An obscure provision in the tax code affecting marijuana sales is giving Republicans, Democrats and conservative anti-tax advocate Grover Norquist the munchies for reform.
Rep. Earl Blumenauer, D-Ore., supported by Norquist and Rep. Dana Rohrabacher, R-Calif., introduced a bill called the "Small Business Tax Equity Act” to differentiate legal cannabis dispensaries from illegal street drug sales.
“Whatever you’re doing, even if it’s not legal, you still owe an income tax” and can deduct business expenses from it, Norquist explained Thursday. So in 1982, Congress altered the tax code to prevent those trafficking in controlled substances from deducting business expenses from their tax liabilities.
Now that 20 states and the District of Columbia have legalized medical marijuana, legitimate cannabis dispensaries are prevented from deducting business expenses as other legal businesses do.
Norquist's group, Americans for Tax Reform, released a study that shows an average effective tax rate of 35 percent for current businesses, as opposed to an average effective tax rate of 87.5 percent for a hypothetical marijuana dispensary.
The bill would “rationalize the business treatment of enterprises that are legal under state law” and not send a message about whether Congress supports or opposes the legalization of marijuana, Blumenauer said, calling the existing tax situation “goofy.”
Coming from a Republican perspective, Rohrabacher said that the federal government should respect states’ rights on the issue of marijuana prohibition, and that the tax code unnecessarily complicated local decisions.
“It is absolutely ridiculous, as far as I’m concerned, for the federal government to be wasting our federal dollars enforcing laws that local people don’t want,” the California Republican said.
Norquist, who said he had never smoked marijuana before, told reporters that he expected a “giggle factor” over tackling an issue like marijuana, but hoped that the conversation could move beyond that into the serious matters of the tax code.
“We’re going to have talk about this a hundred times, and until people stop hearing ‘marijuana’ and start hearing ‘business deductions,’” he said.