As recently discussed here, the current state of the law allows business owners in the cannabis industry to take certain deductions on their state income tax returns, but not on their federal tax returns. That may soon change. The House Judiciary Committee approved the MORE Act (Marijuana Opportunity Reinvestment and Expungement Act) yesterday; now the bill will be reviewed by the House. If passed, marijuana will be removed from the list of federally controlled substances allowing business deductions for California cannabis business owners at the federal level. The bill provides for a 5% tax on marijuana products to fund programs to help people impacted by the "war on drugs."
California Governor Gavin Newsom recently signed AB 37 into law, which legalizes licensed state cannabis businesses including marijuana growers, processors, and sellers to take deductions for their business expenses on state income tax returns. It exempts these businesses from federal law section 280E, which categorizes cannabis sales under the "illegal sale of drugs" and therefore prohibits these businesses from writing off expenses as any other business would. To read AB 37 in full, click here.
A California real estate professional was recently sentenced to 2 years in prison for filing false income tax returns that failed to report over $1 million in cash earned through marijuana sales made between 2012 and 2014. In addition, he was ordered to serve one year of supervised release and pay $466,707 in restitution to the IRS.
The California Secretary of State recently launched a new online portal, cannabizfile, for those interested in establishing a cannabis-related business. You will find information on topics including registering your business, trademark, or service mark; searching for business records; licensing; and registering and paying taxes with various state agencies.
The California Supreme Court issued a ruling on August 28, 2017 in California Cannabis Coalition v. City of Upland that may have created a loophole for special interests to get around the limitations on tax increases established by Propositions 13 and 218. In the instant case, an initiative was proposed in Upland, California to repeal an ordinance banning medical marijuana dispensaries and instead allow up to three dispensaries to obtain permits, subject to an "annual Licensing and Inspection fee" totaling $75,000. Since this fee exceeds the costs incurred by the government for issuing the license, it is considered a general tax. Normally, such taxes can only be heard at general elections, but an exception was made and the initiative was voted on in a special election.