Despite saying this week that he would offer an amendment to help marijuana businesses achieve tax fairness, Republican U.S. Sen. Cory Gardner of Colorado did not end up forcing colleagues to vote on the issue during consideration of a broad GOP-led tax reform bill.
As a result, the measure, which would have exempted cannabis growers and retailers who operate legally under state law from a federal penalty on illegal drug sellers, is not currently attached to a broad tax reform bill that Republicans are working to send to President Trump’s desk by the end of the year.
Following a lengthy session during which other members offered various amendments, the Senate approved the legislation on a largely party-line vote early Saturday morning with a margin of 51 to 49.
Gardner was unsure he had enough support in the chamber to approve the amendment in light of the $5 billion price tag that Congress’s Joint Committee on Taxation reportedly scored it with.
One possible amendment tonight is marijuana biz expenses. Cory Gardner says it scores at $5B and will be a lot more if all 50 states legalize. Not sure he has the votes.
— Steven Dennis (@StevenTDennis) December 2, 2017
Because the tax bill was being considered under a budget reconciliation process that allowed Republicans to avoid a filibuster and advance the proposal with 51 votes instead of 60, the overall plan needed to avoid increasing the deficit by more than $1.5 trillion over the next decade.
Since Gardner’s measure, while focused on allowing marijuana operators to be taxed fairly like other businesses, would in effect amount to a cut from their current rates, it would reduce revenue and add to the deficit.
Nonetheless, conservative anti-tax group Americans for Tax Reform included the measure in a list of “key votes,” calling it “good tax policy.”
“Support for the legislation should not be conflated with support or opposition to legalizing cannabis,” the organization wrote. “Instead, this amendment is about ensuring the federal government does not use the tax code to discriminate against legal businesses.”
Under current federal law, a 1980s provision — section 280E of the Internal Revenue Code — effectively forces cannabis businesses to pay a much higher tax rate than other companies.
“No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”
The statute was originally intended to to stop drug cartel leaders from writing off yachts and expensive cars, but today its language means that that state-licensed growers, processors and sellers of marijuana — which is still a Schedule I substance under federal law — can’t take business expense deductions that are available to operators in other sectors.
As a result, cannabis businesses often pay an effective tax rate upwards of 65-75 percent, compared with a normal rate of around 15-30 percent.
“Our current tax code puts thousands of legal marijuana businesses throughout Colorado at a disadvantage by treating them differently than other businesses across the state,” Gardner said in a press release upon cosponsoring a standalone bill to reform the provision last month. “Coloradans made their voices heard in 2012 when they legalized marijuana and it’s time for the federal government to allow Colorado businesses to compete. This commonsense, bipartisan bill will allow small businesses in Colorado and other states that have legal marijuana businesses to grow their operations, create jobs, and boost the economy.”
The marijuana reform provision was also not included in the version of the tax legislation recently passed by the House, where that chamber’s Rules Committee blocked floor consideration of an amendment on the issue two weeks ago.
Now, a bicameral conference committee will hammer out the overall differences between the two chambers’ bills into a single proposal that can be sent to the president. It is technically possible that the cannabis amendment could still be inserted in conference, though it would be unusual for congressional leaders to attach a provision that wasn’t approved by either chamber and which concerns a still fairly controversial issue like marijuana.
A standalone House bill to shield state-legal marijuana businesses from 280E has 40 cosponsors. The companion Senate legislation has six cosponsors.