Sponsors (12)
The bill clarifies that marijuana and other Schedule I/II activities are ineligible for federal tax deductions—reducing taxpayer subsidies and legal ambiguity—but at the cost of higher tax burdens for state-legal cannabis businesses and their customers, increased compliance disputes, and tension with state legalization.
All taxpayers: the bill prevents federal tax deductions and credits for businesses trafficking in marijuana and other Schedule I/II substances, so general taxpayers will not indirectly subsidize illegal drug operations.
IRS, taxpayers, and state governments: the bill explicitly lists marijuana and other Schedule I/II substances in the tax code, reducing ambiguity and making enforcement and audits clearer for tax authorities.
Owners of state-legal cannabis businesses, their employees, and consumers: denying business deductions and credits will increase taxable income and tax liabilities for cannabis firms, likely raising consumer prices, reducing wages or hiring, squeezing small operators, and encouraging market consolidation.
State-legal cannabis operators and state governments: the bill creates a federal-state conflict by treating state-legal marijuana businesses as ineligible for federal tax benefits, leaving them with fewer federal protections despite state legalization.
Taxpayers and the IRS: the bill increases compliance complexity and creates potential disputes over what constitutes 'trafficking' or a business 'consisting of' such activity, likely generating more audits, litigation, and uncertainty for affected taxpayers.
Based on analysis of 2 sections of legislative text.
Disallows federal tax deductions for expenses tied to trafficking in marijuana or schedule I/II controlled substances, increasing taxable income for those businesses.
Introduced February 21, 2025 by Jodey Cook Arrington · Last progress February 21, 2025
Prohibits federal tax deductions for expenses connected to the sale or trafficking of marijuana or other schedule I and II controlled substances. The change amends IRC section 280E so businesses whose trade or business consists of trafficking in marijuana (as defined in federal law) or other schedule I/II drugs may not deduct amounts paid or incurred after enactment for taxable years ending after that date. The result is higher federal taxable income and likely higher federal tax bills for state-legal marijuana businesses and any businesses whose operations are treated as trafficking in these controlled substances under federal law.