Maine Governor Janet Mills has signed into law legislation that is seen as a partial remedy to Internal Revenue Service (IRS) code 280E.
IRS code 280E explicitly prohibits businesses from taking tax deductions if they’re federally illegal, even if they’re legal under state law. This has placed a large burden on many state-legal marijuana stores, leading to states like New Jersey passing laws that allow for these businesses to take standard state-level deductions.
Under the new law, proposed by Senator Teresa Pierce, Maine will use a portion of the tax revenue marijuana stores send them as a means of making up for lost revenue resulting from tax deductions that will be available for “business expenses related to carrying on a trade or business as a registered caregiver, a registered dispensary or a manufacturing facility,” in addition to “a cannabis establishment or testing facility” as of January 1.
Deductions would be “an amount equal to the deduction that would otherwise be allowable under this Part to the extent that the deduction is disallowed under the Code, Section 280E”.
“The contrast in the tax code is appalling”, says Senator Pierce. “The effective tax rate for businesses able to write off business expenses is roughly 40% of their gross income. Comparatively, the effective tax rate for businesses that are unable to deduct ordinary businesses expenses is approximately 70% of gross income”.
Pierce says this “unfair tax code is significant and means a 30% loss for business owners to reinvest in their business, hire and retain quality employees, and offer greater benefits to current employees.”
In June marijuana stores in Maine sold $18 million worth of marijuana, a new monthly record.