5 ms·

The section on marijuana is particularly interesting. You are apparently allowed to deduct ordinary business expenses, even if the business in question is illeg

by jbrot 4y ago

The section on marijuana is particularly interesting. You are apparently allowed to deduct ordinary business expenses, even if the business in question is illegal. However, Congress has explicitly disallowed these deductions in the case of illegal drug trafficking. Since marijuana is illegal federally, the courts have ruled that medical and recreational marijuana businesses that are legal under state law may not deduct any of their ordinary business expenses from their federal taxes.

mjthrowaway1 4y ago
Yes, it’s brutal. With the Tax Cut and Jobs Act you can incorporate more expenses in to indirect COGS but sales, marketing, opex, admin are non-deductible.
vmception 4y ago
I wonder if that passed the 14th amendment’s equal protection clause. Curious how Congress’ exception is written. Maybe if they tied it to anything on the scheduled substances list then it would pass the 14th amendment. Edit: > if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law Ah yes, they wrote it that way. Ok.
- KMag 4y ago
  It would be interesting to see this challenged for the case where interstate commerce isn't involved. I know the federal government has regularly asserted jurisdiction under the premise that drugs that don't cross state lines still affect interstate prices. I doubt it would be successfully challenged, but it would still be interesting to see it challenged. (I'm not a lawyer. This is not legal advice.)
  - aaronblohowiak 4y ago
    All commerce is interstate commerce since the constitution got shredded by the courts.
  - vmception 4y ago
    What would be the challenge to affirm, the right to take a tax deduction on purely intrastate commerce? The feds might like that case because it furtheraffirms their ability to tax anyway they seem fit on purely intrastate commerce too. I think it relies on you taking the deductions to begin with and the IRS saying “heyyy waaait a minute, some of these deductions in the trafficking of scheduled substances violate Section 230E, the others good though!” Which .. isnt really that farfetched but aside from the tax court case you could be facing a defrauding the US government criminal charge, and other stuff actual lawyers might be more aware of.
chiefalchemist 4y ago
Slight but important correction. These business are not legal at the state level, their products are decriminalized. Since, as you noted, they are illegal federally, the best states can do is decriminalize. They cannot override the fed status.
- rootusrootus 4y ago
  Has that actually been decided? The businesses are legal under state law, and if they aren't selling across lines then it's starting to get into gray areas on what enforcement power the feds actually have. Which is probably why they haven't really pushed the issue, because they have reason to believe it wouldn't go their way.
  - zdragnar 4y ago
    So long as Wickard v. Filburn remains precedent, it is really quite settled. The only question is if it will be enforced. Since the states had voted to legalize it, it is obviously politically unpopular to clamp down on them, but they will likely continue to make the operational aspects of these business very difficult (banking, credit card processing, etc).
    - rootusrootus 4y ago
      > Wickard v. Filburn At the risk of exposing just how much I am not a lawyer, doesn't that decision rely on the interpretation that the farmer's activities did have a plausible effect on the wider market? Wouldn't that be a tougher sell in the case of cannabis, where there is no national market? > remains precedent The current Supreme Court really seems willing to toss aside precedent. I wonder what direction they'd go on this issue.
      - zdragnar 4y ago
        In the case, the farmer was growing wheat for his own personal use. The justification was that by growing his own, he was opting out of the market, and therefore his actions fell under the commerce clause. In the case of cannabis, these are literal businesses engaging in the act of buying and selling. Illinois and probably other states differentiate the amount that can be sold to a customer depending on whether or not they are residents or from a different state. The notion of national market versus not is a red herring; markets are concepts, not tangible things, and the concept exists independent of the government itself. Making something illegal doesn't stop the sale of it, otherwise there would be no point in the DEA existing. As for the supreme court, one can hope.
peter303 4y ago
The legal pot industry will have good profit boost once its economic model is legalized. People in Congress have been trying for over a decade and momentum is building.
- refurb 4y ago
  I'm not sure. In Canada it's legal and so much money was invested prices plummeted in terms of the cost of marijuana. Maybe not surprising since you can easy grow more than demand. Once enough producers and retailers go under then you'll probably find some nice equilibrium, but margins will be very small.

