By Illinois Governor JB Pritzker recently signed the budget This includes provisions for the cannabis industry specifically regarding the establishment of dedicated funds for cannabis businesses and permitting tax exemptions.
The 2024 state budget includes cannabis regulations and tax legislation that addresses the problem of cannabis businesses not entitled to tax credits under Section 280E. Through the newly signed state budget, licensed cannabis businesses can “…equate deductions disallowed under Section 280E of the Internal Revenue Code in the tax year…” deduction will be allowed. Applies to tax years from 1 January 2023 onwards.
according to National Cannabis Industry Association, Section 280E The law originated in a 1981 lawsuit involving cocaine traffickers who “claimed their right to deduct ordinary business expenses under federal tax law.” By the following year, Section 280E was created, prohibiting tax credits if a transaction contained a controlled substance.
Ann Internal Revenue Service Article A paper written in September 2021 by Small Business/Self-Employed Examiner De Ron Harris reviewed the challenges 280E poses to cannabis businesses in states like Illinois. “Section 280E of the IRS Act makes it clear that all deductions and credits are not allowed for illegal businesses, but there is a caveat. cost of inventory) can be deducted,” Harris wrote. . “Non-deductible expenses are ordinary expenses such as advertising expenses, wages and salaries, and travel expenses.”
Harris gave tips on how to stay compliant, including knowing and trusting investors, filing and paying taxes on time, reporting cash transactions, and keeping accurate records. . In late December 2021, Mr. Harris attended a webinar to further explain how he can leverage his IRS as a resource for complying with the law. “It is the true mission of the IRS to promote voluntary compliance, not just for the marijuana and cannabis industries, but for all taxpayers,” Harris said. “And it can happen in a number of ways. We believe it’s the only way to try and promote, but we’re fair in our service and education as well.”
The Fiscal Year 2024 state budget also includes provisions to create a cannabis business development fund aimed at supporting cannabis business owners in Illinois. The fund will “provide low-interest loans to eligible social equity applicants” to pay for the costs of “starting and running” a cannabis business (and the costs associated with those low-interest loans and financing). reimburse the Department of Commerce and Economic Opportunity for the costs). Subsidy). The fund will also invest in outreach efforts “intended to attract and support” social equity applicants and research targeting “minorities in the cannabis industry, women, veterans and people with disabilities.” will also pay. The provision ends by adding that state administrators will transfer $40 million from the Medical Cannabis Compassionate Use Fund to the Cannabis Business Development Fund by July 1, 2023.
Illinois isn’t the only state trying to enact legislation to help tax cannabis businesses. On May 8, New Jersey Governor Phil Murphy approved it. law To “separate state tax regulations from federal prohibitions on cannabis business deductions.” June 12, Connecticut Governor Ned Lamont Also approved is a biennial state budget that includes provisions for tax credits under 280E.
New York Senate recently approved the bill To reduce taxes on cannabis businesses. “This income modification is appropriate because, while the expenses of cannabis-related businesses cannot be deducted for federal purposes, New York law does not allow these businesses to be covered by other lawful businesses conducted in the state. because we allow and encourage it as much as we do.” invoice memo. “The city’s business tax should likewise encourage such business activity.”
