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A Florida Republican senator has introduced a bill to allow licensed medical marijuana businesses to take state tax deductions that they are barred from claiming at the federal level under an Internal Revenue Service (IRS) code known as 280E.
The legislation, filed by Sen. Ana Maria Rodriguez (R) last week, would make Florida the latest in a growing number of states that have worked to establish tax parity for the cannabis industry that continues to face steep financial barriers under federal prohibition.
Rodriguez’s proposal would amend Florida’s tax code by allowing medical cannabis operators to claim state-level tax deductions in “an amount equal to an expenditure that is eligible to be claimed as a federal income tax deduction but is disallowed because marijuana is a controlled substance under federal law,” the bill text says.
The measure is being filed as the state Supreme Court considers a case that will decide whether voters will see an adult-use marijuana legalization initiative on next year’s ballot. The case was brought before the court following a challenge from Florida Attorney General Ashley Moody (R).
As the senator’s new tax bill is currently drafted, however, it would only extend the state-level relief to medical cannabis businesses.
Several states have recently taken similar steps as congressional efforts to enact marijuana policy reform continue to stall.
For example, New York’s governor signed legislation last month to provide tax relief to New York City marijuana businesses that are similarly blocked from making federal deductions the IRS 280E ban. A budget bill enacted last year already included provisions to broadly allow state-level cannabis business tax deductions, but the latest reform addresses the city’s separate tax policy.
In October, the Pennsylvania House approved a large-scale tax reform bill that contains language to provide state-level relief to medical marijuana businesses. The reform has drawn the ire of Republican members—who normally champion tax cuts—as a Democratic giveaway to the cannabis industry.
In August, the governor of Maine signed legislation to decouple the state tax from the federal policy for cannabis businesses.
The governor of Illinois also signed a budget bill in June that includes provisions that will allow licensed marijuana businesses to take state tax deductions that they’re currently prohibited from utilizing under the IRS code.
That same month, the governor of Connecticut also signed budget legislation that includes provisions to provide state-level tax relief to licensed marijuana businesses as a federal 280E workaround for the industry.
Also, the governor of New Jersey signed legislation in May to allow licensed marijuana businesses to deduct certain expenses on their state tax returns as a partial IRS 280E fix. Lawmakers in Iowa and Virginia have similarly pursued tax relief for each of their state’s marijuana markets.
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 deductions that are available to companies in other industries.
He told Marijuana Moment that he’s “absolutely convinced when we are able to fully deduct their business expenses that there actually will be more revenue collected because people will comply fully with the law.”
For the time being, the marijuana industry continues to face tax policy challenges under the umbrella of prohibition. And as the Congressional Research Service (CRS) noted in a 2021 report, IRS “has offered little tax guidance about the application of Section 280E.”
IRS did provide some guidance in an update in 2020, explaining that while cannabis businesses can’t take standard deductions, 280E does not “prohibit a participant in the marijuana industry from reducing its gross receipts by its properly calculated cost of goods sold to determine its gross income.”
The IRS update seemed to be responsive to a Treasury Department internal watchdog report that was released in 2020. The department’s inspector general for tax administration had criticized IRS for failing to adequately advise taxpayers in the marijuana industry about compliance with federal tax laws. And it directed the agency to “develop and publicize guidance specific to the marijuana industry.”
The industry’s 280E problem could also be resolved if the Drug Enforcement Administration (DEA) accepts the recommendation of the U.S. 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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Back in Florida, a recent survey found that nearly seven out of ten registered voters say they support the marijuana legalization initiative that may appear on next year’s ballot depending on the outcome of the case before the state Supreme Court, which heard oral arguments from Moody’s office and the Smart & Safe Florida campaign last month.
The state official’s main argument is that the ballot measure is affirmatively misleading, in part because she says voters would not be able to understand from the summary that marijuana would remain federally illegal even if Florida moved to legalize.
The campaign and supporters have maintained that the court must respect the intent of the citizen initiative process and allow voters the opportunity to decide on the issue after they turned in nearly one million signatures for ballot placement that have been certified by the state.
Moody made the same argument about misleading ballot language against a 2022 legalization measure, and the Supreme Court subsequently invalidated it.
An economic analysts from the Florida legislature and the office of Gov. Ron DeSantis (R) estimate that the 2024 marijuana legalization initiative would generate between $195.6 million and $431.3 million in new sales tax revenue annually if voters enact it.
The legalization campaign shouldn’t expect to receive support from DeSantis, a GOP 2024 presidential candidate, who said at a recent event that he would not move to federally decriminalize cannabis if elected.
DeSantis signed a bill that took effect over the summer that added restrictions to medical marijuana advertising and manufacturing, prohibiting any products or messages that promote “recreational” cannabis use, while adding more stringent eligibility requirements for workers in the industry.
He also signed legislation in July banning sales of any consumable hemp products—including cannabis “chewing gum”—to people under 21, an expansion of an existing prohibition on young people being able to purchase smokable hemp.
Additionally, the governor approved a bill in June that expressly prohibits sober living facilities from allowing residents to possess or use medical marijuana, even if the patient is certified by a doctor to legally use cannabis therapeutically in accordance with state law. All other doctor-prescribed pharmaceutical medications may be permitted, however.
Photo courtesy of Mike Latimer.
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