Pot May Be Illegal, but the Feds Are Delighted to Tax It

Dried marijuana and a pile of $100 bills

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U.S. companies large and small legally deduct the expenses of doing business from their gross profits before paying income tax, but purveyors of marijuana (in states where possession is legal and where prescription marijuana is dispensed) cannot deduct those expenses and thus wind up paying a much higher federal income tax than other businesses. As NPR reported in April, “Section 280E” of the tax code (enacted in 1982 to trap illegal drug traffickers into tax violations) has not been changed to reflect state legalizations. The effect, experts told NPR, is that legal dispensaries in essence wind up paying tax on their gross receipts while all other legal businesses are taxed only on their net receipts. (The federal government, of course, continues to regard marijuana as illegal.) [NPR, 4-2-2013]

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