Hemp VS. Marijuana Tax Compliance

When it comes to taxes, many hemp businesses are unsure about Internal Revenue Code Section 280-E and whether or not it applies to their businesses. Section 280-E was passed in order to prevent drug dealers from taking business deductions on income from trafficking in controlled substances, like cocaine and marijuana. Here is what you should know about growing hemp versus marijuana and its application to 280-E.

Hemp Growers

The cultivation of hemp has been considered by the federal government to be a violation of the Controlled Substances Act because hemp is botanically related to marijuana. In addition, hemp also contains low levels of THC, which is the same psychoactive substance found in marijuana. These properties are why the government sought to include hemp by default in the Controlled Substances Act.

The government did make some distinction between hemp and marijuana with the passage of the Agricultural Act of 2014, which removed the federal restrictions on growing industrial hemp and permitted any states that have legalized the manufacturing of hemp to set up research programs in order to study the benefits of cultivating hemp.

Since the federal government has failed to create an exception for hemp in the list of Schedule I substances of the Controlled Substances Act, Section 280-E still applies to hemp growers and hemp distribution businesses.

As a result, hemp growers still face the same restrictions on permitted deductions as marijuana growers when it comes to taxation. The full list of deductions that are available to hemp growers can be found here.

Hemp Distributors

In the same way that hemp growers are treated like marijuana growers for taxation purposes, hemp distributors must also follow the same rules as marijuana distributors.  The full list of deductions that are available to hemp distributors can be found here.