California Passes Cannabis Tax Fairness Bill

Published: Nov 7, 2019
By: Benjamin Aspir
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On October 12, California Governor Gavin Newsom signed into law Assembly Bill No. 37 (“The Bill”). The Bill exempts commercial cannabis businesses from the provisions of IRC Sec. 280E for purposes of California’s personal income tax. The Bill is in effect from January 1, 2020 until December 31, 2024. Prior to the Bill’s passage, only corporations were exempt from IRC Sec. 280E when calculating California corporate income tax. Since cannabis is still federally illegal, IRC Sec. 280E denies federal deductions and credits to cannabis businesses with the exception of direct cost of goods sold (“COGS”). A detailed discussion on IRC Sec. 280E can be found here . The new law will allow California cannabis business owners operating as a sole proprietorship or a partnership additional state tax deductions that may lead to significant state level tax savings.

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Benjamin Aspir

Benjamin Aspir is a Partner and a member of the firm’s National Tax Group, with more than 10 years of public accounting experience. He has extensive experience with IRC Section 1202 - Qualified Small Business Stock and advising cannabis clients on IRC Section 280E, within the Manufacturing and Distribution practice.

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