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On May 18, 2022, in a 153-2 vote, the Massachusetts House of Representatives voted to amend the state’s tax code to provide income tax relief for Massachusetts cannabis businesses. The Massachusetts House and Senate will go through a conference committee process before both chambers vote on a final bill, which would then be sent to the Governor’s desk for signature. If passed in its current form, Massachusetts would decouple its tax code from Section 280E of the Internal Revenue Code, which denies most deductions to cannabis businesses.

Internal Revenue Code Section 280E provides that no deduction or credit shall be allowed for any trade or business consisting of trafficking in controlled substances prohibited by Federal law or the law of any State in which such trade or business is conducted. Because cannabis remains listed as a Schedule I controlled substance under the federal Controlled Substances Act, cannabis businesses are generally not permitted to deduct business expenses on their federal income tax returns. Currently, business deductions and credits are not permitted at the state level either, because Massachusetts uses federal taxable income as the starting point for calculating Massachusetts tax liability. The result of Internal Revenue Code Section 280E is that cannabis businesses incur a significantly higher effective tax rate than businesses in most other sectors.

The pending bill would allow Massachusetts cannabis businesses to deduct business expenses for purposes of determining Massachusetts taxable income, potentially resulting in significant tax savings. If passed, Massachusetts would become one of a growing number of states to decouple from Internal Revenue Code Section 280E, including California, Colorado, Hawaii, Michigan, New York and Oregon.

Husch Blackwell’s tax and cannabis attorneys will continue to monitor the Massachusetts bill, as well as developments in other states. If you have questions about the effect of 280E or decoupling on your business, please reach out to Steve Levine, Bob Romashko and Kevin Erb.

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Photo of Steve Levine Steve Levine

Steve is head of the firm’s Food Systems industry unit, Steve leads more than 45 professionals from numerous practice areas focused on the various food and agriculture industries. He excels in bringing creative, cost-effective solutions to the various challenges that our clients face.…

Steve is head of the firm’s Food Systems industry unit, Steve leads more than 45 professionals from numerous practice areas focused on the various food and agriculture industries. He excels in bringing creative, cost-effective solutions to the various challenges that our clients face.

Since 2009, Steve’s major focus has been on the burgeoning cannabis industry, where he guides clients through the tangle of shifting regulations governing the sale and use of cannabis in both the marijuana and industrial hemp sectors across the nation.

Photo of Robert Romashko Robert Romashko

Robert deeply understands the world of federal and state taxes, and helps clients with state and local franchise, income, sales, use and property tax issues, as well as dealing with multistate voluntary disclosures for taxes owed.

Photo of Kevin Erb Kevin Erb

Kevin’s practice involves guiding clients through the complexities of federal, state, local and international taxation.

Kevin routinely advises business entities, tax-exempt organizations and high net worth individuals on a range of transactional tax matters. He provides tax counsel for business entity formation, mergers,

Kevin’s practice involves guiding clients through the complexities of federal, state, local and international taxation.

Kevin routinely advises business entities, tax-exempt organizations and high net worth individuals on a range of transactional tax matters. He provides tax counsel for business entity formation, mergers, acquisitions and reorganizations.

Kevin also represents clients before the IRS and state tax authorities, preparing IRS protests and appeals and assisting clients facing tax penalties.

For tax-exempt organizations, Kevin partners with clients to secure and maintain tax status and prepares Form 1023 and state-law counterparts.

During the COVID-19 pandemic, Kevin advised clients on international, state and local tax considerations arising from work-from-home arrangements. He continues to assist clients with the evolving post-COVID tax landscape.

Prior to entering private law practice, Kevin served as a tax consultant with a Big Four accounting firm, focusing on state and local taxation.