State-legal marijuana businesses would enjoy long-requested federal tax relief under a bill introduced Monday in the U.S. House of Representatives by a key congressional cannabis advocate.
The Small Business Tax Equity Act, introduced by Rep. Earl Blumenauer, an Oregon Democrat who co-chairs the Congressional Cannabis Caucus, would make marijuana businesses obeying state law exempt from Section 280e of the Internal Revenue Code.
That section of the tax code, long a bane of legal marijuana businesses, prohibits sellers of Schedule 1 controlled substances from making certain typical business deductions on their federal tax returns.
With cannabis businesses unable to claim those expenses, their effective tax rates can reach 90%, industry advocates say.
In turn, this situation incentivizes the tax-free illicit market that jeopardizes the marijuana legalization experiment itself, a reality Blumenauer acknowledged.
“This grotesquely unfair treatment incentivizes people to cut corners,” he said in a statement Monday.
“If Congress wants to get serious about supporting small businesses and ending the illicit cannabis market, it is commonsense that we allow legal cannabis operations to deduct business expenses, just like any other industry.”
It’s unclear whether the bill will be called for a hearing in the Republican-controlled House.
Marijuana reform has enjoyed mixed results in Congress. Banking reform has passed the House repeatedly, only to die in the Senate.
President Joe Biden, meanwhile, called last fall for an administrative review of marijuana’s status under the federal Controlled Substances Act.
That process could take years, and constitutional law experts say Congress would still likely have to act.