Illinois establishes tax rules for cannabis businesses and trusts under new legislation

House Bill 3280, introduced in the Illinois House of Representatives on March 13, 2025, aims to amend tax regulations affecting cannabis establishments and trusts within the state. The bill seeks to address the financial challenges faced by cannabis businesses due to federal tax restrictions, particularly Section 280E of the Internal Revenue Code, which disallows certain deductions for businesses involved in illegal activities under federal law, including cannabis.

One of the key provisions of House Bill 3280 allows licensed cannabis establishments operating under the Cannabis Regulation and Tax Act and the Compassionate Use of Medical Cannabis Program Act to deduct amounts previously disallowed under Section 280E. This change is expected to provide significant financial relief to these businesses, enabling them to reinvest in their operations and contribute more effectively to the state economy.

The bill has sparked notable debates among lawmakers and stakeholders. Proponents argue that the measure is essential for leveling the playing field for cannabis businesses, which face unique tax burdens compared to other industries. Critics, however, express concerns about the implications of further normalizing cannabis operations in a state where federal law still classifies marijuana as an illegal substance.

In addition to its impact on the cannabis industry, House Bill 3280 also includes modifications related to the taxation of trusts and estates, ensuring that taxable income calculations are adjusted to reflect various deductions and exclusions. This aspect of the bill aims to simplify tax compliance for trusts and estates, potentially easing the financial burden on beneficiaries.

The economic implications of House Bill 3280 could be substantial, as it may encourage growth in the cannabis sector, which has been a significant source of revenue for Illinois since legalization. Experts suggest that by allowing these businesses to operate with more favorable tax conditions, the state could see increased job creation and tax revenue in the long term.

As the bill progresses through the legislative process, its future remains uncertain. Lawmakers will need to weigh the benefits of supporting the cannabis industry against the potential backlash from constituents who oppose further cannabis normalization. The outcome of House Bill 3280 could set a precedent for how Illinois navigates the complex intersection of state and federal cannabis laws in the coming years.