Thu March 14, 2013

Why A Tax Code For Drug Kingpins Is Keeping Colorado Dispensaries Down

Wednesday’s Amendment 64 Task Force Report is heavy reading. The 166-page study takes a comprehensive look at everything from home cultivation and processing of marijuana to THC potency limits on infused products.

There’s also taxes. No heavy reading is complete without mundane recommendations on taxes.

Right now medical marijuana dispensaries are paying state and federal income tax rates as high as 75 percent because of the obscure tax code provision 280E.

Enacted in 1982 by an act of Congress, the law was in response to a mid-level cocaine and meth dealer in Minneapolis named Jeffrey Edmondson. He successfully declared a scale, telephone expenses, long-distance phone charges, and his apartment rent as tax write offs.

Interestingly enough, the bill that led to 280E was sponsored by Colorado Senator William Armstrong.

Three decades later, the law meant to keep any future Jeffrey Edmondsons from writing off anymore 'expenses' is being applied to Colorado dispensaries—a move that the industry says is unfair. The end result is that businesses can’t claim certain deductions on their state and federal income taxes. CNN Money reports that the situation is taking a financial toll on Colorado’s dispensaries and a huge bite out of their profits.

Colorado’s Task Force calls for the repeal of 280E at the state level. At the federal level, it asks Gov. Hickenlooper to join up with Colorado’s congressional delegation and get to work on tax reform.

Democratic Rep. Jared Polis is already at work on the issue. He has set forth a plan for tax and other marijuana reform issues. Last month he outlined his ideas along with Rep. Earl Blumenauer [.pdf] of Oregon. Both have introduced legislation this year for marijuana reform.

According to Politico most of the changes are many years away. There’s just one—ending a ban on industrial hemp production—that may stand a chance of passing this year.

Editor's Note: This article was revised from a previous version to both identify Jeffrey Edmondson and to reflect the fact that he was a mid-level street dealer.