Missouri marijuana companies can now deduct business expenses on state income taxes
Under federal law, growing, transporting or selling marijuana remains a crime, so deductions are only available at the state level.
Missouri voters signed off on recreational marijuana on Nov. 8, 2022, with 53% in support (Getty Images).
Marijuana companies will be able to deduct business expenses on their state taxes for the first time this year, a Missouri Department of Revenue spokeswoman confirmed to The Independent.
Missourians voted to legalize medical marijuana in 2018. But under federal law, growing, transporting or selling marijuana remains a crime.
Because of this dynamic, marijuana companies have differed from every other legal business in the state because they weren’t allowed to deduct ordinary and necessary business expenses, such as marketing or furniture costs, on both their state and federal tax returns.
Sen. Denny Hoskins, R-Warrensburg, pre-filed a bill in December to get that changed, at least on the state level. And Republicans have been trying to make the change for the last three years.
However, Hoskins told The Independent Friday that passage of Amendment 3, the constitutional amendment legalizing marijuana that voters approved in November, will make the deductions possible.
“After further discussions with (the Department of Revenue), they believe the passage of Amendment 3 clarified the issue and normal business deductions will be allowed for marijuana related businesses, so no further legislation is necessary,” Hoskins said via text message.
In 2021, state lawmakers approved Hoskins’ bill as an amendment to a wide-ranging bill. But Gov. Mike Parson vetoed the legislation over an unrelated provision — a section lawmakers included that would have provided tax relief for businesses impacted by city-wide or county-wide public health restrictions.
In his letter vetoing the measure, Parson didn’t mention the medical marijuana provisions.
Last year, a bill that included the provision passed out of the Senate but stalled in the House.
Adolphus Pruitt, president of the St. Louis City NAACP chapter, said the change will especially benefit small businesses in the marijuana industry during their first years of operation.
“In those early years, businesses need to do their best to break even or try to make a return on their investment and be profitable,” Pruitt said. “So those who have the ability to have those business expenses deducted to increase their bottom line — just like it is for any other business — is important.”
Hoskins, who is an accountant, told legislators last year that marijuana companies were paying a higher overall tax rate on their earned income. In 2021, the effective tax rate for corporations was about 20 percent, he said.
“You could actually have an effective tax rate of over 70%, not being able to deduct these expenses,” Hoskins said during a Senate committee hearing last spring, “because you’re taxed on gross profit, not on ordinary business income like other businesses.”
In December, Missourians bought $40.25 million worth of medical marijuana, breaking the previously monthly sales record. In total, Missouri has now sold $605.31 million worth of medical marijuana since sales began in October 2020. In 2022 alone, Missouri sold more than $390 million.
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