There is no question states looking to legalize marijuana are primarily focused on the tax benefits of the drug. Colorado’s 2014 tax haul for recreational marijuana was $44 million. However, weed business owners beware: In Colorado, there is a 2.9% sales tax; a 10% marijuana sales tax; and a 15% excise tax on the average market rate of retail marijuana totaling 27.9%. With all those taxes, countless smokers purchase plant material illegally while marijuana businesses say it forces them to pay taxes on a far larger amount of income than other trades, driving them literally out of business.
The IRS recently issued guidance about how taxpayers “trafficking in a Schedule I or Schedule II controlled substance” can determine their cost of goods sold. How does a pot shop report profit on a prohibited substance? Can the federal government tax out of existence a material they do not legally recognize? The simple (and agonizing) answer is, “Yes.”
