NEW JERSEY – In an effort to support the growth of cannabis businesses, legislation sponsored by Senator Troy Singleton and Senator Shirley K. Turner, which would exclude the corporate business tax and the S corporation income under the gross income tax from the federal income tax provision that prohibits deductions and credits for cannabis businesses, was signed into law Monday by Governor Phil Murphy.
“We have seen here in New Jersey, and around the country, that legal cannabis businesses tend to lack diversity both in gender and race amongst its ownership ranks. This law aims to level the playing field for all cannabis businesses,” said Singleton (D-Burlington). “It will ensure that dispensaries are paying a fair amount of taxes by taking into account critical business expenditures and allowing these deductions from their income.”
Under the law, formerly S-340, a cannabis business subject to the corporation business tax will be allowed to deduct from income all ordinary and necessary business expenses associated with managing a licensed cannabis business, including the opportunity to qualify for research and development deductions.
The deduction is also allowed when calculating the S corporation income of cannabis business corporations, and will continue to be allowed for other forms of business income under the gross income tax regardless of gross revenue.
“New Jersey’s cannabis industry is still in its infancy, and we need to act early to provide equal opportunity for all businesses to succeed,” said Turner (D-Mercer/Hunterdon). “Supporting dispensaries while promoting diversity within the cannabis industry is better for our local economy and also helps to ensure that the profits from recreational cannabis are being funneled back into the communities that need it most.”
Under the State’s corporation business tax, and for S corporation income, the starting point for calculating income that is taxable is that which is taxable under the federal income tax. Federal law prohibits deductions and credits for businesses trafficking in federally defined schedule I and II controlled substances, which includes cannabis. Deductions for business expenses are therefore not available to cannabis businesses, which results in a higher federal income tax liability than other businesses with similar amounts of income.
