Althouse: "The country’s rapidly growing marijuana industry has a tax problem."

May 9, 2015

"The country’s rapidly growing marijuana industry has a tax problem."

"Even as more states embrace legal marijuana, shops say they are being forced to pay crippling federal income taxes because of a decades-old law aimed at preventing drug dealers from claiming their smuggling costs and couriers as business expenses on their tax returns."

44 comments:

Saint Croix said...: ha! Watch the potheads become Republicans. I love it.; 5/9/15, 10:01 AM
Hagar said...: Cry me a river.; 5/9/15, 10:08 AM
Barry Dauphin said...: I thought that taxing marijuana has long been one of the proponents' favorite talking points.; 5/9/15, 10:15 AM
clint said...: Perhaps the exercise of "prosecutorial discretion" isn't quite the same as legalization.

Who knew?; 5/9/15, 10:21 AM
traditionalguy said...: The smell of money attracts "government" bureaucrats faster than anything else. Tax is their word for Taking The Money.

Sin Industries was once seen as A political problem since the Take had to be done under the table. Now it's open to all.

The government wants the take from drugs and gambling, and Sexual Work cannot be far behind and is only being delayed by the anti-slavery laws of the past.; 5/9/15, 10:24 AM
jr565 said...: Libertarians touting legalization said that one of benefits would be the state getting its hands on taxes from sales. Now there is a problem when the state collects its taxes?
And I suppose now a bunch of Eic Garners will step forth and assume the heroic role of the pot seller who doesn't feel like paying the sales tax and the libertarians will then blame govt tax policies if the next farmer, while resisting arrest falls and breaks his neck.
You are getting legalization! Legalization requires govt to get its cut. Just as was promised when the usual criwd was pushing for legalization.; 5/9/15, 10:56 AM
Ironclad said...: When the legalization of marijuana was pushed by the States, didn't anyone point out this was going to happen? Federal law is still in place and for better or worse, it makes it illegal in that plane. So bank accounts were off limits (until Mr "I'll enforce the laws that I want to" decided to ignore the RICO statues and federal enforcement).

Tax revenues were also calculated based on street prices of drugs, which of course collapsed once the risk factor was removed. So tax hauls were not quite as expected.

Two takeaways - this is BAD because it erodes respect for laws when you have selective federal enforcement. And why should you allow deductions for the money paid for distributors - are they promising that they ONLY transport weed and no other drugs?

Laws for potheads dreamed up in a smoke haze.; 5/9/15, 11:00 AM
Bad Lieutenant said...: On the one hand I've heard that legal pot is more expensive than street stuff. Otoh the price of very good stuff on the street seems to be down. it's all very confusing. What's really confusing is that, unless a biologist can explain to the contrary, I would expect marijuana to have costs equivalent to those of an equal weight of tobacco, which leads to a cost price of something like 20 cents per pack. So you should be able to tax the crap out of it and still sell a box of joints for $10 or $20 and everybody should be happy. What am I missing?; 5/9/15, 11:23 AM
Pete said...: Who knew potheads were so greedy?; 5/9/15, 11:23 AM
Lewis Wetzel said...: Back in the day I had pals who did smoke da' kine. They would say "legalize it and tax it!" Right. Like they were going to pay taxes on weed they grew in their backyard or under a grow light in a closet.
How would you like to live next door to a dude running a "marijuana dispensary" out of his suburban home?; 5/9/15, 11:29 AM
The Cracker Emcee Refulgent said...: Unknown,

Scale of production. Of course, if pot demand reaches a point that justifies an agribusiness scale, then we'll have a whole raft of social problems that result in...criminalization.

Pot was a lot more fun when you were sharing a bag of shake with a couple of other high school buddies, Can't Buy A Thrill on the turntable, and the quarts of Rainier going flat and warm.; 5/9/15, 11:38 AM
Saint Croix said...: Maybe they can throw bales of pot into the Boston Harbor.; 5/9/15, 11:44 AM
Anonymous said...: I think throwing away your time and skills with intoxicants is selfish. Legal but selfish nonetheless. I speak as someone who has seen the damage to my family and friends. Potheads, you are winning elections but dropping in social standing in my eyes.; 5/9/15, 11:45 AM
Mountain Maven said...: Cry me a river too. Tax what you want less of.; 5/9/15, 12:18 PM
Original Mike said...: "Libertarians touting legalization said that one of benefits would be the state getting its hands on taxes from sales. Now there is a problem when the state collects its taxes?"

Didn't read the article, did you?; 5/9/15, 1:04 PM
jr565 said...: "
Didn't read the article, did you?"

