280E and Your Business: An Oregon Cannabis Lawyer’s Perspective

Support for the ongoing planning process that is managing a business is a big part of why a marijuana business can benefit from a good relationship with its CPA. If having an accountant is new to you, think of him or her as someone that can provide you with an extra set of eyes and ears for your business. The process of checking in with your accountant regularly should help you  anticipate financial and tax problems before they threaten to disrupt your business or personal finances.

Two potential threats to Oregon medical marijuana businesses came to mind when I saw this article published by USA Today: https://www.usatoday.com/story/news/nation/2014/11/03/irs-limits-profits-marijuana-businesses/18165033/

The first is the difficulty of managing reimbursements for a tax liability that may not be calculated until the following year. The second is the ongoing drag on a business that is struggling to pay off back taxes in its second year of operation.

Under The Oregon Medical Marijuana Act (“OMMA”), a medical marijuana business is generally permitted to accept reimbursement for its normal and customary costs of doing business. Presumably that includes taxes.

But, how is reimbursement of tax expense to occur if the taxes (1) are not paid on an ongoing basis and (2) are not even known in amount until the tax return is prepared the following year? It appears that to comply with OMMA, the tax compliance process may need to to be a year-round endeavor. An Oregon medical marijuana business should engage its accountant to help it juggle the sometimes conflicting requirements of the reimbursement model and the Internal Revenue Code.

The business owner mentioned in the USA Today article apparently operated his business at a financial loss in its first year and discovered he was deemed to be profitable under the Internal Revenue Code. As a result, he owed $20,000 of income tax for a business that lacked the cash to pay it. Given the amount owed, it is not surprising he is paying that tax over time (it appears he entered into an installment arrangement with the IRS). However, he would presumably rather use the money to pay his current year tax liability or, better yet, use it to help grow his business.

This article is a cautionary tale, for sure. An Oregon cannabis lawyer, specifically a tax attorney, can help guide you through this process. Knowing up front your tax liability and potential pitfalls can help your cannabis business in Oregon avoid outstanding liability and the ultimate failure of your cannabis business.