Drug War Relic Forces Marijuana Dispensaries To Pay Up To 75 Percent Tax

The federal income tax rate of legal marijuana dealers could go as high as 75 percent, as the result of a 1982 provision to the tax code that prevents them from claiming expenses like rent and payroll as deductions, as most businesses do.

Enacted after a convicted drug dealer was caught deducting his yacht and bribes, tax code provision 280E makes it nearly impossible for medical marijuana dispensaries in the 18 states where they are legal to afford employees or function as a business.

A recent report from Michigan found that marijuana dispensaries had contributed $10 million to the state’s coffers.

“If you have a license from the state hanging on your wall, that doesn’t fit the definition of trafficking,” Jim Marty, an accountant in Colorado specializing in medicinal marijuana tax law, told CNN Money. “Yet the IRS is aggressively auditing this industry.”

The state-by-state approach to legalizing or decriminalizing marijuana presents increasing problems for federal and state officials. The drug is still officially on the Schedule 1 list of banned substances along with heroin, even as voters in Washington and Colorado approved measures that make it available for recreational use.

President Obama had said that his administration will not target recreational drug users, saying they had “bigger fish to fry.”

However, what’s being missed in the conversation is how best to protect the users of the drug with proper regulation, while maximizing the returns for taxpayers and triggering job creation.

Support for recreational marijuana legalization is around 50 percent, but the medicinal use of the drug is even more well received. A recent poll found that 7 out of 10 voters in Florida are in favor of legalizing medicinal marijuana, making it so popular that it may even influence the 2014 election of the state’s next governor.

The group 280E Reform is working to reform the tax laws in a way that treats dispensaries differently from illegal drug traffickers.

A new bill proposed by Rep. Jared Polis (D-CO) and Rep. Earl Blumenauer (D-OR) would end the federal prohibition of marijuana and begin to regulate it much like alcohol and cigarettes.