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April 25, 2013

"Harvard Law School Offers 'Tax Planning For Marijuana Dealers' --- No Joke."

The title of this post is the headline of this new Forbes commentary which discusses a presentation of this notable paper by Benjamin Leff available via SSRN.  Here is the context for the article and why a new Forbes piece stressed its affiliation with President Obama's alma mater:

Perhaps Harvard’s Board of Trustees will get wind of it and get upset. But the ire should be directed at tax rules that need fixing.  Now that we have legalized medical marijuana in 18 states and the District of Columbia can these businesses be run like businesses? Not really.  Massachusetts was the most recent entrant, and its marijuana businesses, like those in all the other states, face legal and tax problems....

Why?  Because even legal dispensaries are drug traffickers to the feds.  Section 280E of the tax code denies them tax deductions, even for legitimate business costs.  Of all the federal enforcement efforts, taxes hurt most.  “The federal tax situation is the biggest threat to businesses and could push the entire industry underground,” the leading trade publication for the marijuana industry reports.

One answer is for dispensaries to deduct other expenses distinct from dispensing marijuana. If a dispensary sells marijuana and is in the separate business of care-giving, the care-giving expenses are deductible....

Another idea was presented April 24 at Harvard by Professor Benjamin Leff of American University’s Law School.  Professor Leff’s paper carried an unvarnished title: Tax Planning for Marijuana Dealers.  It was part of Harvard’s Tax Policy Seminar hosted by Harvard Prof. Stephen Shay.  Mr. Leff correctly pointed out the 280E Catch 22 and came up with another end run.

Marijuana sellers could operate as nonprofit social welfare organizations, he suggested. [See Leff's February Slate piece, Growing the Business: How Legal Marijuana Sellers Can Beat a Draconian Tax]. That way Section 280E shouldn’t apply.  A social welfare organization must promote the common good and general welfare of people in its neighborhood or community.  Operating businesses in distressed neighborhoods to provide jobs and job-training for residents?  That could fit a dispensary nicely.

You don’t need a Harvard education to see that there’s something wrong with this picture. Meanwhile, Congressmen Jared Polis (D-CO) and Earl Blumenauer (D-OR) have introduced a bill to end the federal prohibition on marijuana and allow it to be taxed.  This legislation would remove marijuana from the Controlled Substances Act.

That way growers, sellers and users could no longer fear violating federal law.  Their Marijuana Tax Equity Act would also impose an excise tax on cannabis sales and an annual occupational tax on workers dealing in the growing field of legal marijuana.  Whatever happens, it’s at least good that someone is paying attention to this mess.

April 25, 2013 at 05:46 PM | Permalink


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This seems to be about optimal. Large-scale and industrial growers will be suppressed, while hobbyists, aficionados, and sharers go unmolested. Because of the inherent safety of cannabis--with an extremely high therapeutic index and no natural adulterants--there's no need or value to restrict production to "licensed" operations.

I think the retail cost will plummet, and eventually marijuana will be thought of as "free as air". If this seems startling or strange, consider two examples. In my neighborhood, in the fall, zucchinis are free, take as many as you want. And due to volunteers, encyclopedia content and computer software has reached a price point of zero. Considering the cultural background of pot, along with its emotional effects, it's likely that a similar communal distribution will arise.

Posted by: Boffin | Apr 26, 2013 1:05:06 PM

Not a smart idea, selling drugs with infants close by.. The feds will give a few Enhancements for that.. They will encourage it, so they can hammer the them but good..

Posted by: MidWestGuy | Apr 26, 2013 2:56:41 PM

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