City Council
MEETING DATE: 1/25/2017
TITLE:
Title
Discussion on Tax Rates for Cannabis Cultivation and Manufacturing Businesses
End
FROM:
Charlie McClendon, City Manager
RECOMMENDATION:
Recommendation
This item is presented for information, discussion and direction only.
Body
BACKGROUND:
The voters of the Cathedral City approved Measure N at the November 4, 2014 general municipal election. Measure N authorizes the City to impose a tax on the proceeds of cannabis and marijuana collectives as defined in the Ordinance in the amount of fifteen cents (15) for every dollar of proceeds. The Ordinance provides the Council with the authority to set the tax at a rate that is less than 15% and to establish exemptions, incentives, or other reductions, and penalties and interest charges or assessments for failure to pay the tax in a timely manner. On August 26, 2015 Council approved Resolution 2015-50 setting the tax rate on dispensaries at 10% of gross proceeds.
At the November 8, 2016 general election the voters of Cathedral City approved Measure P. The ballot language for Measure P stated "To help fund municipal services, including police protection and crime suppression services, fire prevention and suppression services, emergency medical services, park, recreation, and library facilities and services, shall an ordinance amending the existing cannabis tax be adopted that would expand the tax to apply to recreational cannabis, if legalized, and apply a tax of $25 per square foot of cultivation space, and $1.00 for every gram of cannabis concentrate and every unit of cannabis-infused product?”
DISCUSSION:
Council has flexibility in establishing tax rates for cultivation and manufacturing operations up to the maximum rates approved by the voters.
Palm Springs currently taxes cannabis businesses at the rate of 10% of gross proceeds for dispensaries. They have not to date permitted any cultivation operations not associated with a dispensary although it appears they are planning to do so.
Desert Hot Springs taxes cultivation operations at the rate of $25 per square foot for the first 3,000 square feet and $10 per square foot thereafter. DHS does not have a separate manufacturing tax.
Coachella is reported to have a cultivation tax of $15 per square foot. They have a 6% point of sale tax on sales.
The AUMA establishes a state tax rate of $9.25 per dry-weight ounce for cannabis flowers and $2.75 per dry-weight ounce for cannabis leaves. The cultivation tax would not apply to cannabis cultivated for personal use or cultivated by a qualified patient or primary caregiver. Local taxes on recreational cannabis are allowed on top of the state taxes.
Council will discuss the voter approved tax rates and any desired reductions. If Council wishes to apply a rate lower than that approved by the voters and resolution will be brought forward for action at a future Council meeting.
FISCAL IMPACT:
The City currently has applications for 510,950 square feet of cultivation space and has permitted 54,100 feet to date. At these rates each $1 reduction in the tax rate results in a reduction in revenue of $510,950 annually based on total applications or $54,100 annually based on space permitted to date. It is unknown if a lower tax rate will result in more demand for cultivation space. Vicente Sederberg prepared an estimate indicating that each Manufacturing permit should result in approximately $100,000 annually in tax revenue at the rate of $.50 per gram or unit, which would be $200,000 per permit at the voter approved rate of $1.00. The City has received 12 applications for manufacturing and has permitted 3 manufacturing operations to date.
ATTACHMENTS:
Resolution 2015-50