280E: Marijuana Tax Strategy That Works

May 24, 2016

What is a proven strategy that allows state-sanctioned marijuana businesses to sidestep the negative tax impact of 280E? Unfortunately, cannabusinesses cannot be exempt under LR.C. 501(C) because of the “public policy doctrine” that prevents charities from having reasons that are contrary to federal policy. The public policy doctrine does not apply to 502(c)4 businesses which means marijuana sellers can qualify as tax-exempt. The proven strategy for cannabusinesses is to set up shop with aims in improving the social and economic welfare of the community effected by crime or destitution. Marijuana firms need to provide job education and employment opportunities with the firm's main focus on enhancing living conditions in the neighborhood. The operations must align with the community's economic development companies that are responsible for enhancing local firms.

 

The strategy enclosed is not a tax loophole that allows companies to avoid 280E compliance. The tax-exempt status for marijuana producers could help resolve federalism concerns raised by disagreeing state and federal marijuana policies. The federal law that encourages marijuana sellers to be nonprofit, neighborhood-based associations also requires firms to abide by the “no inurement” rule. IRS 501(c) and 501(c)4 command that the income of qualifying firms not “inure to the benefit of any private shareholder or individual”.  Organizations can earn revenue from exempt activities but they must use the income to improve the organization’s tax exempt purpose. It’s important for startup marijuana companies to consider how they will pay managers: fair market wage or percentage of profits. After deciding how they will pay their personnel start-ups would then be able to decide the best means of raising capital. It’s also important for businesses to abide by the federal and state tax policies and companies who are strategizing for the inevitable audit benefit from trained tax professionals who know the ins and outs of the cannabis industry. Every company is different and Cannabis Tax and Accounting Services offers customized tax and legal services for small to medium-sized businesses. The personalized Tax Management plans provide entity tax returns, sales tax (BOE) returns, and personal/personal property tax returns.

 

 

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