TRENTON, NJ – While New Jersey has legalized the marijuana industry, the federal government has not. That discrepancy prohibits New Jersey weed companies from deducting certain business expenses. Now, New Jersey legislators are seeking to alleviate that burden.
A bill sponsored by Senator Troy Singleton and Senator Shirley K. has been advanced in the Senate to promote the growth of cannabis businesses. As a result of Turner’s proposal, the federal income tax provision prohibiting deductions and credits for cannabis businesses would be excluded from the corporate business tax and S corporation income under the gross income tax.
“We have seen here in New Jersey, and around the country, that legal cannabis businesses tend to lack diversity both in gender and race amongst its ownership ranks. This proposal would aim to level the playing field for all cannabis businesses,” said Senator Singleton (D-Burlington). “It would ensure that dispensaries are paying a fair amount of taxes by taking into account critical business expenditures and allowing these deductions from their income.”
S-340 would permit cannabis businesses subject to corporation business taxes to deduct all ordinary and necessary business expenses associated with managing a licensed cannabis business from income, including the opportunity to qualify for research and development deductions. In addition, the deduction would apply to the S corporation income of cannabis business corporations as well as to other forms of business income under the gross income tax, regardless of revenue.
“New Jersey’s cannabis industry is still in its infancy, and we need to act early to provide equal opportunity for all businesses to succeed,” said Senator Turner (D-Mercer/Hunterdon). “Supporting dispensaries while promoting diversity within the cannabis industry is better for our local economy and also helps to ensure that the profits from recreational cannabis are being funneled back into the communities that need it most.”
The starting point for determining income that is taxable under the state’s corporation business tax, and for S corporations, is the income that is taxable under federal law. Businesses that traffic in federally defined schedule I and II controlled substances, including cannabis, are prohibited from receiving deductions and credits under federal law. Consequently, cannabis businesses are not permitted to deduct business expenses, resulting in a higher federal income tax liability compared to other businesses with similar incomes.
The bill passed the Senate by a vote of 32-3.