Illinois Budget Bill Would Decouple State Tax Laws from IRS Code 280E

Illinois’ budget bill includes provisions that eliminate the state’s conformity with Internal Revenue Service (IRS) Code 280E which will allow state-licensed cannabis businesses to take some normal business deductions, according to a report from Tenth Amendment Center. Section 280E prohibits businesses from deducting otherwise ordinary business expenses from gross income associated with the “trafficking” of Schedule I or II substances, as defined by the federal Controlled Substances Act, and applies to cannabusinesses in states that have legalized cannabis. 

The bill also includes language to direct funding to a cannabis development fund and extend the deadline for conditional cannabis business licensees to find a storefront. 

The budget bill was approved this week by both chambers of the Illinois legislature and Gov. J.B. Pritzker (D) is expected to sign it into law. 

Earlier this month, New Jersey Gov. Phil Murphy (D) signed a standalone bill to allow the state’s cannabis companies to deduct normal, management-related business expenses from their taxes.  

Minnesota’s newly-signed adult-use cannabis law also decouples the state’s tax regime from IRS Code 280E. 

In a National Cannabis Industry Association policy paper, Henry Wykowski, a California attorney who works with cannabis clients on tax issues, said that “Section 280E de-incentivizes people from filing tax returns” and “penalizes people who are trying to be transparent and operate within the law.”