This section of the U.S. Tax Code is said to cost legal cannabis companies millions of dollars in taxes which they consider unconstitutional, and just plain unfair.
The 280E law, enacted during President Ronald Reagan’s War on Drugs, prohibits deductions and credits for any business connected to substances covered by the Controlled Substances Act.
This week, the Supreme Court declined to hear an appeal from two California cannabis companies seeking to avoid having to pay a total $1.9 million in tax bills charged under Section 280E.
As MJBiz Daily and Ganjapreneur detailed, the companies – Organic Cannabis Foundation and Northern California Small Business Assistants, also known as NCSB — were left no alternative but to accept an earlier unsuccessful U.S. Appeals Court decision in their case.
Organic Cannabis Foundation owes $1.1 million in taxes and $225,855 in penalties, and NCSB owes $531,707 in taxes and $106,341 in penalties, according to court documents.
The companies’ case has been ongoing since 2015, when their attempt to appeal an IRS tax bill to U.S. Tax Court was rejected without consideration.
The Tax Court ruled that the court documents required of the companies were filed too late – by a day – owing to the companies’ tardiness in observing the court’s deadline. The U.S. Ninth Circuit Court of Appeals upheld the Tax Court, prompting the companies to file yet again, this time before the Supreme Court. That’s the case the Court this week declined to review.
Other Section 280E cases preceded this one. In February the Tax Court ruled that San Jose Wellness, a subsidiary of California’s large dispensary Harborside, had to pay $4.2 million in taxes and – the guts of the case — could not claim business deductions due to its sales of a federally illegal substance.
The Court of Appeals also recently said no to yet another Harborside tax case challenging the 280E law’s constitutionality regarding those desired business deductions.