New Jersey Gov. Signs Bill Extending Tax Withdrawals to Cannabis Companies

New Jersey Gov. Phil Murphy signed legislation this week granting licensed cannabis companies standard business tax deductions to improve the profitability of the state’s regulated marijuana industry. The measure, which decouples New Jersey tax laws from Section 280E of the federal tax code, was signed into law by Murphy Monday after the bill passed the state legislature in February.

In many states that have legalized cannabis for recreational or medicinal use, tax laws follow the lead of Section 280E of the Federal Tax Code, which denies cannabis companies most common business tax deductions. Under this rule, cannabis operators are only allowed to deduct the cost of goods sold, while most businesses do not allow deductions for other common business expenses such as rent, payroll, and utilities.

The bill passed the New Jersey General Assembly on Feb. 27, drafted by Democratic Rep. Annette Quijano, Clinton Calabrese and Linda Carter. An identical accompanying measure, supported by Democratic state Senators Troy Singleton and Shirley Turner, also passed the state Senate that day by a vote of 32 to 3.

Under the new legislation, effective immediately and effective for tax years beginning January 1, 2023, cannabis companies will be allowed to deduct certain business expenses on their state tax returns. The bill does not affect the federal tax liability owed by companies. Supporters of the legislation say the bill will help improve diversity in the regulated cannabis industry, which faces high barriers to entry as well as high taxes and regulatory fees.

“We have seen here in New Jersey and across the country that legal cannabis businesses typically lack gender and racial diversity among owners,” Singleton said in a statement cited by local media. “This law aims to create a level playing field for all cannabis companies.”

“This ensures that pharmacies pay a fair amount of tax by taking critical business expenses into account and deducting them from their income,” he added.

“The cannabis industry in New Jersey is in its infancy and we need to act early to give all companies an equal chance of success,” Turner said. “Supporting dispensaries while promoting diversity within the cannabis industry is better for our local economies and also helps ensure that profits from recreational cannabis are flowing back to the communities that need it most.”

Legislation to grant standard New Jersey business tax deductions to cannabis companies is also supported by representatives of the regulated cannabis industry, including the New Jersey Cannabis Trade Association (NJCTA), a trade group that said the legislation will “create a more commercially viable landscape.” for our young industry and those who want to get into it.”

“Continued implementation of 280E resulted in several financial constraints for cannabis operators, large and small, as they were prohibited from deducting general business expenses from their taxes,” the NJCTA said in a statement. “Now, New Jersey’s licensed cannabis operators will be treated like any other legal business operating in New Jersey, a sense of normalcy that our industry will appreciate.”

Welcoming the passage of the new law, James Leventis, executive vice president of legal, compliance and government affairs at Verano, a company that operates three Zen Leaf pharmacies in New Jersey, said it “removes a key barrier that hampers entrepreneurship and growth has”. of the cannabis industry across the country.”

“It is inspiring to see New Jersey taking this bold step to support one of the fastest growing industries in the country,” Leventis wrote in an email to High Times. “I hope to see similarly bold action by leaders in other states — and especially at the federal level — to enact further cannabis reforms that will allow our industry to finally realize its full potential as a catalyst for positive economic and social progress across the United States.”

Other states that have legalized marijuana, including New York, California, Hawaii, Michigan, Colorado, and Oregon, have passed legislation to separate their state tax laws from Section 280E. Similar legislation is pending in Connecticut.