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06/22/2021 08:26 PM
Pennsylvania State Senate
https://www.legis.state.pa.us/cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=S&SPick=20210&cosponId=32878
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Senate of Pennsylvania
Session of 2021 - 2022 Regular Session

MEMORANDUM

Posted: December 2, 2020 12:40 PM
From: Senator Timothy P. Kearney
To: All Senate members
Subject: Expense Deductions for Medical Marijuana Business Income Taxes
 
In the near future, I plan to introduce legislation to fix a tax anomaly affecting Pennsylvania medical marijuana businesses.
 
While regular businesses can deduct their normal and ordinary expenses, such as COGS, capital expenditures, or rent, from their gross income when calculating their tax obligations, growers and dispensaries do not have the same ability. Section 280E of the Internal Revenue Code prevents businesses from deducting expenses from their income for federal tax filings if their income is tied to Schedule I or II substances, which includes medical marijuana.
 
This also affects how medical marijuana organizations calculate their PA Corporate Net Income Tax, which is based on the net income reported on federal tax filings. Because medical marijuana businesses cannot deduct their expenses for their federal filings, they also cannot deduct them for their state net income taxes, despite the enactment of the Medical Marijuana Act in 2016.
 
Medical marijuana organizations, particularly small entrepreneurs and those that are not tied to larger national or international conglomerates, are facing considerable financial stress because of the inability to report their actual net income, in addition to the other financial challenges posed by the federal government.
 
This legislation would allow licensed medical marijuana organizations to deduct necessary and ordinary expenses from their taxable income for the Corporate Net Income tax, just like regular businesses do.
 
Please join me in bringing common sense to this solvable problem.



Introduced as SB464