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Tax Deductions Blog

No More Marijuana Taxes!

Authored by Amy E. Ebeling
Posted on June 25, 2014
Filed under Tax Deductions

I can't help but write a puff piece about the recent lawsuit filed in a Denver District Court earlier this week. In the lawsuit, the attorney is asking the court to block marijuana taxes in Colorado, claiming the state's tax system violates the Fifth Amendment, which protects people from self-incrimination. The attorney argues that when marijuana growers and sellers pay their taxes, they are effectively incriminating themselves under federal law, which still bans marijuana.

The lawsuit cites the supremacy clause of the United States Constitution, arguing "federal law is supreme over, and preempts, state or local law." Thus, the argument is that the Fifth Amendment right to protect oneself from incrimination is supreme or preempts Colorado's tax laws (or that the federal law is higher than the state law). Some legal experts are, however, concerned the strict interpretation of that argument could mean Colorado's own court may need to rule that the state's laws allowing marijuana sales are illegal.

The court's ruling and reasoning behind their ruling will certainly be interesting considering it may set precedent for taxpayers not to pay tax on income earned through illegal activities. Although we don't have to worry about pot taxes in Wisconsin, the outcome of this case could impact taxation by all states of unlawful activities. We will keep you informed of any developments here on Tax Deductions, but no promises the pot puns will get any better.

Follow Amy on Twitter @AmyTaxEsq