New York’s 2022-2023 budget (the “Budget”) was signed into law by Governor Hochul on April 9th, and it contains a big win for the cannabis industry. The Budget included an amendment that decoupled New York’s tax code from Internal Revenue Code (“IRC”) § 280E, a federal tax law that prevents cannabis businesses from deducting business expenses on their tax returns.
Prior to the Budget’s passing, cannabis businesses were unable to deduct “ordinary and necessary expenses” on their state and federal tax returns, including salary, rent, utility, or depreciation expenses. This significantly increased the cost of operating a cannabis business compared to businesses outside the scope of IRC § 280E. It was estimated that some cannabis businesses were paying up to 80% of their annual revenue in taxes. But since the Budget’s passage, New York licensed cannabis businesses can deduct these ordinary business expenses on their state income tax returns and take advantage of other tax credits traditionally available to business owners. Legislators estimate that this amendment will save cannabis entrepreneurs over $25 million annually. However, this does not affect cannabis business owner’s federal income taxes. Cannabis remains a Schedule I controlled substance at the federal level, and IRC § 280E still applies to federal income tax returns. While there have been several recent attempts to decriminalize cannabis nationwide, business owners are precluded from taking advantage of tax credits and deductions on their federal returns until federal legislation is officially passed.
As New York continues to push the cannabis industry forward, the Firm remains up to date on recent developments and anticipated changes. The Firm has followed the progress of New York’s cannabis industry from its inception and is available to answer questions regarding the new tax law, cannabis license applications, or any other cannabis related inquires. Contact the Firm today to find out how you can get involved in the cannabis industry!