trafficking of marijuana<\/a>, dispensaries have had difficulty establishing a separate trade or business before tax courts. Time after time, tax courts have found marijuana dispensaries engaged in a unitary business of selling marijuana whose non-marijuana sales complement the sale of marijuana. At base, the decisions have found the alleged separate business as sharing a close and inseparable organization and economic relationship with, and incident to, the primary business of selling marijuana.<\/p>\n\n\n\n280E Separate Businesses Have Revenue<\/h2>\n\n\n\n
One factor that has distinguished the taxpayer in CHAMP from the unsuccessful taxpayers in other cases is revenue attributable to marijuana sales vs non-marijuana sales. In CHAMP, the taxpayer operated as a Nonprofit Public Benefit Corporation on approximately a break-even basis. Furthermore, the taxpayer charged members a fixed price that included extensive caregiving services and a set amount of marijuana each month; not an unlimited supply of marijuana. <\/p>\n\n\n\n
Nominal Revenue Doesn\u2019t Show A Profit Motive<\/h2>\n\n\n\n
In contrast to CHAMP, marijuana dispensaries in Harborside, Alterman, and Olive have been unsuccessful in convincing the court that they were engaged in separate businesses from the sale of marijuana, due in part to the fact that those dispensaries derived a majority of their revenue from the sale of marijuana for profit. For instance, in Harborside the court noted that the marijuana dispensary derived only .5% of its revenue from the sale of non-marijuana merchandise; a factor weighing against a finding that such sales constituted a separate business as opposed to sales that merely complemented the unitary business of selling marijuana. Likewise, the taxpayer dispensary in Alterman derived only 1.4% of its revenue from non-marijuana merchandise for one tax year and only 3.6% from non-marijuana merchandise in the succeeding year. Similarly, the court in Olive derived all of its revenue from the sale of marijuana and only provided additional services, food, and beverages for free. <\/p>\n\n\n\n
Non-Marijuana Business Revenue Needs To Show A Profit Motive<\/h2>\n\n\n\n
In summary, revenue is a factor in a tax court\u2019s analysis of whether a marijuana dispensary is engaged in two separate trades and business; that of selling marijuana and the other which is entitled to deductions for ordinary and necessary expenses. While the facts in CHAMP were numerous and persuasive, other marijuana dispensaries may have been more successful had they derived greater income from non-marijuana sales. As the tax court in Olive noted, \u201ca taxpayer, to be engaged in a trade or business for purposes of section 162, must be involved in the activity with continuity and regularity and the taxpayer\u2019s primary purpose for engaging in the activity must be for income or profit.\u201d When revenue from an allegedly separate business is negligible or nonexistent compared to revenue generated from the taxpayer’s sale of marijuana, courts are reluctant to find the existence of a separate trade or business from that of selling marijuana. <\/p>\n","protected":false},"excerpt":{"rendered":"
Revenue Is A Factor in Determining Whether A Separate Trade or Business Exists For Purposes of 280E Jin KimLaw Office of Jin KimFree Consultation(916) 299-9913 Cannabis businesses that buy and sell marijuana are largely denied deductions for ordinary and necessary expenses by operation of IRC 280E.\u00a0 Briefly, IRC 280E denies deductions for any amount paid […]<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":9,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"featured_image_src":null,"featured_image_src_square":null,"_links":{"self":[{"href":"https:\/\/cannabistaxattorney.us\/wp-json\/wp\/v2\/pages\/96"}],"collection":[{"href":"https:\/\/cannabistaxattorney.us\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/cannabistaxattorney.us\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/cannabistaxattorney.us\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/cannabistaxattorney.us\/wp-json\/wp\/v2\/comments?post=96"}],"version-history":[{"count":4,"href":"https:\/\/cannabistaxattorney.us\/wp-json\/wp\/v2\/pages\/96\/revisions"}],"predecessor-version":[{"id":325,"href":"https:\/\/cannabistaxattorney.us\/wp-json\/wp\/v2\/pages\/96\/revisions\/325"}],"up":[{"embeddable":true,"href":"https:\/\/cannabistaxattorney.us\/wp-json\/wp\/v2\/pages\/9"}],"wp:attachment":[{"href":"https:\/\/cannabistaxattorney.us\/wp-json\/wp\/v2\/media?parent=96"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}