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State Taxation of Cannabis: Interplay With Federal Taxation, Recent Cases and State Initiatives

Mitigating Sales, Growers, and Excise Taxes

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, May 20, 2020

Recorded event now available

This course will address the state taxes imposed by states that have legalized/decriminalized cannabis and the interplay between federal and state tax treatment of businesses in the flourishing cannabis industry. Our panel will review current developments and explain the taxing regimes in individual states.

Description

Taxing cannabis is a lucrative endeavor for states. At least 34 states have laws permitting (legalizing or decriminalizing) medical use of cannabis (including 10 states plus D.C. that have also legalized/decriminalized recreational use) and several other states that permit the use of CBD oil. As states pursue taxation of this lucrative substance, understanding how it is taxed and the interplay between the federal and state taxation is critical for advisers.

In addition to the expected sales taxes imposed, states charge per ounce fees, growers tax, excise tax, and other inventive taxes on this profitable industry. At the same time, it remains an illicit substance under federal law. IRC Section 280E disallows deductions of business expenses other than the cost of goods sold since these are expenditures in connection with the illegal sale of drugs.

Rent, wages, advertising, and other costs incurred by cannabis businesses are also not deductible, leaving these businesses paying tax at effective rates reported to be as high as 70-90%. For practitioners working with these businesses, which will only continue to increase in number and size, understanding the various state taxes imposed on these businesses is vital.

Listen as our panel of experts explains the current state of taxation of cannabis businesses, the varying state taxes imposed on the industry, and steps practitioners can take to mitigate the excessive fees charged.

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Outline

  1. Cannabis, an overview
  2. Federal taxation
  3. State taxation
  4. Choice of entity
  5. Court cases
  6. Best practices

Benefits

The panel will review these and other essential issues:

  • What states have legalized cannabis?
  • How is cannabis taxed in states that have legalized the substance?
  • What is the difference in tax treatment for medical and recreational use?
  • At what point and to which type of businesses are taxes on cannabis imposed?
  • What steps can practitioners take to mitigate the many taxes imposed on cannabis providers?

Faculty

Capdevielle, Cliff
Cliff Capdevielle
Managing Attorney
Moskowitz

Mr. Capdevielle has been developing sophisticated tax planning strategies and resolving tax disputes for clients more...  |  Read More

Prehn, Elizabeth
Elizabeth Prehn
Director of Practice Group and Business Development
Moskowitz

Ms. Prehn's experience with tax controversy matters includes audits, foreign tax disputes, criminal investigations,...  |  Read More