With the recent April 15 tax deadline, recently legalized pot businesses are facing out-sized federal tax bills. The hefty taxes stem from a mismatch between state and federal law: while many marijuana firms now operate as legal entities under state laws, they are still deemed illicit businesses under federal law - and therefore the IRS.
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Tax filings a headache for legalized cannabis firms
In terms of tax filings, specifically, the legal cannabis industry has failed to adjust 280E since it was enacted. The IRS still does not let pot growers and resellers deduct expenses related to their businesses. That means marijuana business owners are technically barred from claiming even the most basic of tax exemptions enjoyed by the rest of the corporate world: from advertising costs to most employees’ salaries. As a result, many marijuana business owners end up paying effective tax rates of anywhere from 40% to 70%, according to Derek Peterson, the CEO of Terra Tech, a publicly-traded company that produces marijuana extracts and also has plans to open a handful of dispensaries in Nevada.
