THE TAX
NIGHTMARE FOR
BUSINESS OWNERS
By Marc E. Seyburn
CURRENTLY, ALL license holders under
the Medical Marijuana Facilities Licensing
Act (MMFLA) (Public Act 281 of 2016) are
subject to Internal Revenue Code (IRC)
§280E, without exceptions. Now that
Michigan has released applications and
some preliminary guidance, in 2018 we
will begin to see businesses receiving
licensing under the MMFLA. With an
MMFLA license, there will be businesses
in Michigan that are legally trafficking in
marijuana under state law. Despite being
legal under Michigan law, the trafficking
of marijuana has not been authorized
under federal law.
Based on current taxing authority, IRC
Section 280E (IRC §280E) will apply to
businesses operating under the MMFLA.
IRC §280E disallows all operating
expenses from being deducted for any
trade or business that is trafficking
a controlled substance (within the
meaning of schedule I or schedule II of
the Controlled Substances Act). Since
its enactment, there has been very little
guidance. There are no exceptions that
currently exist, which leaves all licensees
under the MMFLA exposed to the
potential application of IRC §280E. There
are many great arguments that could be
made; however, no MMFLA licensee should
assume that IRC §280E does not apply to
them. Thus, all potential MMFLA licensees
should consult with a tax planning expert
due to the significant impact of IRC §280E.
Licensees under a MMFLA license will
have to deal with an effective combined
tax rate that will exceed 50%, taking into
a