Illinois lawmakers have approved a bill that would allow marijuana businesses to claim state tax deductions as a partial IRS 280E adjustment.

Illinois lawmakers have approved a budget bill that includes provisions that allow licensed marijuana businesses to take state tax deductions that are prohibited at the federal level due to an Internal Revenue Service (IRS) code called Section 280E.

The legislation — which includes funding for the Cannabis Development Fund language guide and extends the deadline to get storefronts with conditional licenses — passed both chambers on Saturday. It now heads to the desk of Gov. JB Pritzker (D).

A key part of exempting marijuana businesses from federal tax policy, which currently bars the industry from taking key deductions available to other traditional markets, would significantly increase the effective tax rate they pay.

Starting with the current tax year, a provision will be added to the state’s existing tax code to allow cannabis business deductions “in an amount equal to the deductions prohibited by section 280E of the Internal Revenue Code for the tax year.”

The Illinois News Joint reports that while lawmakers passed the budget, a separate broad cannabis law that would have restricted delta-8 THC products was stalled before the end of the session.

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For the tax department, Illinois is following the lead of lawmakers in several other states that have moved to pass laws to treat the marijuana industry as a traditional market by offering a tax break option.

Earlier this month, for example, New Jersey’s governor signed legislation allowing licensed marijuana businesses to deduct certain expenses on their state tax returns as a partial IRS 280E solution.

Legislators in Iowa, New York, Pennsylvania and Virginia have similarly pursued tax breaks for each of their state’s marijuana markets.

At the congressional level, Rep. Earl Blumenauer (D-OR) reintroduced a bill last month that would reform the IRS code to allow state-legal marijuana businesses to finally take federal tax breaks available to companies in other industries.

“I’m absolutely convinced that when we can completely reduce the cost of doing business, people will be fully compliant with the law,” he told Marijuana Moment.

For now, the marijuana industry continues to face challenges in tax policy under the shadow of prohibition. And as the Congressional Research Service (CRS) reported in 2021, the IRS “has provided little tax guidance on the application of Section 280E.”

The IRS issued some guidance in the 2020 amendment that, while cannabis businesses cannot take standard deductions, §280E does not prevent a participant in the marijuana industry from deducting the actual cost of the goods sold. Total Income.”

The IRS update appears to be in response to a 2020 Treasury Department internal watchdog report. The department’s inspector general for tax administration has criticized the IRS for not adequately advising taxpayers in the marijuana industry about complying with federal tax laws. And it directed the agency to “develop and promulgate specific guidance for the marijuana industry.”

Bipartisan and bipartisan lawmakers have been working for years to pass legislation that would treat the cannabis sector like other legal enterprises, through the Safe and Fair Enforcement (SAFE) Banking Act, which received a hearing in the Senate Banking Committee this month and is expected. To lead to a marker.

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