Three Colorado politicians have been working in Washington, D.C., to change a federal tax code costing legal cannabis businesses a lot of money. Section 280E of the IRS tax code, added in 1982, was intended to stop drug dealers from buying expensive possessions with cash and writing them off, but now it's forcing pot businesses to pay tax rates as high as 70 percent on their earnings, according to owners within the industry.
Because cannabis is labeled a Schedule I substance federally, state-licensed cultivators, infused-product manufacturers and dispensary owners are unable to file for business-expense deductions available to other industries. Those include work travel, car mileage and even charitable donations, such as the $10,000 LivWell donated to complete funding for a Denver tiny homes village in October.
"It's an issue worth being talked about," said LivWell CEO and founder John Lord at the time. "We're trying to create jobs and make more revenue to tax, but [280E] makes a lot of that harder."
Two Colorado senators and a representative have been talking about the issue in D.C. this week, though one attempt has already been shot down. Democratic Representative Jared Polis introduced an amendment to the Republican-backed tax-reform plan during a House Rules Committee hearing on Tuesday, November 14, that would have exempted state-licensed cannabis businesses from 280E. Polis told the committee that 280E created "unsustainable tax burdens" on small businesses, adding that his amendment would help state cannabis industries grow sustainably.
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"This is a very important amendment to my state," Polis said. "Even though this economic activity is now legal under Colorado law and the law of many other states, and even though the people of Colorado have overwhelmingly supported this direction, our businesses in our state have been punished by enforcement of section 280E. What other business do we force to pay a 70 percent tax rate?"
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Polis's amendment failed to make it to the House floor, losing on a 3-8 vote. However, legal pot's fight against 280E isn't over yet. Colorado senators Cory Gardner and Michael Bennet have lent their support to a Senate bill that would essentially do the same thing. The Small Business Tax Equity Act of 2017, introduced by Oregon senator Ron Wyden, would exempt state-licensed cannabis businesses from "the prohibition against allowing business-related tax credits or deductions for expenditures in connection with trafficking in controlled substances."
The bill was introduced in March and referred to the Senate Finance Committee, where it currently awaits consideration, but Gardner was just added as a co-sponsor on Wednesday, November 15. “Our current tax code puts thousands of legal marijuana businesses throughout Colorado at a disadvantage by treating them differently than other businesses across the state,” Gardner said in announcing his position. “It’s time for the federal government to allow Colorado businesses to compete."
Bennet has long been a vocal supporter of giving Colorado cannabis businesses access to the same financial resources as other industries. In 2016, he penned a public letter to the Board of Governors of the Federal Reserve System urging the Federal Reserve to issue guidance for financial institutions interested in working with legal pot money.
Colorado's legal cannabis industry revenue has been under the spotlight since the Marijuana Enforcement Division's first tax-revenue report in 2014, when the state began retail sales. Total revenue reached over $1.3 billion in 2016, according to calculations on MED tax data, with 2017's numbers already close to that.