New Jersey Governor Phil Murphy has signed into law legislation to allow legal marijuana businesses to take standard state-level tax deductions.
The New Jersey senate passed Bill A3946 in February by a vote of 32 to 3, roughly four months after the Assembly passed it by a vote of 60 to 6. Today the measure was signed into law by Governor Murphy.
The legislation is seen as a partial remedy to IRS code 280E, which prevents federally illegal entities from taking tax deductions. Although the measure doesn’t allow marijuana businesses to take federal tax deductions, it would allow them to take the state-level tax deductions the same as any other legal business in New Jersey.
Introduced by Assemblymember Annette Quijano, the proposal states that tax deductions for marijuana stores “shall be determined without regard to section 280E of the Internal Revenue Code.” This would not allow marijuana outlets to take federal tax deductions.
The measure would “apply to taxable years beginning on or after January 1 following enactment”.
“[P]roviding access to these deductions and credits may also help generate more economic activity by cannabis businesses”, says an analysis from the Office of Legislative Services (OLS). “[T]he State and local governments that tax cannabis businesses might indirectly realize an indeterminate amount of additional annual revenue.”
OLS notes that the legal adult-use cannabis industry in New Jersey is immature at the time of this writing, having only begun sales at limited locations in April of this year. “The industry may significantly grow or change in unpredictable ways over the coming years, casting uncertainty over any fiscal estimate.”
Following the governor’s signing of A3946, the New Jersey Cannabis Trade Association said:
The continued implementation of 280E placed severe financial constraints on cannabis operators, big and small, by prohibiting them from deducting common business expenses from their taxes. Now, New Jersey’s licensed cannabis operators will be treated like any other legal enterprise operating in New Jersey, a sense of normalcy that our industry will cherish.
