Medical marijuana sellers have a tax headache

While state laws on pot sales are still hazy, the IRS clearly has no problem taxing up to 75% of weed-based income.

By Jason Notte Feb 25, 2013 4:20PM
File photo of marijuana plants at a grow house in Denver on Nov. 8, 2012 (© Ed Andrieski/AP Photo)Well, medical marijuana clinic owners, you can thank Tony Montana and just about everybody ever busted on "Miami Vice" for making your business a whole lot less lucrative.

Before sellers in states like Washington and Colorado go diving into their stash of newly legalized recreational marijuana, they might want to take a longer look at the big tax bite the Internal Revenue Service is taking out of medicinal marijuana profits. Often forgotten in the state-level marijuana industry discussion is the fact that pot is still illegal on the federal level, which means folks with marijuana-based businesses can face an effective tax rate as high as 75%, according to CNNMoney.

The IRS offered its stance on drugs' role in the tax code way back in "Scarface"-era 1982, when it implemented provision 280E after a convicted drug trafficker successfully claimed weapons, bribes and his yacht as business expenses, according to anti-provision group 280E Reform. The provision was originally drafted to target cocaine dealers, but it includes all drugs named under the Controlled Substances Act -- including marijuana.

Folks who sell medical marijuana in 18 states that have legalized the practice are still subject to the provision that bars those selling illegal substances from deducting expenses related to that business. Though they may be considered legitimate expenses on the state level, rent and payroll paid by medical marijuana dispensaries can't be taken as a write-off on the federal level.

The IRS says it's just doing its job and says it's up to Congress to change the tax law if it sees fit. In a letter written to former California Rep. Pete Stark (D) in 2011, the IRS says Stark and his colleagues will need to come up with an exception for medical marijuana facilities if Congress wants their owners to stop paying an effective rate between 50% and 75%.

Though marijuana classes are available for would-be weed entrepreneurs and sales devices like pot vending machines are currently in the works, President Barack Obama's administration hasn't given marijuana-related issues much priority nor has it changed the federal government's stance against marijuana sales. It's still a gray area and a gray market, though all the IRS sees is green.

More on moneyNOW

May 6, 2013 4:51PM
legal Marijuana growers and sellers would have no income tax problems, or even no income tax to pay if they were to rethink the way the way they do business. There has been a legal way to step out of the income tax racket for over 20 years but no one seems to have heard of it.
I am referring to the website
This method is secure legal and places you in a position where you cannot be garnisheed and are judgement proof.
Good for both USA and Canada
Feb 26, 2013 7:37AM

My life is perfect and great!


If any of yours isn't, go start a Revolution. I couldn't care less!


God bless America!

Feb 25, 2013 9:15PM
we should burn down all forms of maijuana
Feb 25, 2013 8:50PM
The 1936 law covering this is still on the books. It's called The Marijuana Tax Stamp Act. It states you owe a tax of $25 a GRAM on the weed. That's how they are able to prosecute for such astronomical tax evasion numbers. There's a lot of grams in a kilo brick and 25 x 1000 = $25,000 is a lot of money to anyone. 10 kilos and your in deep doodoo. Even though the law is 77 years old $25 a gram is still outrageous.
Feb 25, 2013 8:45PM
I'm all for growing your own -  the feds can't do a thing as I live in Washington and smoking it is legal - just as long as I don't sell it and make a profit
Feb 25, 2013 8:42PM

Try growing your own marijuana so you know that there are no insecticides or mold on your buds and no taxes! There is an ebook showing how to grow, harvest and make great little edible treats of marijuana! This book has great recipes for edible marijuana that are easy, small and cheap to make: MARIJUANA - Guide to Buying, Growing, Harvesting, and Making Medical Marijuana Oil and Delicious Candies to Treat Pain and Ailments by Mary Bendis, Second Edition. Only 2.99. Learn to make marijuana oil, delicious Cannabis Chocolates, and tasty Dragon Teeth Mints.

Feb 25, 2013 8:34PM
Now if the feds still consider marijuana a class 1 substance, wouldn't that make it that they will be profiting from illegal activity. sounds pretty hypocritical to me. typical government BS.
Feb 25, 2013 8:31PM
  A government that takes by force from the people is corrupt.
Feb 25, 2013 8:24PM

I say grow your own in your back yard each summer.

Feb 25, 2013 8:19PM
seems a bit hypocritical to me, to say something is illegal and then tax it instead of arresting the sellers
Feb 25, 2013 8:18PM
of course they will tax it.Wake up people , Can't you see the trend . Anything the common man likes is taxed so unjustly that it becomes unaffordable. Anyway the govenment can get our money and hold us down they will do it.It seems everyone is following suit : Doctors , insurance ,groceries,Gas, everyone that is supposed to serve us is doing eveything they can to steal from us .I say "keep it illegal,at least that way the suits won't get anymore of my f#$%king money".
Feb 25, 2013 8:18PM
Just like all sin taxes, which go to our parks, road and everything else else but lung disease and rehab.  It's the only way the moral people can accept legalization.  Make it legal so they can pay less in taxes.  God forbid if weed was legalized in the name of freedom.
Feb 25, 2013 8:14PM
The IRS would tax flatulence if they could. They, being Maobama.
Feb 25, 2013 8:12PM
Sounds about right, govt supports a cause then tax the hell out of it, would you expect less
Feb 25, 2013 8:11PM
and yet the blackmarket continues to thrive
Feb 25, 2013 8:09PM
Tax em to high heaven!!!!!!!!!!!!! Big time California dope growers actually have a lobby to prevent this from happening. They actually had a state lobby to stop legalization. Big Big Bucks Baby!!
Feb 25, 2013 8:04PM
"They'll tax the pennies on your eyes..."  - George Harrison  R.I.P.
Feb 25, 2013 8:03PM
Well if they tax it at too high of a rate the black market will continue to thrive anyway
Feb 25, 2013 8:00PM
Is impeachment and removable a possibility?  It would be an improvement.
Feb 25, 2013 7:59PM


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