280E and Oregon Cannabis Business: What is a trade or business?
Section 280E – not so simple after all
Despite what your eyes are telling you, “trade or business” is actually one word; but “trafficking,” means just that. Section 280E essentially provides that a cannabis business may not deduct its expenses. However, a close look at its language reveals surprising complexity.
If your business has anything to do with cannabis, it might be subject to Section 280E of the Internal Revenue Code. How can you tell if your business is subject to IRC § 280E? You consider whether it meets the following two elements of the statute:
Is your business a “trade or business” under the Internal Revenue Code and
Do the activities of that business include prohibited trafficking.
The term “trade or business” is a defined term under U.S. and Oregon tax law. The term essentially means any collection of activities engaged in with regularity and continuity with a profit motive. A business will not be a “trade or business” if there is not some activity engaged in with regularity and continuity. Consequently, the business of renting a warehouse to a cannabis grower would not generally be subject to Section 280E, but the business of delivering medical marijuana to patients would be.
What does that mean? It means that a landlord, even a landlord knowingly renting to a cannabis business, should be able to deduct expenses relating to his or her real property (buildings and land). Why? Because the landlord, while clearly being “in business” is not engaged in a “trade or business.”
Even if there is sufficient activity for a business to rise to the level of a “trade or business,” that business will only be subject to Section 280E if the activities of that business include prohibited trafficking. What is prohibited trafficking? That is actually a great question, and not one your tax professional is necessarily able to answer.y
A quick search of the internet under Section 280E and Oregon will reveal a range of articles, including blog posts, suggesting that “trafficking” under Section 280E is a term with vague and unspecified meaning under the Internal Revenue Code. That is not so. Rather, the Section 280E incorporates federal and state criminal law by reference.
That is why it is important to work with experienced Oregon cannabis attorneys, familiar with principles of U.S. and Oregon income tax law, to determine whether your business is subject to Section 280E of the Internal Revenue Code.