Marijuana Businesses to Deduct Their Expenses from Their Taxable Income

The Colorado Senate recently approved a bill (HB 1042) that would allow medical marijuana businesses to deduct their expenses from their taxable income.

The legislature legalized the possession and sale of small amounts of marijuana in November 2012, and the state has had a thriving medical marijuana industry since 2009.

Most Colorado businesses can deduct their expenses automatically since their state taxes are based on their federal taxable income. But marijuana businesses are still illegal under federal law and cannot deduct their expenses under IRC section 280E. HB 1042 would allow those businesses to deduct expenses like rent and personnel costs from their state taxable income.

Sen. Lucía Guzmán (D), who sponsored the legislation, said it is a matter of fairness for businesses that have been operating with a state license. The bill allows those businesses to deduct "the regular kinds of business expenses that any other business in Colorado would be able to deduct," she said.

"It doesn't really matter anymore what you think of marijuana. It is a legal business," said Sen. Cheri Jahn (D). "And therefore they should be treated like any other business in the state of Colorado."

HB 1042 would apply only to medical marijuana businesses. The bill now goes to Gov. John Hickenlooper (D), and he is expected to sign it.