Bill > A1661

Introduced Session

This bill decouples the corporation business tax from the federal income tax provision that prohibits deductions and credits for cannabis businesses. The bill also decouples S corporation income under the gross income tax from the federal provision. Under the State's corporation business tax, and for S corporation income under the gross income tax, the starting point for calculating income that is taxable is that which is taxable under the federal income tax. Federal law (26 U.S.C. s.280E) prohibits deductions and credits for businesses trafficking in federally defined schedule I and II controlled substances, which includes cannabis. The deduction for ordinary and necessary business expenses is therefore not available to cannabis businesses, which results in a higher federal income tax liability than other businesses with similar amounts of income. Because the corporation business tax is currently linked by State law to federal law in this respect, cannabis businesses subject to the corporation business tax would also have a higher tax liability than other businesses with similar amounts of income. The same is true for S corporation income under the gross income tax. (Others subject to the gross income tax are not linked to the federal provision by State law.) As a result of enactment of this bill, a business subject to the corporation business tax will be allowed to deduct from income all ordinary and necessary business expenses incurred in carrying on a licensed cannabis business. The deduction will be allowed when calculating S corporation income as well.

AI Summary

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Annette Quijano (D)*, 

Introduced, Referred to Assembly Oversight, Reform and Federal Relations Committee (on 01/14/2020)

Official Document