Are cannabis taxes too high?

June 22, 2011

Ted Cox, Sacramento News & Review

Next month, medical cannabis dispensaries within Sacramento city limits will begin paying a 4 percent tax on their gross receipts.

With the new tax, Sacramento joins the growing number of cities across the country collecting money from medical-cannabis sales. Sacramento city manager spokeswoman Amy Williams says the tax will bring in an estimated $1 million in revenue anually. The money will go to the city’s general fund.

Voters last November approved Measure C, the Sacramento “Marijuana Business Tax,” by an overwhelming 71 percent.

Measure C was originally intended to allow the city council to tax recreational marijuana sales anywhere from 5 to 10 percent should Proposition 19 pass.

But Measure C also included a provision that allowed the city to tax medical-cannabis dispensary gross receipts should Proposition 19 be defeated.

In California, voters in Albany, Berkeley, La Puente, Long Beach, Morro Bay, Rancho Cordova, Richmond, San Jose and Stockton all approved various taxes on dispensaries or medical-cannabis sales. The taxes ranged from 2.5 to 10 percent.

With the stuttering economy killing tax revenues across the country, local governments have searched for ways to save vital services like police and fire protection. As sales in the medical-cannabis industry take off, city officials are seeing green.

Sonny Kumar, executive director of El Camino Wellness Center, expressed differing feelings about the new tax.

“The reason the El Camino supports the tax is because we want to be able to contribute to the community,” Kumar said. “And we accept that one of the ways to do that is to pay taxes.”

But he says the 4 percent tax was higher than what he and other dispensary owners were hoping.

Nearby Oakland has voted to increase its special tax on dispensaries, now tacking on another $50 for every $1,000 of sales, which is in addition to the city’s sales tax. The city also planned to license four industrial-sized pot farms and collect millions of dollars in yearly fees. Thousands of investors lined up to grab one of the permits; the city’s plans fell apart after receiving a threatening letter from federal prosecutors.

In San Jose, about a third of the estimated 115 dispensaries refuse to pay the 7 percent tax mandated by Measure U. They argue that the wording of Measure U defines those exchanges as sales, which is illegal under federal and state law. At a special meeting in the city council chamber, one owner said his attorney advised him that paying the tax is a form of self-incrimination.

The city of San Jose collected nearly $300,000 from cannabis dispensaries in the first month of the new tax.

In Colorado, where medical cannabis has been legal since 2000, the state’s Department of Revenue recently opened up its Medical Marijuana Enforcement Division, which regulates dispensaries and collects state sales tax.

In Arizona, legislators this year approved a law taxing medical cannabis at the same 6.6 percent rate as other goods sold in the state, plus an extra 2 to 3 percent for local taxes.

Medical-cannabis proponents are split on the matter of taxation. On one hand, taxing medical cannabis is seen as big step toward legitimizing marijuana.

But Kris Hermes of Americans for Safe Access, a medical-cannabis advocacy group, said his organization opposes any taxes on the drug “mostly because they place an unfair burden on patients.”

Hermes argues that obtaining medical cannabis requires a recommendation from a licensed physician, making it similar to other prescription medications, which are not taxed.

Apparently, most Sacramento residents disagree.

“The city believes that this is a legitimate business to tax, which is why we needed to update our business operation tax,” said the city’s Williams. “So we went to the voters, and the voters of Sacramento overwhelmingly agreed with us that this was legitimate business to tax.”



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