In the past two months, New York State Senator Jeremy Cooney has introduced two pieces of cannabis legalization that could significantly affect the New York cannabis industry. The first is Senate Bell S7517A, which expands the applicant’s definition of social and economic equity under the Marijuana and Tax Regulation Act (MRTA) to include gender equality. The second is Senate Bill S7518 To allow tax deductions for commercial cannabis activities. Let’s go through them in detail:
S7517A – Extending the Applicant’s Definition of Social and Economic Equity
This bill expands the list of eligible applicants for social and economic equity to include “transgender, gender non-conforming, and nonbinary individuals.” The bill defines “transgender, gender non-consistent and nonbinary individuals” as “any person who has a gender identity or expression different from the sex assigned to that individual at birth.”
Senator Coney has repeatedly spoken about the importance of broadening the range of eligible socioeconomic applicants to include transgender, gender nonconforming, and nonbinary individuals. The justification for the legislation explains why:
“All New Yorkers deserve the right to express and identify their gender as they choose. An unintended consequence of [the MRTA] It may force certain individuals to choose between their gender identity and receiving priority for a license. The social justice aspect of the MRTA aims to advance historically marginalized groups through economic opportunities in the cannabis industry and this law advances this effort.”
S7518 – Allowing tax deductions for commercial cannabis activities
The language of this law is straightforward: the prohibition against deducting expenses related to the illicit sale of drugs does not apply to a licensee under the MRTA. The bill explicitly lists each type of license and includes by reference the definition of “licensee” under the MRTA. Other cannabis-friendly countries have passed Similar tax deduction laws.
The text of the proposed bill refers to the primary federal tax code on which (was) the ban: Section 208E of the Internal Revenue Code. We have written extensively on this topic (eg hereAnd hereAnd hereAnd here And here). In short, a cannabis business cannot deduct or credit any amount paid or incurred as part of the operation of its business, other than what may be recorded in “costs to sell.”
The impact of S7518 will be great. By allowing cannabis companies to deduct their operating expenses statewide, the legislation would allow them to operate like a legitimate business in New York. (Note: This legislation will not change federal tax law.)
The bill’s justification section highlights two goals In Passing the MRTA: Promoting Social Equity and a Competitive Business Environment. As stated in the justification section:
- “New York cannot meet the objectives set out in the MRTA for social and economic justice if the cost of doing business prevents stock candidates from actually participating. . . . if [the tax code] Without change, people will not be able or unwilling to leave the old market for licensed work.”
- The bill would ensure that the adult cannabis market would not only be dominated by multi-state operators who could pay the higher effective tax rate.
It is important to note that neither S7517A nor S7518 are legal. But the justifications for both legislation are sound. Stay tuned for more developments in the New York cannabis industry, legislative or otherwise!