Cannabis dispensary tax debt: 280E, cannabis excise and sales tax

Section 280E disallows any deduction or credit for amounts paid in carrying on a trade or business that consists of trafficking in Schedule I or II controlled substances. The IRS cannabis industry page confirms this applies even where state law permits the business. Cost of goods sold still reduces gross receipts, but rent, payroll, marketing and other operating costs do not. A dispensary that breaks even on paper can owe substantial federal tax — a common reason dispensaries carry IRS balances year after year.

Federal rescheduling of marijuana to Schedule III has been proposed. If it takes effect, 280E would no longer apply to periods after the effective date, but it would not erase taxes already assessed for earlier years. Check the current status before relying on it; we don't treat a proposal as law.

Most adult-use states impose a cannabis-specific excise tax — some on the retail price, some at the wholesale or cultivation level, some by weight or potency — in addition to regular state and local sales tax. Medical sales are sometimes taxed differently. Rates and structures change often, so confirm with your state agency and your state sales tax page. Unremitted cannabis taxes are collected money, which states treat like other collected-but-not-remitted tax.

Because banking is limited, many dispensaries are cash-heavy. The IRS notes some Taxpayer Assistance Centers accept cash payments by appointment, and any business receiving more than $10,000 in cash in one or related transactions must file Form 8300 within 15 days. Thorough cash records are essential — without them, auditors estimate.

Make sure cost of goods sold is calculated correctly under inventory rules, since it's the main lawful reduction. Keep payroll deposits current — trust fund rules apply to cannabis employers too. Then compare installment options and take the free assessment with "Cannabis" selected.