As States Legalize Cannabis, Feds Use Sneaky Tactic to Continue the Drug War
By: Carey Wedler
This week, the people of Oregon, Alaska and Washington D.C. voted to legalize cannabis. This is positive news for those who understand the benefits of medical marijuana and the waste, violence, and oppression of the Drug War. But while states across the country are increasingly changing their minds about cannabis prohibition, the Feds have another trick up their sleeves.
Though the drug warriors in Washington are losing the war of public opinion and elections when it comes to legal weed, they still hold the keys to taxation
–and using this power, the IRS is making it difficult for marijuana businesses to stay afloat.
The IRS has been relying on the tax provision 280E, established in 1982. Keeping with a decades-old Supreme Court ruling that income from illegal activities is still taxable, 280E establishes that businesses selling a Schedule I or II drug
–which include marijuana, cocaine, and MDMA, to name a few –cannot deduct all of their business expenses. In a show of warped logic, individuals can deduct costs of growing and production (like fertilizer and soil), but not those of sale (such as advertising, rent, and employee salaries).
Denver lawyer and marijuana advocate, Rob Corry, said of this policy:
“If it made sense, I would feel better about following it. I don’t see why production is deductible — they are still producing marijuana!”
As a result of this tactic, numerous new marijuana businesses are unable to deduct many of their costs, making it a challenge to stay in business.
Mitch Woolhiser, owner of Northern Lights Cannabis in Edgewater, Colorado, believes the federal government is actively trying to undermine his business. If he worked in any other industry, he would not have owed taxes last year because he operated at a loss. However, because he sells cannabis, he owed the government $20,000.
The feds appear to be playing a powerful, creative game to make the proliferation of marijuana less pervasive. Taylor West, the deputy director of the National Cannabis Industry Association, says that 70% of her clients’ profits go to the IRS.
“A lot of people think that the marijuana industry is just a license to print money. And it’s just not the case.”
John Cornelius, a Denver accountant who works with marijuana businesses, claims he has worked with clients who have paid upwards of 80%, 90%, and even over 100% of their profits to the IRS. He believes that
“…the feds extend the drug war through 280E. If (the federal government) can’t put them out of business legally when voters are mandating these businesses to move forward, it’s very easy to put them out of business financially.”
The DEA, IRS, and DOJ all declined to comment to USA Today, which published the in-depth story on this topic. Rather, the IRS provided a 2010 letter to the newspaper, written in response to requests to the IRS from lawmakers in states like Colorado, Arizona, Massachusetts and California. They asked the department to stop enforcing 280E. The letter in response to their request said:
“The result you seek would require the Congress to amend either the Internal Revenue Code or the Controlled Substance Act.”
Multiple members of Congress received the letter from state lawmakers, but little action has been taken.
Regardless of resistance from the federal government, the trend toward legalization and tolerance for non-violent “offenses” is unstoppable
–as Tuesday’s votes showed. At this point, attempts by the IRS and other branches of D.C. authority to close the floodgates are futile. Though they are making circumstances arduous for many businesses now, such petty attempts to stifle progress are increasingly laughable.
As Woolhiser said of the IRS:
“It’s almost like they want us to fail. Everything I do is aimed at keeping us in business because if I don’t, then (the feds) win. And I’m not going to let them win.”