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

Feb 25, 2013 5:59PM
Part of the Affordable Health Care Act, tax the hell out of growers, distributers and at point of sales. This time Obama can't blame the "big bad greedy pharmaceutical companies" for screwing us.  This time our "big bad greedy Government" (Obama) is doing the screwing. 
Feb 25, 2013 6:41PM
It should be taxed. That act alone will show the government that they can make more money by legalizing it than fighting the war against it (which is rediculous anyway). Perhaps once they understand the amount of money they can pull in every year will outweigh the costs of fighting it they will figure out that a nation wide legalization would be more beneficial. Although I do have to argue against the 75%. That is a little steep and a pathetic attempt to prevent people from growing and distributing in states where it is now legal.
Feb 25, 2013 6:54PM
How can you tax something that is Federal illlegal to have?
Feb 25, 2013 6:43PM
How is a law passed in 1981 when Reagan was president the fault of Obama?
Feb 25, 2013 7:17PM
Just one more sign of Too Much Government and on that note-why don't all the politicians take a 20% pay cut--I can't imagine how much that would save us all!!!
Feb 25, 2013 6:58PM
The way to get around the tax is to give it away free and let the "buyers" leave a contribution instead.
Feb 25, 2013 7:14PM
Marijuana is the number one cash crop in California. Think about that.
Feb 25, 2013 6:53PM
    Federal Govt   25% would be fair and the Govt will still make millions ... don't mess up a good thing.
Feb 25, 2013 7:17PM
i live in colorado,its just a way for the government to make it harder on everyone who voted for ammendment 64 to be able to smoke weed legaly if they tax the crap out of despeneseries then the shops cant stay open so they just make it hard on law biding citiziens who voted to legalize marrijauna,there all pricks who  cares more about control than they do about whats in the constitution.
Feb 25, 2013 7:21PM
I think if the Feds can tx it, then they can legalize and acknowledge it.
Feb 25, 2013 7:16PM
f**k the IRS and the healthcare act.
Feb 25, 2013 7:00PM
All I know is I invested in medical marijuana stocks, and yes they do exist.
Feb 25, 2013 7:09PM
it would be a much shorter list if you asked what the IRS won't tax.
Feb 25, 2013 7:27PM
So many ignorant comments. A tax imposed by Reagan is Obama's fault despite both Clinton and Obama being fans. 90% of the cost of cigarettes and booze are tax but that's ok as long as it isn't your sin being taxed.
Feb 25, 2013 7:00PM
Don't they tax the pennies on a dead mans eyes? So wouldn't they?
Feb 25, 2013 6:44PM
sure they will take every penny they can from anyone they can take it from. after all someone has to pay for the very necessary  first lady's trip to the Oscars.
Feb 25, 2013 7:04PM
The  III  RRR SSS can do what they want , they have nnnnooo honor, they will bring the US Of A to our knees. more people loose our homes because we get screwed by the ****s setting on the hill in DC because they do not care. The means the Pres. down to the little guy. It is time the american people get our headfs out of our **** and say enough
Feb 25, 2013 7:21PM
I'm laughing my azz off. As an ex-smoker, you liberals all wanted to tax the hell out of cigarettes and had no issue with that whatsoever, as long as it didn't affect you. Well, now the shoe's on the other foot. How's it feel dumbazzes!!!
Feb 25, 2013 6:28PM
I had a comment....but.....wait.....what?
Feb 25, 2013 7:40PM

of COURSE it's going to be taxed, and taxed heavily... THATS why they're legalizing it... DUH!!!


regards, jo.

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