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Murphy Signs New Jersey Cannabis Tax Law Bill for Deductions

Governor Phil Murphy (D) has signed New Jersey cannabis tax law reform legislation so cannabis companies can deduct their business expenses.

The bill was A-3946/S-340, “Decouples State tax provisions from federal prohibition on cannabis business deductions.”

The new law decouples cannabis businesses from the federal Internal Revenue Service Tax Code Section 280E. Section 280E prohibits any company illegally engaged in drug trafficking from deducting business expenses on personal or corporate income tax returns.

The federal government makes no distinctions between someone like Cocaine Drug Kingpin Tony Montana in Scarface and state-licensed cannabis companies.

The IRS Tax Code is full of loopholes that businesses and their accountants can exploit to lower the amount they pay in taxes. It greatly helps their net profit.

New Jersey followed 280E, taxing licensed cannabis companies like drug dealers, including those in the medicinal space.

The State Senate passed the New Jersey cannabis tax law in February. The Budget Committee passed the bill to help New Jersey cannabis companies in January. The Assembly Oversight Committee passed it last September. The New Jersey cannabis tax law reform bill passed both chambers by large bipartisan margins.

Troy Singleton (D-Burlington) and Shirley Turner (D-Mercer) sponsored it in the State Senate. Singleton has been pushing it consistently along with homegrow.

Assemblymembers Annette Quijano (D-Union), Clinton Calabrese (D-Bergen), and Linda Carter (D-Union) were the prime sponsors of the bill in the New Jersey Assembly. Sterley Stanley (D-Middlesex) and Carol Murphy (D-Burlington) also co-sponsored the bill.

New Jersey Cannabis Tax Law Reform Progress

The bill applies to tax years beginning on and after Jan. 1, 2023. It will likely help New Jersey cannabis companies financially.

Many, especially the smaller ones, are struggling.

“This is another enormous step forward for New Jersey’s cannabis entrepreneurs. It continues the process of normalizing the cannabis industry through common sense measures that benefit everyone,” New Jersey CannaBusiness Association (NJCBA) President Scott Rudder said. “Outdated and unjust policies should not be the basis for current cannabis law.”

He recently resumed the Presidency of the NJCBA after Ed DeVeaux had succeeded him.

“The NJCBA looks forward to working with cannabis businesses. They now take steps that any other business in New Jersey can take,” Rudder added.

“Deducting business expenses is critical for a company to be profitable,” NJ Society of Certified Public Accountants Executive Director Ralph Albert Thomas argued. “It may make sense for the federal government to do this since cannabis is illegal on a federal level. It was irrational and unfair in New Jersey, where it’s legal.”

The NJCPA has been pushing the New Jersey cannabis tax reform bill consistently.

“We applaud the initiative and efforts taken by bill sponsors Assemblywoman Annette Quijano and Senator Troy Singleton. They quickly recognized the importance of addressing this little-understood but critically important issue and tirelessly pushed for its passage. We also thank the Governor for signing the bill and for his support for it as it moved through the legislative process,” Thomas added.

The NJSCPA noted that the New Jersey Business & Industry Association, New Jersey State Chamber of Commerce, and the Commerce and Industry Association of New Jersey endorsed the legislation.

They are all very well-known powerful business lobbying groups. Having such groups lobbying for New Jersey cannabis tax law reform helps greatly.

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