The U.S. appeals courtroom rejects hashish firm Harborside’s provide to terminate 280E

(This story has been updated to include the role of Congress and the Biden Administration in eliminating Section 280E.)

A US appeals court has rejected the Californian company Harborside’s offer to stamp out Section 280E of the Internal Revenue Code. This is a heavy blow to the marijuana industry’s hopes of eliminating a federal tax bill that has cost companies countless millions of dollars over the years.

The outcome in the closely watched case means marijuana companies will continue to be taxed by the federal government at a far higher rate than mainstream companies – unless Congress and the Biden administration approve laws that legalize MJ and the companies like tax any other industry.

Section 280E prohibits state-licensed marijuana companies from making standard deductions on their federal taxes.

In a landmark decision, a panel of the 9th appellate court upheld Thursday a ruling by the U.S. Treasury that Harborside owed millions of dollars in back taxes for taking corporate deductions and exclusions in connection with the sale of a nationwide illegal substance.

The case dragged on for years, and some legal experts thought the appeal to the San Francisco-based 9th Circuit was a long shot.

Oakland-based Harborside, a major marijuana dispensary operator, could not be immediately reached for comment on Friday.

Section 280E hits marijuana dispensaries particularly hard as they can only deduct the wholesale price of cannabis they bought from a grower to sell to consumers.

Harborside had a two-pronged strategy: attempting to eliminate 280E by arguing it was unconstitutional, and otherwise seek a more favorable settlement for additional business costs.

Circuit Judge Daniel Bress wrote a 19-page ruling recognizing the “multi-million dollar tax controversy” while campaigning against Harborside.

“… In essence, this dispute echoes the recent attempt by a medical marijuana retailer to improve the substantial tax ramifications that Congress has imposed on companies that Congress deems to be controlled substances trafficking,” Bress wrote.

“These banned substances include marijuana under federal law, although some states have more recently legalized its sale. This disharmony between federal and state law leads to the multi-million dollar tax controversy ahead. Ultimately, we believe that the taxpayer’s arguments are either unfounded or have not been saved for our review. “

The case concerned Harborside’s corporate income tax liability for the tax years ended July 31, 2007 through July 31, 2012.

The Internal Revenue Service banned almost all of the company’s deductions and exclusions, and issued Harborside with a tax charge of more than $ 29 million for those years.

Harborside appealed and the IRS agreed that amounts Harborside paid to its suppliers for the purchase of goods could be excluded.

This lowered taxes owed to around $ 11 million.

Harborside continued to fight and took his case to the US Treasury. After a three-day trial, the tax court ruled against Harborside in 2018.

The case before the 9th circuit was discussed in February.

New York tax attorney James Mann, who represented Harborside, had alleged that by prohibiting deductions on costs such as purchasing raw cannabis, pharmacies like Harborside would be unconstitutionally taxed on gross rather than net income.

Jeff Smith can be contacted at [email protected].

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