Description:
<jats:title>ABSTRACT</jats:title>
<jats:p>Presently, federal income taxation of medical marijuana is the same as for cocaine or heroin; the only permitted adjustment to gross revenues in calculating federal taxable income is cost of goods sold. Where medical marijuana has been legalized, however, state income taxation falls primarily into two groups, with some states permitting nonprofit treatment of dispensaries for state purposes, although they will not receive such treatment for federal tax purposes. Other states make no requirement of nonprofit status, such that state taxation of these enterprises generally follows federal treatment. This disparity in federal-state taxation, although simply stated, has earth-shaking economic implications to the producers, distributors, and users of medical marijuana. Despite recent developments, a potentially extreme federalism problem remains; one that has been characterized as a “war” between the federal government and some states over medical marijuana policy. This “war” has two fronts, due to the way the federal tax code controlling marijuana is drafted. One front concerns the criminalization of medical marijuana operations nationally, and a second front concerns federal income taxation of these same enterprises. As additional states continue to legalize marijuana for medical purposes, the federalism issues continues to loom large. This paper discusses the federalism issues resulting from this unique legal conflict and the need for federal legislation.</jats:p>