SECTION 280E


TAX LIABILITY MONITORING

The limitation due to IRC 280E and the resulting tax consequences, are perhaps, the primary, and most costly challenge dispensaries must navigate. Dispensary tax accounting is an art. If strategies are not implemented properly the dispensary can see effective tax rates as high as 80-90%. If 280E is not considered, the consequences of an audit could both eliminate any chance of implementing tax saving methodologies and incur very high penalties. As a result of 280E, dispensaries are rarely cash cows. Until the dispensary reaches significant gross revenues, the impact of 280E is prohibitive. We provide absolute legal business strategies to make your tax liability more digestible and keep you in business.

DOCUMENTATION BEST PRACTICES

At the Federal level, marijuana products are currently classified as a Schedule I controlled substance. From an accounting and taxation perspective this adds a whole level of extra complexity and risk. This classification means that marijuana businesses are not allowed to deduct any business expenses that are not directly related to the production of product or the purchase of product for resale. This can easily result in an untenable effective tax rate greater than 90%, and/or a tax liability that exceeds cash flow. This is commonly referred to in the industry as 280E, a section of the Internal Revenue Code that specifically limits certain indirect expenses.

Navigating Section 280E

In order to effectively navigate the special classification and considerations for cannabis companies and take advantage of the latest developments, you need an accounting service that specializes in the cannabis industry. We make it our mission to stay up-to-date on the latest legislative and political developments. Since marijuana was legalized for recreational use in Oregon, Calyx has been one of the first firms to specialize in the industry. We work closely with our clients to mitigate the negative impacts of 280E by identifying ways to minimize overhead costs and advising on best practices for thorough documentation. There are possibilities such as merging with, or establishing separate yet related business entities and there is also the Protective Claim for Refund, which enables businesses to claim refunds of previously paid taxes should laws change in the future. Declaring the 280E limitation unconstitutional is not a very likely possibility. 

Minimizing Operating Costs

This is a constantly and rapidly evolving area in tax law, politics, and the social zeitgeist in general. At Calyx, we are on the forefront of the cannabis industry. We are experienced at all business types (i.e., farms, extraction, distributions) and believe we can provide the most value to dispensaries, currently the most burdened and underserved business in the cannabis industry.

“I switched over to Calyx a few years ago after my dispensary returns resulted in hundreds of thousands of dollars in tax liability. They found multiple significant errors, and were able to legally reduce my tax liability.”

Deborah Gadberry, Owner Dab Town USA

Interested in learning more about our services?
Give us a call or request a consultation.

© 2020 Calyx CPA

© 2020 Calyx CPA