New York’s adult use cannabis industry, expected to launch later this year, could get some early tax relief from the state’s lawmakers.
Both the Senate and Assembly versions aim to help cannabis businesses by making it so that an Internal Revenue Service tax code that prevents cannabis businesses from making typical deductions – because cannabis is federally illegal – “shall not apply.”
Assemblymember Donna Lupardo and Senator Jeremy Cooney introduced A8808/S7518, which they estimate would save cannabis businesses more than $25 million each year by 2024.
New York’s existing cannabis industry is a jobs creator and will be “expanding significantly in the years to come,” Lupardo said in the announcement about the bill.
Lupardo told Cannabis Wire that she attended a local event during which members of the cannabis industry told her about a tax deduction bill that Cooney filed in December. When she saw that a similar bill hadn’t been filed in the Assembly, she moved.
“I filed it at the request of the industry,” Lupardo told Cannabis Wire.
The budget deadline is April 1, and so far, discussions have been “smooth sailing,” Lupardo said.
“I’ve got no push back, whatsoever,” Lupardo said. “It helps me to make the argument to say, ‘Hey, number one, we’re not the only state, this is the direction that states are going in,” Lupardo continued. “And number two, the Business Council is supporting this. That is big.”
The proposal also has the support of Sen. Liz Krueger, chair of the Senate Finance Committee, who was a main sponsor of the Marihuana Regulation & Taxation Act (MRTA), the cannabis legalization bill that former New York Gov. Andrew Cuomo signed last March.
“The goal here is to decouple the state from the federal government on the deduction of business expenses to allow cannabis companies to deduct on their state taxes (since they can’t do so on their federal taxes),” Krueger told Cannabis Wire by email.
“All other businesses can deduct business expenses, and not being able to is a burden on the cannabis industry. We can’t fix the federal issue, but we can fix the state issue, which was the impetus for this language,” Krueger added.
Cannabis businesses, because they are dealing with a federally illegal substance, cannot make the same deductions as other businesses when they file their taxes. This means their tax rate is significantly higher than traditional businesses. Much of this comes down to Revenue Code Section 280E:
“No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”
Specifically, the budget legislation would amend New York tax law so that from this “taxable year” to the one beginning in January 2025, “the provisions of section 280E of the internal revenue code, relating to expenditures in connection with the illegal sale of drugs, shall not apply for the purposes of this chapter to the carrying on of any trade or business that is commercial cannabis activity by a licensee.”
Details of Gov. Kathy Hochul’s budget plan released in January show that the state estimates cannabis tax revenue will total about $1.25 billion over the next six years, reaching just over $360 million in cannabis tax revenue by fiscal year 2028.
New York’s cannabis industry is expected to be a global powerhouse and has attracted intense lobbying interest, especially from existing multistate cannabis operators and the real estate industry, as Cannabis Wire has reported.
The story has been updated with comments from New York Assemblymember Donna Lupardo.
