Until Congress can sort out the conflicting federal and state laws on marijuana, it appears marijuana businesses won’t get a green light on tax breaks, and the confusion is affecting the cannabis industry.
Because marijuana remains illegal federally, Treasury Secretary Steve Mnuchin and several legislators recommend holding off on allowing marijuana business tax benefits. Mnuchin answered questions from the Senate Appropriations Subcommittee on Wednesday.
Lack of clarity on deducting expenses causes headaches as well. Because IRS Provision 280E won’t allow businesses that sell schedule I substances (this list includes marijuana), players in this industry pay a higher tax rate.
Legislators have suggested lumping marijuana with other industries that pay tax code section 1400Z-2, otherwise known as the ‘sin tax’. Liquor, gambling, tanning salons and country clubs also qualify for this tax.
The conflict on taxes and banking is due to the myriad of confusion over state and federal regulations, and Treasury Secretary Steve Mnuchin advocated for a self-governing approach, with state lawmakers collaborating to find a way to bridge the gap between state legalization and federal regulations until Congress can find a solution.