S.420 – Federally Legal Cannabis
S.420 – Federally Legal Cannabis – Sen. Ron Wyden (D-Ore) and Rep. Earl Blumenauer (D-Ore.) have introduced a bill that, if passed, would legalize cannabis on the federal level, which would have the effect of ending the myriad tax and financial restrictions faced by today’s cannabis business owners, according to Accounting Today. The legislation would, at the same time, respect individual state laws regarding the substance. The bill, the Marijuana Revenue and Regulation Act, contains a provision that would treat state-legal marijuana businesses like other small businesses by repealing the tax penalty that singles out marijuana businesses and prohibits them from claiming deductions and tax credits.
Currently in the 10 states, plus the District of Columbia, that allow recreational cannabis use, businesses are facing a number of restrictions that prevent them from taking advantage of the same tax deductions that most other firms take for granted. That is due to federal law that prevents any entity that sells a controlled substance from taking advantage of tax deductions. For example, such a business would not be able to deduct advertising, insurance, marketing, rent, repairs, salaries, state taxes, utilities and many other expenses. The only item that such businesses can deduct is cost of goods sold, which is governed by Section 280E.
Banking is also a major hurdle for these businesses, as many financial institutions, due to other federal rules, will not deal with the cannabis industry. Because of this obstacle, it is estimated that only 14 percent of cannabis businesses have bank accounts. As a result, many companies have been forced to pay their bills with thick stacks of cash, which carries numerous logistical problems, such as having to count it, transport it, and protect it from theft, which all require additional expense.
The bill explicitly addresses both of these issues. It also would impose an excise tax on marijuana products, annually escalating until it reaches 25 percent of sales price. This would work similarly to excise taxes on alcohol and tobacco. Producers, importers and wholesalers would also be required to get a permit from the Treasury Department.
The bill, S. 420 (yes, really), has been referred to the Senate Finance Committee.