Feds Slap 70% Tax on Legal Marijuana Businesses

[name not needed]

Legal marijuana sales in Colorado and Washington have grossed billions, but legal dealers will see little of that thanks to a draconian federal law meant to punish street pushers.

In one of the first years of legal sales, 2015, Colorado moved nearly $1 billion worth of marijuana and is estimated to take in $135 million in taxes on it. Meanwhile, Washington is expected to pull in around $1 billion in revenue from sales taxes between 2015 and 2019. Despite technically being illegal on the federal level, these businesses must file taxes to the Internal Revenue Service—and they may pay as much as 70 percent in taxes to the feds.

That’s thanks to Section 280E of the tax code. Congress passed the measure in 1982 so that businesses who are “trafficking in controlled substances” that are prohibited by federal law may not utilize many tax deductions and credits available to other businesses, like deducting rent and employee related expenses. That means a marijuana business owner can pay an effective tax rate as high as 70 percent, as opposed to the more typical 30 percent rate.

It came about when a Minneapolis drug dealer named Jeffrey Edmondson tried to argue in court that he should be allowed to write off expenses related to his business. That greedy bastard.


http://www.thedailybeast.com/articles/2016/02/18/feds-slap-70-tax-on-legal-marijuana-businesses.html

[yeoman6987]

1. A business that actually pay taxes. Wow. Hopefully other businesses will follow someday

[NightWatcher]

2. the Feds have no trouble taxing something they still say is illegal?

They should be forced to pick a side. Either the Feds can legalize it...and accept the taxes from the legal sale, or they can continue to schedule it as an illegal substance...in that case only the states who legalize it should be able to collect taxes on it.

Which side are you on boys?

It's beyond hypocritical to cash the tax checks while still holding the possibility of federal prosecution over their heads.

[hfojvt]

3. that does not look like 70% to me

it looks unsustainable.

If you cannot deduct expenses, then you are paying tax on gross income.

So in my business, selling books, I would buy a new book for $6 and sell it for $8. My net profit is only $2. But that does not include the cost of my building or utilities or employee salaries (not that I had any employees) and so on.

In the end, my own net income was less than zero. So I could not pay any taxes (except the sales taxes I collected) on my gross income.

I mean to be able to pay taxes on gross income, you would either need a tax rate that is low or a profit margin that is very high. If the tax rate is 30% to pay a 70% tax rate, you'd have to have a profit margin of 42%. I would expect there are hardly any businesses with that kind of profit margin.