by jbrot 4y ago

mjthrowaway1 4y ago

Yes, it’s brutal. With the Tax Cut and Jobs Act you can incorporate more expenses in to indirect COGS but sales, marketing, opex, admin are non-deductible.

vmception 4y ago

I wonder if that passed the 14th amendment’s equal protection clause. Curious how Congress’ exception is written. Maybe if they tied it to anything on the scheduled substances list then it would pass the 14th amendment. Edit: > if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law Ah yes, they wrote it that way. Ok.

KMag 4y ago
It would be interesting to see this challenged for the case where interstate commerce isn't involved. I know the federal government has regularly asserted jurisdiction under the premise that drugs that don't cross state lines still affect interstate prices. I doubt it would be successfully challenged, but it would still be interesting to see it challenged. (I'm not a lawyer. This is not legal advice.)
- aaronblohowiak 4y ago
  All commerce is interstate commerce since the constitution got shredded by the courts.
- vmception 4y ago
  What would be the challenge to affirm, the right to take a tax deduction on purely intrastate commerce? The feds might like that case because it furtheraffirms their ability to tax anyway they seem fit on purely intrastate commerce too. I think it relies on you taking the deductions to begin with and the IRS saying “heyyy waaait a minute, some of these deductions in the trafficking of scheduled substances violate Section 230E, the others good though!” Which .. isnt really that farfetched but aside from the tax court case you could be facing a defrauding the US government criminal charge, and other stuff actual lawyers might be more aware of.

chiefalchemist 4y ago

Slight but important correction. These business are not legal at the state level, their products are decriminalized. Since, as you noted, they are illegal federally, the best states can do is decriminalize. They cannot override the fed status.

rootusrootus 4y ago
Has that actually been decided? The businesses are legal under state law, and if they aren't selling across lines then it's starting to get into gray areas on what enforcement power the feds actually have. Which is probably why they haven't really pushed the issue, because they have reason to believe it wouldn't go their way.
- zdragnar 4y ago
  So long as Wickard v. Filburn remains precedent, it is really quite settled. The only question is if it will be enforced. Since the states had voted to legalize it, it is obviously politically unpopular to clamp down on them, but they will likely continue to make the operational aspects of these business very difficult (banking, credit card processing, etc).
  - rootusrootus 4y ago
    > Wickard v. Filburn At the risk of exposing just how much I am not a lawyer, doesn't that decision rely on the interpretation that the farmer's activities did have a plausible effect on the wider market? Wouldn't that be a tougher sell in the case of cannabis, where there is no national market? > remains precedent The current Supreme Court really seems willing to toss aside precedent. I wonder what direction they'd go on this issue.
    - zdragnar 4y ago
      In the case, the farmer was growing wheat for his own personal use. The justification was that by growing his own, he was opting out of the market, and therefore his actions fell under the commerce clause. In the case of cannabis, these are literal businesses engaging in the act of buying and selling. Illinois and probably other states differentiate the amount that can be sold to a customer depending on whether or not they are residents or from a different state. The notion of national market versus not is a red herring; markets are concepts, not tangible things, and the concept exists independent of the government itself. Making something illegal doesn't stop the sale of it, otherwise there would be no point in the DEA existing. As for the supreme court, one can hope.

peter303 4y ago

The legal pot industry will have good profit boost once its economic model is legalized. People in Congress have been trying for over a decade and momentum is building.

refurb 4y ago
I'm not sure. In Canada it's legal and so much money was invested prices plummeted in terms of the cost of marijuana. Maybe not surprising since you can easy grow more than demand. Once enough producers and retailers go under then you'll probably find some nice equilibrium, but margins will be very small.