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Proposed Bill Eliminating the Effects of 280E at the State Level

On June 11, 2019 the Massachusetts Joint Committee on Revenue heard House Bill 2510, An Act rescinding the effect of IRC 280E on businesses legally selling marijuana.  While this bill has not been placed into effect yet, the hearing is a step forward towards state wide repeal of IRC 280E.

What Does House Bill 2510 Do?

Simply put, this proposed bill eliminates IRC Code 280E at the state level and allows cannabis businesses to take the same ordinary and necessary business deductions as all other businesses. Section 1 of the bill allows a deduction from Massachusetts part b adjusted gross income, an amount paid or incurred during the taxable year in carrying on either a recreational or medical marijuana business that would have been deductible had IRC 280E not been in effect.

Additionally, line 33 of the bill restates that a deduction for any amount paid or incurred for carrying out recreational and medical marijuana businesses is allowed against Massachusetts net income, which was not previously deductible due to the presence of IRC 280E in the Federal Tax Code.  The proposed effective date of this bill is for tax years beginning on or after January 1, 2019.

While recreational and medical marijuana businesses are legal in Massachusetts under M.G.L.  chs. 94G and 94I, the state’s corporate tax code remains tied to the Federal Tax Code, absent specific provisions decoupling it. This proposed bill would allow Massachusetts cannabis businesses to take ordinary and necessary business deductions, at the state level, without the obstacle of IRC 280E.

While the federal repeal of IRC 280E does not seem on the horizon, there is a very real possibility that this bill gets passed in Massachusetts, as recreational and medical marijuana are legal to sell and possess statewide.

AAFCPAs has a proven track record of effectively advising the Massachusetts cannabis industry on: tax planning and compliance; outsourced accounting; entity structure; financing structures; audit and assurance; business plans; financial projections; cost allocations; and more. Our proven cannabis expertise makes us uniquely qualified to assist cannabis businesses in navigating through the complexities of the industry.

The Cannabis Practice of AAFCPAs will continue to monitor the legislative process and keep you informed as significant changes occur. If you have any questions please contact: Christopher Consoletti, Esq. at 774.512.4180, cconsoletti@nullaafcpa.com; David McManus, CPA, CGMA at 774.512.4014, dmcmanus@nullaafcpa.com; or your AAFCPAs Partner.

About the Authors

Chris Consoletti
Chris, in conjunction with our multi-disciplinary team of CPAs, investment & business advisors, provides effective tax planning and research, tax compliance, charitable planning, and asset protection solutions for individuals and their families, trusts & estates, nonprofits & foundations, corporations and partnerships. He has expertise in tax law pertaining to wealth preservation vehicles and will use all of the rules under the law to ensure that AAFCPAs’ clients have every opportunity to protect and save their assets. He engages clients in in-depth discussions to identify what assets need to be shielded, and what current measures are in place for risk management. 
David McManus CPA
Dave is AAFCPAs' co-managing partner, providing assurance, tax planning & compliance solutions to privately-held commercial companies. His client base consists of multinational manufacturing & distribution companies, real estate developers, auto dealerships, as well as high tech, bio tech, cannabis, and renewable energy companies. Dave’s areas of expertise include corporate tax planning & compliance, including tax aspects of US companies with foreign subsidiaries, as well as foreign companies that do business within the US.  He provides US market entry point consulting, advising multinational commercial corporations and nonprofits seeking to enter US markets via Boston, MA US.