The Illinois legislature has passed a budget bill that includes provisions to allow licensed cannabis businesses to receive a state tax credit currently prohibited at the federal level under the Internal Revenue Service (IRS) code known as 280E. Acknowledged.
The bill, which also includes language directing funds to the Cannabis Development Fund and extending the deadline for conditional licensees to find a storefront, was passed by both houses on Saturday. Currently at the desk of Governor JB Pritzker (Democrat).
This important section advanced the separation of marijuana businesses from federal tax policy, which currently prohibits the marijuana industry from making significant deductions available in other traditional markets, and marijuana businesses significantly increase the effective tax rate to be paid.
As of the current tax year, a provision will be added to the state’s existing tax code that allows for a cannabis business deduction “equal to the disallowed deduction under Section 280E of the Internal Revenue Code for the tax year.”
As reported by the Illinois News Joint, lawmakers passed budget bills containing several marijuana provisions, but a broad cannabis omnibus bill restricting Delta8 THC products stalled before the end of the session.
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When it comes to taxes, Illinois is following lawmakers in several other states and moving to enact rules that treat the marijuana industry like a traditional market by offering tax relief options.
Earlier this month, for example, the governor of New Jersey signed a bill that would allow licensed marijuana businesses to deduct certain expenses on their state tax returns as a partial workaround for IRS 280E.
Lawmakers in Iowa, New York, Pennsylvania and Virginia have likewise called for tax cuts for their respective cannabis markets.
At the legislative level, Rep. Earl Blumenauer (D-Oregon) last month introduced a bill that would amend IRS law so that state law cannabis businesses would eventually receive federal tax credits available to companies in other industries. resubmitted.
He told Marijuana Moment: “I absolutely believe that if we could deduct all business expenses, people would actually make more money because they would fully comply with the law.”
For the time being, the marijuana industry continues to face tax policy challenges under the umbrella of prohibition. And as the Congressional Research Service (CRS) noted in its 2021 report, the IRS “offers little tax guidance on the application of Section 280E.”
The IRS provided some guidance in its 2020 update, stating that while cannabis businesses cannot take standard deductions, 280E states that “participants in the marijuana industry should be able to It does not prohibit the reduction of total income. “
The IRS update appears to be in response to the Treasury Department’s Internal Oversight Report released in 2020. The department’s tax inspectorate has criticized the IRS for failing to properly advise marijuana industry taxpayers on compliance with federal tax law. It directed the agency to “develop and publish guidance specific to the marijuana industry.”
Bipartisan and bicameral lawmakers have long fought to pass legislation through a bill that would treat the cannabis sector like any other legal business: the Safe and Fair Enforcement (SAFE) Banking Act. The bill will undergo hearings before the Senate Banking Committee this month and will move on to markups, which are expected to be deliberated further.
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