by Brandon Dunn
19 May 2021
Section 280E of the federal tax code has long been a cumbersome adversary for legal marijuana businesses. While federal relief is still yet to become a reality, Missouri legislators passed SB226 this year, offering some respite for businesses in the state.
David Smith of Smith Patrick CPA previously explained to Greenway, “Section 280E disallows deductions and credits for amounts paid or incurred in the trade or business of trafficking in controlled substances prohibited by federal law or the law of any state where the trade or business is conducted.”
In February, Greenway spoke to two legislators pushing Missouri to decouple from federal standards, Rep. Phil Christofanelli, R-St. Peters, and Sen. Denny Hoskins, R-Warrensburg.
“According to our Constitution, Missouri recognizes medical marijuana as a legal and legitimate business,” Hoskins told Greenway. “Deducting business expenses is routine practice for operating a successful, profitable business. However, medical marijuana businesses aren’t currently allowed these deductions, which in effect increases their taxes significantly,” Hoskins continued, “Allowing medical marijuana licensees to utilize these deductions like all other Missouri businesses is the right thing to do for Missouri job creators.”
“Missouri medical cannabis businesses should be treated like any other business in our state,” said Christofanelli. “Day-to-day expenses should be deductible for state income tax purposes. This bill is necessary to make that happen.”
With the passage of SB226, the state will now allow Missouri’s legal marijuana businesses to deduct the expenses disallowed from their federal returns, bringing them in line with other businesses operating in the state. While this solution does not offer any federal relief, the significance is palpable as it could mean a difference of millions of dollars for some operators.
The directly applicable section of text for Missouri marijuana businesses was amended to SB226, introduced by Sen. Andrew Koenig, R-Manchester, and follows:
(12) For taxpayers authorized to conduct business under Article XIV of the Constitution of Missouri, the amount that would have been deducted from the computation of the taxpayer’s federal taxable income if such a deduction were not disallowed under 26 U.S.C. Section 280E, as in effect on January 1, 2021, because of the status of marijuana as a controlled substance under federal law.
Full text of the bill: https://www.senate.mo.gov/21info/pdf-bill/tat/SB226.pdf
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