NJ accountants: Tax change needed to level playing field in weed market
Because the Garden State currently piggybacks on a specific section of the federal tax code, smaller operators may struggle to thrive in New Jersey's eventual legal marijuana market, according to a statewide group of accountants.
The New Jersey Society of CPAs is calling on the state to decouple from Internal Revenue Code Section 280E, which "prohibits any company illegally engaged in drug trafficking from deducting business expenses on personal or corporate income tax returns."
Through this move, which can cut costs significantly, NJCPA said, lawmakers would open the industry to small businesses, minorities and women interested in joining — not just large, already-established players with a presence elsewhere.
"A business in New Jersey would still be subject to federal 280E, but from a New Jersey perspective, they would be able to take deductions against their taxable income," said Melissa Dardani, chair of NJCPA's cannabis interest group.
New Jersey voters may have approved the sale and regulation of recreational weed, but cannabis remains illegal on a federal level.
Dardani said making the tax change would not be a novel idea — a number of states, that have legalized cannabis, including Colorado and Oregon, have also decoupled from the federal rule.
"What we can do is send the right message that, one, we are supportive of this industry — we do not want to legalize something and make it too expensive for anyone to operate," Dardani said. "Two, we want this market to be inclusive, we want it to be homegrown ... not just a market comprised of operators whose interests lie outside the bounds of our state."
NJCPA prefers decoupling for all cannabis businesses in the state but decoupling can occur for only businesses that bring in revenue under a certain threshold, Dardani noted.
With voter approval of legal weed on Nov. 3, the state must now pass enabling legislation and establish regulatory framework that will be drafted by a still-forming Cannabis Regulatory Commission.
Lawmakers in the Assembly are expected to hold a hearing on a marijuana marketplace bill on Monday.