Marty joined other accountants and tax attorneys at a marijuana tax symposium in San Diego put on this week by the National Cannabis Industry Association. Some CPAs and attorneys have started challenging the IRS' special treatment of the marijuana industry.
"These folks want to comply, they want to be part of the system, they want to pay their fair share of taxes, they just don't want to be penalized," Marty said. He admits that pretax profits in the legal pot industry "are very good—you can sell a pound of marijuana for about three to four times what it costs you to grow," but he added that without deductions for retail expenses "it puts you, at best, in the 60-70 percent tax bracket, and at worse, your tax bracket can actually exceed 100 percent."
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Section 280E was the buzz off the conference.
"I think you have to be very careful in dealing with the IRS, because 280E is the biggest threat that is happening to the cannabis industry at this time," said Henry Wykowski, a former federal prosecutor who is now an attorney for the marijuana industry in California.
He has taken the government to court twice on the tax code, and succeeded in coming up with some legal workarounds. For example, retail pot enterprises can deduct the cost of goods for non-cannnabis retail products in their stores, like T-shirts and pipes, to help offset the lack of other deductions. "If you do not handle your deductions properly," Wykowski said, "there's no way you can make enough money to remain in business."
Then there's the issue of how to pay the IRS the taxes it's due when you're dealing with an all-cash business. Some stores find workarounds to avoid carrying bags of cash to IRS offices (none will divulge how they do it), though Marty said cash is accepted now in some places in Colorado. "Actually, at my suggestion the IRS in Denver got cash counting machines, and now they have a separate line for cash," he said.