Massachusetts Would possibly “Decouple” From Segment 280E | Foley Hoag LLP

Key Takeaways:

  • Massachusetts is on the point of changing into the following member of a rising selection of states which are “decoupling” from Segment 280E, the federal tax regulation that critically limits the level to which cannabis-related companies can deduct bills for source of revenue tax functions.
  • If pending law is enacted, such obstacles would no longer practice for Massachusetts state source of revenue tax functions, resulting in possible tax aid for Massachusetts cannabis-related companies.


Segment 280E of the Inner Earnings Code supplies that no deduction or credit score will likely be allowed for any quantity paid or incurred in wearing on any business or trade if such business or trade is composed of trafficking in managed ingredients indexed on Agenda I or II of the federal Managed Elements Act.[1] Hashish lately is indexed as a “Agenda I” managed substance for this objective. Accordingly, cannabis-related companies had been (and stay) matter to Segment 280E. Many states, together with Massachusetts, use a taxpayer’s federal taxable source of revenue as the place to begin for calculating state taxable source of revenue. Accordingly, the consequences of Segment 280E have carried over to Massachusetts and, successfully, have avoided Massachusetts hashish companies from deducting their abnormal and important trade bills from taxable source of revenue for federal and Massachusetts source of revenue tax functions (aside from to the level that this type of bills may also be claimed as “price of products bought,” which typically is a lot more restricted in scope). As famous above, the pending law would take away (or “decouple”) Massachusetts from Segment 280E for state source of revenue tax functions.

Particularly, the proposed Massachusetts regulation supplies that, for functions of figuring out taxable source of revenue for Massachusetts source of revenue tax functions, a cannabis-related trade this is matter to Segment 280E for federal source of revenue tax functions can be approved to deduct abnormal and important trade bills paid or incurred right through a taxable 12 months which are non-deductible on the federal stage because of Segment 280E. If enacted in its present shape, the brand new regulation can be efficient for taxable years starting on or after January 1, 2022. Accordingly, cannabis-related companies may get pleasure from this alteration retroactively.

Companies already working in Massachusetts stand to profit, whilst others bearing in mind a brand new or higher presence in Massachusetts would possibly imagine transferring sure trade purposes and actions to the Bay State (even if that call would rely on all related info and instances, together with common trade issues, in addition to the online impact of a discounted tax base being uncovered to Massachusetts’ rather top 8% company source of revenue tax fee). Hashish-related companies will have an identical issues with recognize to new or higher operations in different states that experience “decoupled” from Segment 280E, together with California, Colorado, Hawaii, Michigan, New York and Oregon.

We’re intently tracking this new building in Massachusetts and all different states. Please touch a member of Foley Hoag’s Hashish Apply Crew if you want help in figuring out the impact of Segment 280E “decoupling” with recognize to your enterprise in Massachusetts and in different places.

[1] 21 U.S.C. § 801, et seq.


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