I read it fine. But we're talking about the taxes that legal sales of pot will bring to the state. And I say, pay up and guit your whining.; 5/9/15, 1:30 PM
Original Mike said...: If you read the article, jr, then you're being dishonest. The issue is not, "they don't want to pay their taxes". The issue is, they want the same tax deductions available to other businesses.; 5/9/15, 1:35 PM
Skyler said...: That's because marijuana is still illegal, no matter what some states might say.

If you own an illegal business, then pay the consequences. Stop whining.; 5/9/15, 1:42 PM
Anonymous said...: No such thing as "legal marijuana".

And when the people who are living in Washington and Colorado get busted and have their homes seized, and their cars seized, and their cash seized, they should turn around and sue the States for telling them their business was legal.; 5/9/15, 1:44 PM
Fernandinande said...: eric said...
And when the people who are living in Washington and Colorado get busted and have their homes seized, [rest of fantasy snipped].

You're a sadistic little piece of socialist shit.; 5/9/15, 2:31 PM
Writ Small said...: If they want to be taxed in an equivalent manner to similar companies, there's a good compromise solution. Have them taxed and penalized to the same extent as the tobacco industry.; 5/9/15, 2:54 PM
Michelle Dulak Thomson said...: Ferdinandande,

The trouble is, what he's describing is perfectly plausible. What's to stop them?

Original Mike,

They want the same tax deductions available to other legal businesses. They have no more right to these deductions than Al Capone had to his (though, IIRC, Capone didn't make deductions; he just didn't report his illegal income).; 5/9/15, 2:57 PM
Michelle Dulak Thomson said...: Fernandinande,

Sorry about your name. Comes of typing in one place, remembering text from another place.; 5/9/15, 2:59 PM
Bad Lieutenant said...: Cracker, don't you think it is? RJR and them-all have detailed studies, long ready for entry to the market.; 5/9/15, 3:03 PM
Original Mike said...: "They want the same tax deductions available to other legal businesses. They have no more right to these deductions than Al Capone had to his ...."

I understand that argument and I am not arguing against it. I was merely replying to jr565's disingenuous characterization of the issue.; 5/9/15, 3:25 PM
n.n said...: Puff the hallucinating dragon wakes from his drug-induced stupor to realize that the his liberty -- insurance, cell phones, etc. -- came at a price.; 5/9/15, 4:35 PM
JCC said...: So provisions of the U S Tax Code include prohibitions for taking expense deductions for selling substances which remain unlawful by Federal statute? And the always sleazy Senator from Oregon has proposed removing the prohibitions (within the Tax Code) but allowing the actual substances to remain illegal to possess or sell? Reasonable.

This is Frankenstein, spare-parts law. Elected officials need to grow a spine and deal with the War on Drugs. Like lose the whole idea.; 5/9/15, 6:09 PM
Saint Croix said...: Puff the hallucinating dragon

funny!; 5/9/15, 6:10 PM
Big Mike said...: The trick is going to be to set the tax burden low enough to discourage people now engaged in illegal marijuana growing from continuing as a lucrative black market.; 5/9/15, 7:22 PM
jr565 said...: Exactly the same thing that occurred with cigarettes and how Garner rose to prominence. I'd like to see where the libertarians fall on this. They get their legal pot but becuase society taxes it they also create a black market. And govt then empowers police to arrest people
For what is essentially non violent crimes. Still a drug war after all.; 5/9/15, 7:39 PM
Bruce Hayden said...: The problem here is that the IRS taxes profits, not revenues. That means taxing the difference between revenue and expenses. This makes sense, because taxable profits are what you essentially have left after paying all of your expenses. But, many normal expenses are not deductible for pot businesses, such as rent, utilities, etc. It is thus very possible that some such businesses end up negative, because the expenses that these businesses cannot deduct are still expenses that they have to pay. So, theoretically, a business could receive $100k in revenue, pay $80k in expenses, which leaves $20k for profits and paying taxes. But, if the $80k is not deductible, that would mean $100k in taxable income, maybe $30k in taxes, and a net loss of $10k, thanks to Uncle Sam.

I think that one of the more humorous things that the article pointed out was the company challenging the IRS for penalizing them for paying cash. What was not mentioned in the article is that another branch of our government was forcing them to be a cash business by forcing banks not to deal with them.; 5/9/15, 7:46 PM
Bruce Hayden said...: If they want to be taxed in an equivalent manner to similar companies, there's a good compromise solution. Have them taxed and penalized to the same extent as the tobacco industry.

