Court Sides With IRS on 280E

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A federal appeals court in California has ruled in favor of the 280E portion of the federal tax code, meaning marijuana companies will still have to battle one of the industry’s biggest challenges.

The 9th U.S. Circuit Court of Appeals ruled in a case involving a marijuana club called the Vapor Room, which claimed it was entitled to regular business expense deductions because it’s a legal company under state law.

The Internal Revenue Service, however, says that 280E prevents cannabis businesses from deducting expenses because marijuana is still federally illegal.

The court sided with the IRS and rejected the Vapor Room’s argument in a unanimous 3-0 decision. The judge said it’s up to Congress – not the courts – to change the laws on marijuana taxes.

The Vapor Room’s attorney, Henry Wykowski, noted that the decision was expected but said there’s a silver lining for the industry: The court upheld deductions for cannabis companies that deal in non-marijuana goods, such as the snacks and nonalcoholic drinks the club previously sold.

“From a tax perspective, this decision will benefit dispensaries that sell a variety of products including those that are not cannabis,” Wykowski said in an email to Marijuana Business Daily.

Aside from California, the court’s jurisdiction also includes Alaska, Arizona, Hawaii, Idaho, Montana, Nevada, Oregon and Washington.