Tax Foundation Comments On Schumer Bill


Here’s what they are saying New Tax in Town? Federal Proposal to Deschedule and Tax Marijuana Today, Senate Majority Leader Chuck Schumer (D), Senate Finance Committee Chairman Ron Wyden (D), and Sen. Cory Booker (D) released their discussion draft—the Cannabis Administration and Opportunity Act—for federal descheduling of marijuana. While federal descheduling impacts all states, it does not deschedule marijuana in states which choose to keep their own ban. Nevertheless, descheduling would have a profound effect on the marijuana businesses operating in states which have already legalized use—either medically and/or recreationally—by normalizing income tax treatment, opening access to capital, and permitting interstate commerce in cannabis. The bill includes an excise tax with a rate of 10 percent in the first year, growing to 25 percent in the fifth year. The House of Representatives already has a bill, the MORE Act, which would also deschedule and tax marijuana. In the short term, existing businesses would benefit from descheduling by no longer being subject to Section 280E, enacted in 1982 to deny the deduction of business expenses to those selling drugs on Schedules I and II of the Controlled Substances Act. While intended to stop illicit sellers from deducting expenses like guns and yachts used in smuggling operations, the IRS applies it to state-authorized marijuana retailers, which hurts taxpayers trying to comply with the law and creates a competitive advantage for the illicit operators that Section 280E was enacted to penalize. This particular section of the tax code limits the deductions businesses can take when calculating their income tax liability. Traditional businesses can deduct ordinary expenses such as rent, marketing, utility costs, and payroll, but marijuana businesses are limited to deducting cost of goods sold (COGS). Cultivators and wholesalers have had an easier time than retailers as more expenses are directly associated with COGS. The unfavorable treatment of…

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Source : Tax Foundation Comments On Schumer Bill

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