers in the marijuana industry about compliance with federal tax laws. And it directed the agency to “develop and publicize specific guidelines for the marijuana industry.”

The industry’s 280E problem could also be solved if the Drug Enforcement Administration (DEA) accepts the recommendation of the US Department of Health and Human Services (HHS) and moves marijuana from Schedule I to Schedule III of the Controlled Substances Act (CSA).

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