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Sunday, June 4, 2023

New tax deductions for cannabis in New York

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New York took advantage of a very large tax break for the cannabis business in its 2022 budget. Revenue bill  included a state tax deduction for cannabis-related business expenses that are not currently permitted under § 280E of the federal tax code. We have seen this strategy in other “canna-friendly” countries and it is a welcome development.

Under the Revenue Code, the federal tax cuts are Prohibited by Section 280E From the Internal Revenue Code relating to “trafficking” in Schedule I, controlled substances may be counted for calculating net income for state tax purposes. Eligible expenses cannot be used as the basis for any other tax deduction, exemption or credit.

The language in the Revenue Code is an offshoot of S7518, introduced by New York Senator Jeremy Cooney, which could have had the same effect.

The impact of S7518 will be great. By allowing cannabis companies to deduct their operating expenses statewide, the legislation will allow them to operate like a legitimate business in New York.”

The same applies to language in the Revenue Code. A significant financial barrier to a cannabis business is Section 280E of the Internal Revenue Code, as federal tax law prohibits a cannabis business from deducting, adding to, or incurring any amount as part of operating its business, other than what would be recorded in “good selling costs.” (You can read a few From our other publications in Section 280E here And here And here And here  And also here).

It may sound like dry legislation, but that’s a huge problem. The S7518’s proposed rationale applies here: Allowing discounts enhances social equity and a competitive business environment by lowering the cost of doing business. It is assumed that large multi-state operators who can pay the higher effective tax rate will have less advantage in the impending New York market.

Stay tuned for more developments in the adult-used cannabis industry in New York.

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