In the states that have legalized medical marjuana, can the dispensaries deduct business expenses? Usually not, because of tax code 280-E. According to Robert Wood, of Wood, LLP, in San Francisco, tax code 280-E says that you cannot deduct anything related to the distribution of controlled substances.
Wood says that the law was designed to stop drug dealers from claiming tax deductions but it is now being applied to stop marijuana dispensaries from operating legally. From state law, it prevents them from deducting business expenses that makes taxable in a far more onerous way than most businesses, Wood adds.
This has been a "silver bullet" for medical marijuana dispensaries, says Wood, in that if they keep good records, to avoid the 280-E provision, they need to show that they're running more than one business, such as ancillary services. This has enabled several businesses to navigate the tax waters, says Wood and adds that one danger is that they need to be very scrupulous until Congress decides to change this provision.