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prevents them from deducting their rent, employee salaries, or utility bills, forcing them to pay taxes on a far larger amount of income than other businesses with the same earnings and costs. They also say the taxes, which apply to medical and recreational marijuana sellers alike, are stunting their hiring, or even threatening to drive them out of business. The issue reveals a growing chasm between the 23 states, plus the District of Columbia, that allow medical or recreational marijuana and the federal bureaucracy, from national forests in Colorado where possession is a federal crime to federally regulated banks that turn away marijuana businesses, and the halls of the IRS. The tax rule, an obscure provision known as 280E, catches many marijuana entrepreneurs by surprise, often in the form of an audit notice from the IRS. Some marijuana businesses in Colorado, California, and other marijuana-friendly states have taken the IRS to tax court. This year, Allgreens, a marijuana shop in Colorado, successfully challenged an IRS policy that imposed about $30,000 in penalties for paying its payroll taxes in cash — common in an industry in which businesses cannot get bank accounts. “We’re talking about legal businesses, licensed businesses,’’ said Rachel Gillette, the executive director of Colorado’s chapter of the National Organization for the Reform of Marijuana Laws and the lawyer who represented Allgreens. “There’s no reason that they should be taxed out of existence by the federal government.
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