Lowndes – United States: Tax Court Strikes A Blow To Medical Marijuana Industry, Although Dissents Offer Some Hope

Lowndes – United States: Tax Court Strikes A Blow To Medical Marijuana Industry, Although Dissents Offer Some Hope

United States: Tax Court Strikes A Blow To Medical Marijuana Industry, Although Dissents Offer Some Hope November 13 2019 Article by Amanda Wilson Lowndes, Drosdick, Doster, Kantor & Reed, P.A. As more and more states are allowing legal use of marijuana, medical marijuana businesses are faced with large tax bills because of marijuana’s continued classification as a Schedule I controlled substance under federal law. Section 280E of the Internal Revenue Code denies deductions for expenses paid or incurred in the carrying on of any trade or business involving a federal controlled substance. As a result, the Internal Revenue Service’s position is that any business that deals with medical marijuana, even if legal under state law, cannot claim tax deductions (included deductions for their operating expenses). In a recent Tax Court case, Northern California Small Business Assistants Inc. v. Commissioner, a medical marijuana dispensary in California argued that Section 280E was unconstitutional under the Eight Amendment of the Constitution as an excessive penalty. The Tax Court rejected this argument, stating that Section 280E was enacted under the clear authority given to Congress under the Sixteenth Amendment to tax gross income. The Tax Court further noted that there is no judicial authority to…