A Timeline and Comprehensive Review of States Approving 280E Deductions
CannaBlog by Cory Parnell, COO and Principal at Bridge West CPAs and Advisors to the Cannabis Industry
Section 280E of the Internal Revenue Code (IRC) is a compelling and often controversial issue in the cannabis industry. Enacted in 1982, this provision prohibits businesses from deducting otherwise ordinary business expenses from gross income associated with the “trafficking” of Schedule I or II substances, as defined by the Controlled Substances Act. Despite this, several states have taken progressive steps to allow businesses in the cannabis industry to utilize these deductions. Let’s delve into the latest state-by-state developments.
New York’s Progress on 280E Deductions
In a major boost to the cannabis industry, New York began allowing 280E deductions in 2023. This decision, a natural progression after the state’s adult-use marijuana legalization in 2021, brings significant tax relief for cannabis entrepreneurs in New York.
280E Deductions: A Welcome Change for New Jersey’s Cannabis Industry
Following New York and Virginia, New Jersey became another state to approve 280E deductions in 2023. This move, following the state’s adult-use cannabis legalization in 2020, is set to significantly strengthen New Jersey’s rapidly growing cannabis businesses.
Virginia Joins States Allowing 280E Deductions
After New York’s decision, Virginia also allowed 280E deductions in 2023. Aiming to boost its burgeoning cannabis industry, this move has already benefited Virginia’s cannabis operators, post their legalization of adult-use marijuana in July 2021.
2022 Developments: Massachusetts Embraces 280E Deductions
In a significant move, Massachusetts permitted 280E deductions for its cannabis industry in 2022. This decision provides an even ground for cannabis businesses in Massachusetts, boosting their competitiveness.
Illinois Leaps Forward with 280E Deductions
Illinois welcomed the use of 280E deductions for cannabis businesses in 2022. With its recreational marijuana market being one of the fastest-growing, this move greatly supports Illinois cannabis businesses.
Vermont’s 280E Deduction Update
In 2022, Vermont allowed 280E deductions for both corporate and personal income taxpayers.
California’s Decision on 280E Deductions
California, an early adopter of marijuana legalization, approved 280E deductions in 2021. The decision was a sigh of relief for California’s cannabis businesses grappling with high operating costs, improving their financial health.
New Mexico’s Update on 280E Deductions
New Mexico extended the allowance of 280E deductions to both corporate and personal income taxpayers beginning June 29, 2021.
280E Deductions in Louisiana, Minnesota, Michigan, Maine, Montana, Hawaii, and Oregon
These states allowed 280E deductions for both corporate and personal income taxpayers in their respective tax years, furthering support for the cannabis industry.
Colorado Leads the Way in 280E Deductions
Colorado, a forerunner in marijuana legalization, became the first state to approve 280E deductions in 2014. The decision has notably improved the profitability of Colorado’s thriving cannabis businesses.
Final Thoughts on 280E Deduction Updates
As more states continue to embrace the cannabis industry, the issue of 280E deductions remains pivotal. Despite federal restrictions, many states support cannabis businesses by allowing these crucial deductions. The future holds potential changes in federal policies as we continue to monitor the evolving landscape.
With 280E and other tax regulations being complex, cannabis businesses need expert guidance. At Bridge West, we assist your cannabis business in navigating these challenges, helping you maximize profitability and minimize tax liability.
Don’t let the complexities of 280E deductions daunt you. Reach out to Bridge West today for guidance in navigating the intricate world of cannabis business taxation and to take full advantage of every tax benefit.
Disclaimer: This blog post is for informational purposes only and should not be used as a substitute for professional tax advice. Always consult with your Bridge West tax professional before making any decisions about your cannabis business’s taxes.