New Jersey Approves Bill Entitling Cannabis Businesses to Claim State Tax Deductions as Partial 280E Workaround

The governor of New Jersey (NJ), Phil Murphy (D), recently signed a bill into law which provided licensed cannabis businesses the ability to deduct certain expenses from their state tax returns. It was a partial antidote for the cannabis industry which has been prevented from benefitting from federal deductions under the Internal Revenue Service (IRS) code, 280E.

Most states follow federal law but New Jersey’s new piece of legislation states that a licensed cannabis business’s gross income (1), “shall be determined without regard to section 280E of the [federal] Internal Revenue Code.” These businesses will still be subjected to the IRS 280E, which prevents establishments who illegally sell Schedule I or II drugs from taking part in key tax deductions in their federal filings. In NJ, licensed cannabis industry businesses will be able to experience some state-level relief.

This exciting legislation signed by Governor Murphy stated that it “shall apply to taxable years beginning on or after January 1 following enactment,” (1).

“The continued implementation of 280E placed severe financial constraints on cannabis operators, big and small, by prohibiting them from deducting common business expenses from their taxes,” the New Jersey Cannabis Trade Association said (1). “Now, New Jersey’s licensed cannabis operators will be treated like any other legal enterprise operating in New Jersey, a sense of normalcy that our industry will cherish.”

Last year, a fiscal analysis was performed and showed that the new law would possibly have mixed economic impacts. The decoupling from the federal 280E policy is anticipated to “result in an indeterminate annual loss of revenue” (1) for NJ because cannabis businesses would be qualified for relief from taxes they currently pay.

The Office of Legislative Services (OLS) added that “providing access to these deductions and credits may also help generate more economic activity by cannabis businesses,” and so “the State and local governments that tax cannabis businesses might indirectly realize an indeterminate amount of additional annual revenue,” (1).

Reference

1. Jaeger, K. New Jersey Governor Signs Bill to Let Marijuana Businesses Claim State Tax Deductions as Partial 280E Workaround https://www.marijuanamoment.net/new-jersey-governor-signs-bill-to-let-marijuana-businesses-claim-state-tax-deductions-as-partial-280e-workaround/.