California to allow state tax deductions for cannabis businesses

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California cannabis businesses will be allowed to deduct expenses on their state income returns after Gov. Gavin Newsom signed a legislator’s proposal into law.

Newsom signed into law AB 37, a bill introduced by a fellow Democrat, Assemblyman Reggie Jones-Sawyer

The measure will allow such state deductions, starting next year, for cannabis companies that file their taxes as sole proprietors or partnerships, Bloomberg reported.

California lawmakers tried before to implement similar legislation, but it was vetoed last year by then-Gov. Jerry Brown.

Such tax deductions remain illegal at the federal level under Section 280E of the IRS tax code.

Cannabis businesses in the U.S. continue to face significant hurdles in being able to deduct often-costly expenses because of federal restrictions.

Last year, a U.S Tax Court judge ruled against a Colorado-based marijuana business for taking deductions.

For more on AB 37, click here.

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