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New York Bill Would Allow Deductions for Licensed Pot Businesses

Posted on Nov. 19, 2021

A New York state bill would temporarily decouple from a federal tax code provision that prohibits tax deductions or credits for businesses selling controlled substances to permit deductions for licensed cannabis activity.

S. 7518, introduced November 12 by Sen. Jeremy A. Cooney (D), would add a section to New York's tax code clarifying that for tax years starting on or after January 1, 2022, and ending before January 1, 2025, IRC section 280E would not apply to licensed businesses engaged in commercial cannabis activity. Cooney said the bill is intended to promote tax equity for the state's new cannabis industry.

Under section 280E, businesses engaged in the trafficking of controlled substances are not allowed to claim any deductions or credits, meaning cannabis businesses pay more in taxes than other legal businesses, according to Cooney. "Not being able to make ordinary and necessary business deductions significantly increases the costs of doing business and creates a larger barrier to entry," he said in a bill sponsorship memo.

Under the bill, commercial cannabis activity includes the cultivation, manufacturing, distribution, testing, or sale of adult-use cannabis products.

Legislation signed into law in March by then-Gov. Andrew Cuomo legalized and taxed recreational use of cannabis products for adults ages 21 and older. According to S. 7518's sponsorship memo, one of the goals of legalizing adult-use cannabis was to provide equitable opportunities to those who were most affected by the prohibition of marijuana, but the memo notes that goal won't be met “if the cost of doing business prevents the equity candidates from actually participating.”

The memo also says the bill would help prevent New York’s adult-use cannabis market from being controlled by large, multistate businesses that can pay the larger effective tax rate.

S. 7518 was referred to the Senate Rules Committee.

Cooney’s office did not respond to a request for comment by press time.

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