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,; David McManus, CPA, CGMA at 774.512.4014,; or your AAFCPAs Partner.

About the Authors

Chris Consoletti
Chris, in conjunction with AAFCPAs’ multi-disciplinary team of CPAs, investment & business advisors, provides effective tax planning and research, tax compliance, charitable planning, and asset protection solutions for trusts & estates, corporations and partnerships. Chris provides clients with corporate law analysis and recommendations related to entity formation, management and board structure, executive compensation, limited liability protection, and the applicable laws of relevant states and jurisdictions. He evaluates and assesses opportunities and risks associated with complicated tax challenges or controversies.
David McManus CPA
Dave leads AAFCPAs’ Cannabis Business Practice, providing highly coveted tax, entity structure, and business advisory solutions.  Dave has been deeply immersed in understanding the complex financial and operational nuances of the cannabis industry since 2012. He advises multi-state operators, recreational and medical retailers, cultivators, product manufacturers, and investors. He proactively advises clients on risks, opportunities, and tax implications related to market entry, accounting methods, capital structure, debt financing, R&D, M&A, and goodwill impairment. He has led industry training sessions on interpreting and implementing new federal and state marijuana statutes, including compliance with 280E. Dave maintains a strong network of cannabis industry investors, attorneys, bankers, employee compensation and benefits providers, realtors, risk managers, and insurance agents, and he leverages these resources as appropriate to help clients achieve success.