Published: Dec 7, 2017, 9:31 am • Updated: Dec 7, 2017, 12:57 pm
As marijuana tax reform efforts petered out on Capitol Hill, another endeavor is before the U.S. Tax Court to let state-legal cannabis businesses take deductions and credits.
The owners of a marijuana dispensary in Palisade, Colo., claim their income was unjustly taxed twice because of the Internal Revenue Service’s application of Section 280E, a tax code that disallows credits and deductions from income generated by sales of controlled substances.
Jesse and Desa Loughman, owners of Colorado Alternative Health Care, recently filed a brief in U.S. Tax Court, challenging the IRS’ determination of taxes owed for 2010, 2011 and 2012.
“It’s an example of some of the absurdity that results when you take a 1982 tax law that was passed not based on accounting principals, but based on a concept that drug dealers were bad and that public policy didn’t allow regulated (cannabis operations),” Rachel Gillette, the GreenspoonMarder P.A. attorney representing the Loughmans, told The Cannabist.
“While I understand it’s not the sexiest issue, it is the illustration of why the application of 280E is antiquated in this industry.”
In the Nov. 17 petition, Gillette presented the Loughman’s case:
During the tax years of 2010, 2011 and 2012, Colorado Alternative Health Care was classified for tax purposes as an S Corporation, an entity that allows for income and the tax liability to flow through to shareholders — in this case, the Loughmans. The Loughmans elected to classify their business as an S Corp benefit of S Corp As an S Corp, the business is required to classify officer salary as “reasonable wages;” and when the Loughmans calculated their taxes, all of the income from the business flowed through on their