The California Senate will vote to pass a bill that allows individuals to deduct business expenses associated with legal commercial cannabis activity. The proposed amendments to the Personal Income Tax Law ensures that the cannabis industry is treated like all other businesses, and provides a stepping stone for industry growth.
Currently, California’s Corporation Tax law permits the deduction of cannabis business expenses even though these deductions are prohibited under federal law by Section 280E of the Internal Revenue Code. Under federal law, expenses associated with the illegal sale of drugs are not allowed to be deducted. California’s personal tax law currently refers to this portion of the Internal Revenue Code. The bill removes the reference to the federal regulations, which will allow persons to deduct cannabis business expenses in California.
Governor Jerry Brown vetoed the a similar bill during the 2018 legislative session due to the loss of state revenues. The Franchise Tax Board estimates the loss in tax revenues to be in the tens of millions of dollars.