States solve marijuana tax better – laboratories for legalization consequences, solves government overreach

V. CONCLUSION Much medical evidence indicates that marijuana should not be classified as a dangerous narcotic; consequently, the differential tax treatment of marijuana businesses whereby these firms are taxed on their gross income, rather than net income (as are most other comparable businesses), is arbitrary and unjustified. While there is certainly a risk of harmful effects--arguably no more than those of many other drugs that are permitted by the FDA--there is a growing body of research that emphasizes the positive aspects of the drug and how it can provide relief for symptoms of a number of illnesses. As such, a majority of states have legalized the use of marijuana for medicinal purposes. Given this and that a sizeable majority of the public favor legalizing marijuana, there seems little reason for there to be a federally mandated prohibition of use of marijuana under all circumstances. Without the specter of federal enforcement of this ban, the states could better serve as laboratories to see the consequences of legalization of marijuana for medicinal purposes. The question of whether recreational use of marijuana should be permitted is more contested. So far, only 11 states have legalized its use for such purposes. Maintaining the harsh federal strictures against adult recreational use is not likely to cause a significant reduction of its use. In addition to criminalizing the use of marijuana, the federal government has used the tax law to penalize businesses that sell marijuana. Section 280E disallows a deduction for the legal operating expenses of a marijuana business even when the business is legal under state law. This treats drug businesses more harshly than even illegal businesses that are permitted to deduct their legal operating expenses. Even if it is proper to single out drug businesses for special punitive treatment, the device chosen in [section] 280E is arbitrary in that the size of the penalty bears no relationship to the seriousness of the events. To the contrary, the size of the penalty rests on factors that have nothing to do with the seriousness of the matter. Moreover, there is no good reason to counter the decision of a state to permit the use of marijuana by imposing a large penalty on those businesses through the tax law. In Section III of this article, we examined several possible rationales for the denial of a deduction and found that they did not bear scrutiny, and in Section IV, we examined several proposals to mitigate the adverse impact of [section] 280E on marijuana and similarly found them wanting. Where does that leave us? It is clear that the seemingly intractable conflict between the federal tax policy toward marijuana and the acceptance of its use by many states is counter to the ideals of federalism--indeed, a recent court case framed the issue as the "largest federalism dispute this country has seen since the Civil War." (78) Leaving aside difficult questions of whether contrary state laws as to marijuana are preempted by the federal prohibition, as the supreme law of the land, (79) it is difficult to understand why the federal government would impose a view on the states that marijuana has "no medical use" and thereby interfere with the decisions of a majority of states to permit and regulate its use. Congress has adhered to the view adopted in the 1970 CSA and resisted efforts to make a significant change in the CSA. Yet, Congress itself has shown doubts about that view when, for the past six years, it has passed legislation preventing the DOJ from enforcing the marijuana prohibition in Schedule I of the CSA. It is peculiar to say the least to prevent the enforcement of the prohibition while continuing to penalize marijuana businesses by denying them and credits. Ultimately, the problems imposed on marijuana businesses by [section] 280E will be resolved only when the conflicts in the treatment of marijuana in this country are resolved.