An unusual but positive thing for cannabis retailers just happened. Anti-tax crusader Grover Norquist and Democrat Congressman Earl Blumenauer (from Oregon) agreed that 280e needs an exception for State-licensed cannabis businesses. The two joined Congressional Representative Dana Rohrabacher (from California) to push legislation that would cut taxes for owners of legal cannabis dispensaries by allowing them to deduct the same business expenses as all other small businesses.

Back in the spring of 2012, we blogged about 280e and its negative effects on those in the cannabis industry. The backstory is that, in 1982, Congress enacted 280e as a way to penalize drug traffickers by disallowing deductions (with the exception of costs of goods sold) for business expenses related to trafficking illegal drugs. Because the Federal government still classifies cannabis as a Schedule 1 narcotic, 280e applies to all cannabis businesses. In 2007, the US tax court ruled that 280E applies to medical cannabis dispensaries even when its business activities are legal under state law.

According to Norquist, 280e leaves some cannabis business owners paying a tax rate as high as 87.5% and he called 280e an “a perversion of congressional intent.” Though the Department of Justice says it will not oppose laws legalizing cannabis in individual states, Federal law still considers it a crime to sell or possess cannabis. Therefore, the IRS can continue using 280e to put cannabis business owners at risk of being taxed out of business.

Blumenauer has introduced a one-page bill that would exempt legally licensed cannabis sellers from 280e. Americans for Tax Reform (led by Norquist)  released extensive research on the negative economic impact of barring legal businesses from deducting reasonable expenses. Norquist himself sent a letter today to House Ways and Means Committee Chairman Dave Camp (R-Mich.) seeking to bring the bill to the attention of the top tax writer in Congress. Norquist wrote in his letter that “[t]he IRS has made it very clear that an act of Congress is required to fix this unintentional error.”