Legal Pot’s Tax Hit From Drug War Era May Vaporize in New Congress

The audit letter came in 2015, and Tim Cullen had a pretty good idea what the IRS was going after.

The former high-school biology teacher, who had started a Denver-based cannabis company two years earlier, had been reading up on an obscure part of the tax code called Section 280E after hearing about a precedent-setting court case in California.

Cullen found that, unlike most businesses, the cannabis industry generally couldn’t take tax credits or even deduct ordinary business costs such as marketing, payroll, employee benefits, and rent. The result is effective rates of upwards of 75 percent, depending on the ...