NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A7692
SPONSOR: Zaccaro TITLE OF BILL:
An act to amend the administrative code of the city of New York, in
relation to permitting certain tax deductions related to the sale,
production, or distribution of cannabis products
SUMMARY OF PROVISIONS:
This bill would allow a deduction for business expenses, incurred by
taxpayers authorized by the Cannabis Law to engage in the sale, distrib-
ution, or production of adult-use cannabis products or medical cannabis,
for purposes of the unincorporated business tax ("UBT"), the general
corporation tax ("GCT"), and the corporate tax of 2015, commonly
referred to as the business corporation tax ("BCT").
Section one of the bill would add a new paragraph to subdivision (c) of
section 11-506 of the Administrative Code of the City of New York
("Administrative Code") to allow a deduction under the UBT in an amount
equal to any federal deduction disallowed by section 280E of the inter-
nal revenue code ("IRC").
Section two of the bill would add a new subparagraph to paragraph (a) of
subdivision 8 of section 11-602 of the Administrative Code to allow a
deduction under the GCT in an amount equal to any federal deduction
disallowed by section 280E of the IRC.
Section three of the bill would add a new subparagraph to paragraph (a)
of subdivision 8 of section 11652 to allow a deduction under the BCT in
an amount equal to any federal deduction disallowed by section 280E of
the IRC.
Section four of this bill would make this tax credit retroactive and
applicable to tax years beginning on or after January 1, 2022.
REASONS FOR SUPPORT:
New York's Cannabis Law permits the sale, production, and distribution
of adult-use cannabis products by licensed persons or entities. The
Cannabis Law also permits registered organizations to sell, produce, and
distribute medical cannabis. A person or entity engaging in one or more
of these activities must be authorized to do so under the Cannabis Law.
In computing federal taxable income, the federal IRC generally permits
the deduction of all "ordinary and necessary" expenses incurred while
carrying on any trade or business, as prescribed in Section 162 of the
IRC. However, section 280E of the IRC specifically disallows the
expenses incurred while carrying on any trade or business consisting of
trafficking in products determined to be controlled substances under
schedule I and II of the Controlled Substances Act, which includes
adult-use cannabis products and medical cannabis. Under section 280E,
entities engaged in a cannabis business are not permitted to deduct
their normal business expenses at the federal level, even if authorized
to carry on a business under New York's Cannabis Law.
New York City's BCT and GCT subject a taxpayer to tax on their entire
net income. The starting point for computing entire net income is a
taxpayer's federal taxable income. Similarly, the UBT relies on federal
taxable income as a baseline for determining taxable income. However,
New York State allows the deduction for business expenses incurred by
taxpayers engaging in the distribution or production of adult-use canna-
bis products under the State's corporation tax. The value of the
deduction is equal to the any federal deduction that would be disallowed
by section 280E of the IRC. This deduction to the State corporation tax
was enacted by Part PP of Chapter 59 of the Laws of 2022 and is codified
as subparagraph (23) of paragraph (a) of subdivision 9 of section 208 of
the Tax Law.
Similar to the deduction allowed under the State corporation tax, this
bill would allow businesses authorized to engage in the production,
distribution and sale of adult-use cannabis products or medical canna-
bis, to deduct their business expenses when computing taxable income
under New York City's UBT, GCT, and BCT, in the amount such a deduction
would be disallowed by section 280E of the IRC. This modification to
income is appropriate because, while the expenses of cannabis-related
business cannot be deducted for federal purposes, New York law permits
and encourages these businesses akin to any other legitimate business
occurring in the State. The City's business taxes should similarly
encourage these business activities.
Accordingly, the Mayor urges the earliest possible favorable consider-
ation of this proposal by the Legislature.
Respectfully submitted,
CHRISTOPHER G. ELLIS, Jr. Director NA: 5/25/23
STATE OF NEW YORK
________________________________________________________________________
7692
2023-2024 Regular Sessions
IN ASSEMBLY
June 6, 2023
___________
Introduced by M. of A. ZACCARO -- read once and referred to the Commit-
tee on Ways and Means
AN ACT to amend the administrative code of the city of New York, in
relation to permitting certain tax deductions related to the sale,
production, or distribution of cannabis products
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. Subdivision (c) of section 11-506 of the administrative
2 code of the city of New York is amended by adding a new paragraph 13 to
3 read as follows:
4 (13) For businesses authorized pursuant to the cannabis law to engage
5 in the sale, production, or distribution of (A) adult-use cannabis
6 products, as defined in article twenty-C of the tax law, or (B) medical
7 cannabis, as defined in section three of the cannabis law, the amount of
8 any federal deduction disallowed pursuant to section two hundred eight-
9 y-E of the internal revenue code related to the sale, production, or
10 distribution of such adult-use cannabis products or such medical canna-
11 bis not used as the basis for any other tax deduction, exemption, or
12 credit and not otherwise required to be added back by subdivision (b) of
13 this section in computing entire net income.
14 § 2. Paragraph (a) of subdivision 8 of section 11-602 of the adminis-
15 trative code of the city of New York is amended by adding a new subpara-
16 graph 17 to read as follows:
17 (17) for taxpayers authorized pursuant to the cannabis law to engage
18 in the sale, production, or distribution of (i) adult-use cannabis
19 products, as defined in article twenty-C of the tax law, or (ii) medical
20 cannabis, as defined in section three of the cannabis law, the amount of
21 any federal deduction disallowed pursuant to section two hundred eight-
22 y-E of the internal revenue code related to the sale, production, or
23 distribution of such adult-use cannabis products or such medical canna-
24 bis not used as the basis for any other tax deduction, exemption, or
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD11715-01-3
A. 7692 2
1 credit and not otherwise required to be added back by paragraph (b) of
2 this subdivision in computing entire net income.
3 § 3. Paragraph (a) of subdivision 8 of section 11-652 of the adminis-
4 trative code of the city of New York is amended by adding a new subpara-
5 graph 18 to read as follows:
6 (18) for taxpayers authorized pursuant to the cannabis law to engage
7 in the sale, production, or distribution of (i) adult-use cannabis
8 products, as defined in article twenty-six-C of the tax law, or (ii)
9 medical cannabis, as defined in section three of the cannabis law, the
10 amount of any federal deduction disallowed pursuant to section two
11 hundred eighty-E of the internal revenue code related to the sale,
12 production, or distribution of such adult-use cannabis products or such
13 medical cannabis not used as the basis for any other tax deduction,
14 exemption, or credit and not otherwise required to be added back by
15 paragraph (b) of this subdivision in computing entire net income.
16 § 4. This act shall take effect immediately and shall be deemed to
17 have been in full force and effect on and after January 1, 2022. This
18 act shall apply to tax years beginning on or after January 1, 2022.