That would likely be far better than what they are facing right now, which is essentially paying an income tax on money that they have already spent on normal business expenses, such as rent, utilities, salaries, etc. Tobacco companies, like almost all others in this country, get to deduct those expenses. Pot companies don't. As I pointed out above, these are real expenses that the companies have paid, costing them real money. So, if the tax is 30%, that means that money spent on, say, rent actually costs them 130% of the rent.; 5/9/15, 8:08 PM
Unknown said...: So legal weed is not cheap or legal? Gomer Pyle surprise.; 5/9/15, 9:14 PM
Bleach Drinkers Curing Coronavirus Together said...: If only there was a way the government could get in on that business...; 5/9/15, 10:10 PM
Dreaderick said...: You didn't grow that; 5/10/15, 3:10 AM
Rusty said...: Told ya.; 5/10/15, 6:43 AM
Guildofcannonballs said...: Every one of you little shits is a law breaker. Three felonies a day punks. Drudge just had a link that you can be a criminal in 50% more ways now than in 1980.

So when you have your house taken and your wife leaves you for the garbage man and you get your ass raped bloody in prison for checking the wrong box on your taxes, don't come bitching to me, unless you want to see schadenfreude on a sadistic scale as yet unseen.

You label me, I label you, and I dub you unforgiven*.

*Mettalica; 5/10/15, 6:57 AM
jr565 said...: Bruce Hayden wrote:
If they want to be taxed in an equivalent manner to similar companies, there's a good compromise solution. Have them taxed and penalized to the same extent as the tobacco industry.

That would likely be far better than what they are facing right now, which is essentially paying an income tax on money that they have already spent on normal business expenses, such as rent, utilities, salaries, etc. Tobacco companies, like almost all others in this country, get to deduct those expenses. Pot companies don't. As I pointed out above, these are real expenses that the companies have paid, costing them real money. So, if the tax is 30%, that means that money spent on, say, rent actually costs them 130% of the rent.

it sucks, but as others have already pointed out, pot is actually illegal in most other states. And so it's still an illegal business in most places. Perhaps the state should have thought about it before legalizing.; 5/10/15, 6:58 AM
MarkW said...: There should be a partial workaround for these businesses -- no W2 employees, just partners/part owners. They'd have to stay small, but they could avoid double taxation on wages.; 5/10/15, 7:48 AM
Unknown said...: A group living in public housing had a branch fall on "their" duplex. I saw the picture if it were my house I'd have pulled it down. They called whomever you call to take care of "your" house when you live in public housing and waited...weeks. Several weeks. When the man finally came they said, "oh, we can't take down that branch, we'll have to get a contractor, but we will take down this illegally installed basketball goal."

Oh the wailing that ensued. I pretty much had the same feeling about that situation that I do about the nyt crying about taxes.; 5/10/15, 8:01 AM
Douglas B. Levene said...: Bruce Hayden's explanations of the relevant tax law are excellent.

The banking problems are just as severe. Because pot is still illegal federally, banks that knowingly accept deposits from pot dealers are commiting RICO and money laundering crimes. The current DOJ has said it's going to forbear from prosecuting those cases, at least sometimes if certain conditions are met, but that's not anything you can hang your hat on. What I fail to understand is how any bank lawyer can permit his bank client to engage in this business, which is clearly illegal - it seems to me that if the bank wants to do it, the only atlernative is to resign the representation (or quit if the lawyer is inhouse).; 5/10/15, 9:34 AM
JCC said...: I agree with the last 2 posts. We are discussing removing tax and (mainly civil) financial penalities for conduct that remains a felony (well, actually a number of felonies) under USC. This is alice in wonderland stuff. Legalize or not, and then deal with the civil issues accordingly. But remove civil penalities while the criminal sanctions remain?

Let's play that Holder video again.; 5/10/15, 9:53 AM
Achilles said...: MarkW said...
"There should be a partial workaround for these businesses -- no W2 employees, just partners/part owners. They'd have to stay small, but they could avoid double taxation on wages."

To an extent. We already went through this. Used to have 10-20 employees full time. Now we have 1 full time and 3 part time.

It isn't necessarily the taxes that are a killer but the way they stack. We are literally paying taxes on taxes on money that we never got.

In the end the medical(black) market is doing just fine. 0 taxes 0 regulations. 20% of the users use 80% of the product. Most product is sold to people under the age of 25 and colleges and high schools are the target markets.

This issue is a boiled down version of why "Conservatives" fail. They are just as bossy as the democrat party just in different ways, and they can't understand why the results don't reflect their intentions. "I don't like it so make it illegal" has just as long a record of failure as socialism. These are the same people who used denatured alcohol to poison and kill about 10,000 people during prohibition.; 5/10/15, 4:44 PM
Bad Lieutenant said...: Who told you that "conservatives" DoD or di the leadership or any part of this? If you have to have a bogeyman, women would be a good choice.; 5/11/15, 5:23 PM