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Seven Republican representatives have introduced a bill to block businesses from claiming tax marijuana deductions for expenses, even if the substance is federally rescheduled.
Republican Rep. Jodey C. Arrington, Chairman of the House Budget Committee, introduced a bill last week—co-sponsored by six colleagues—to amend the Internal Revenue Code of 1986 and uphold the ban on tax deductions or credits for businesses involved in marijuana trafficking.
The bill, though its text is unavailable, aims to prevent marijuana businesses from claiming federal tax deductions under IRS Code 280E, even if the substance is rescheduled.
The measure would preserve existing tax prohibitions against the marijuana business, which has been monitoring the federal rescheduling process of marijuana from Schedule I to Schedule III under the Controlled Substances Act (CSA), largely due to its potential impact on 280E tax limitations.
Although the rescheduling process remains uncertain—especially with Drug Enforcement Administration (DEA) hearings facing delays—lawmakers opposed to marijuana are working to curb any potential benefits for the industry.
Under Section 280E, businesses dealing with Schedule I and II drugs cannot claim business expenses. Rescheduling marijuana as a Schedule III drug would exempt it from these restrictions.
The move couldn’t be more timely for marijuana policy, coming on the heels of a review initiated under the Biden administration to reschedule marijuana from Schedule I to Schedule III of the CSA. The change would ease the tax pinch on marijuana businesses, which are now burdened with onerous financial restrictions under federal prohibition.
Earlier this month, Republican Senator James Lankford introduced another bill, co-sponsored by Senator Pete Ricketts, with the same objective as the House bill. Like the House bill, its text has not yet been released.
DEA hearings on the rescheduling proposal have been delayed by at least three months due to appeals from pro-reform witnesses claiming improper communications between the DEA and certain opponents. These hearings are crucial to advancing marijuana rescheduling.
Prohibitionist group Smart Approaches to Marijuana (SAM) has claimed credit for proposing the House and Senate measures.
In a press statement, Kevin Sabet, SAM’s President, praised the bill’s sponsors, Rep. Arrington and Sen. Lankford, arguing that the federal government should not provide tax breaks to businesses profiting from federally illegal drugs.
He criticized the marijuana industry, calling the bill a way to prevent $2.3 billion in tax cuts for marijuana businesses.
However, the bills have been met with a backlash from marijuana advocates, who argue that maintaining 280E prohibitions will only help the illegal market by making legal marijuana less competitive.
Impact Of Blocking Marijuana Tax Deductions
The proposed bills aim to prevent any benefits from rescheduling by explicitly banning marijuana tax deductions for businesses, keeping the current federal tax rules in place. If passed, the bills would ensure that businesses face the same tax restrictions, even if marijuana is rescheduled. Marijuana operators will need to stay compliant with tax laws to avoid severe penalties. Some businesses have found alternatives to avoid the tax burden of IRS Code 280E.
Both bills oppose marijuana rescheduling, despite President Donald Trump’s expressed support for rescheduling and decriminalization during his 2024 campaign.
While Trump has supported states’ rights in deciding on legalization, suggesting he may maintain this position, his administration has not yet taken an official stance on the matter.
Additionally, several of Trump’s key picks for his administration have voiced opposition to legalization.
For instance, Pam Bondi, his nominee for U.S. Attorney General, opposed marijuana legalization during her tenure as Florida’s Attorney General.
Marty Makary, his pick to lead the Food and Drug Administration, has referred to marijuana as a gateway drug and raised concerns about its potential cognitive effects.
These appointments could shape the Trump administration’s approach to federal reform, potentially hindering efforts to alleviate the burden of marijuana tax deductions on businesses.
“}]] The bill aims to prevent marijuana businesses from claiming federal tax deductions under IRS Code 280E, even if the substance is rescheduled. Read More
