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50 U.C.D. L. Rev. 659 (2016-2017)
Tax Benefits of Government-Owned Marijuana Stores

handle is hein.journals/davlr50 and id is 673 raw text is: 









  Tax Benefits of Government-Owned

                    Marijuana Stores

                           Benjamin M. Leff

   Over a year ago  (March  7, 2015), a little store called the Cannabis
Corner  opened in the small town of North Bonneville, Washington. The
Cannabis   Corner  is the first marijuana store operated by  a public
development  authority, an independent entity created by a state or local
government.  Public development  authorities are generally exempt from
federal income taxes under section 115 of the Internal Revenue Code. For
a marijuana  business, this exemption is especially valuable because section
280E  of the Code currently prevents marijuana businesses from deducting
many  of the ordinary expenses other businesses regularly deduct, resulting
in extremely high federal income taxes.
   This Article is the first to address whether independent governmental
affiliates that sell marijuana are exempt from federal income tax under
section 115  of the Internal Revenue Code. It argues that such entities
should   easily pass  the  IRS's current  interpretation of the  three
requirements for tax-exemption under section 115: (i) that exempt income
be derived from the exercise of any essential governmental function; (ii)
that such income accru[e] to a State or any political subdivision thereof;
and  (iii) that the income not serve private interests[.] In addition, this
Article argues that though selling marijuana is illegal under federal law,
that fact is not a bar to exemption under section 115 of the Code the way it
is under section 501 (c) (3).
   Tax exemption for public development authorities that sell marijuana is
important  because  of  the non-tax  benefits of a  marijuana  market
dominated  by government  sellers. This Article explores the benefits that
might  accrue if a state chose to create a regulatory regime for legalizing


    * Copyright Q  2016 Benjamin M.  Leff. Professor, American University,
Washington College of Law. I would like to thank the UC Davis Law Review and the
participants in its Marijuana Law Symposium, as well as Ellen P. Aprill, Andrew Haile,
Leandra Lederman, Pat Oglesby, Brenda V. Smith, Lindsay F. Wiley, and the
participants in the Indiana University Maurer School of Law Tax Policy Colloquium.


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