There is no “legal distribution” of marijuana in federal law, and it’s the federal law that’s most of the tax burden. The federal law simply does not allow you to deduct expenses on marijuana business.
But if you have a business selling whatever, you have expenses. Why does the federal tax agency even care what you're doing to make that money?
I assume federal law doesn't actively say it's illegal, and I assume federal law doesn't exhaustively list what can be an expense or not, so if your business is incurring a legitimate expense?
Further. Who decides what you are selling. Yes it may be marijuana in the box, but if there are other value added things, surely you could argue that that is an incidental ingredient, and you're really selling fancy packaging.
For a country where it's all about free enterprise etc. Things are half made awkward.
In the UK if you have a legitimate business expense related to your business you can expense it. And setting up a business basically involves getting a tax number to do your tax return.
No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.
Schedule I drugs, substances, or chemicals are defined as drugs with no currently accepted medical use and a high potential for abuse. Some examples of Schedule I drugs are: heroin, lysergic acid diethylamide (LSD), marijuana (cannabis), 3,4-methylenedioxymethamphetamine (ecstasy), methaqualone, and peyote.
Those in the business of selling marijuana are doing so illegally in the hopes the federal government continues to not enforce the law. :(
Yes, they are breaking laws by selling drugs. No, they still pay taxes. The reason is that the federal drug enforcement agency that could go after them for breaking the low most likely will not do that, whereas IRS highly likely will go after them for not paying the taxes.
