Should marijuana businesses pay tax on gross profits or net profits? It sounds like a silly question. Virtually every business in every country pays tax only on net profits, after expenses. But the topsy-turvy rules for marijuana seem to defy logic. And taxes are clearly a big topic these days under both federal and burgeoning state law.
...
But even good records won’t make vaporizers or drug paraphernalia deductible. The Ninth Circuit upheld the Tax Court ruling that §280E prevents legal medical marijuana dispensaries from deducting ordinary and necessary business expenses. Under federal tax law, the Vapor Room is a trade or business that is trafficking in controlled substances prohibited by federal law.
Indeed, the New York Times had stressed that legal marijuana faces another federal hurdle when it comes to taxes. The problem is major, for federal law trumps state law. Even legal medical marijuana businesses continue to have big federal income tax problems. It is a classic Catch 22–tax evasion if they don’t report, and a risk of criminal prosecution if they do. More imminent, though, is the risk of being bankrupted by their IRS tax bill.
