Photographer: Chris Roussakis/Bloomberg © 2018 Bloomberg Finance LP As we begin a new year, I’ve been reflecting on how much has changed in cannabis policy over the past year. In terms of marijuana reform, 2018 was a huge year in many ways: multiple states legalized marijuana, pro-cannabis candidates won big, and Congress legalize d hemp .
As the page turns to 2019, Monday marks just one week until the start of the 2019 legislative session. Already on New Year’s Day, Idahoans have staged the first political rally of the year. Every New Year’s Day, cannabis advocacy groups Legalize Idaho and Idaho Moms for Marijuana kick off the year with a protest focused on legalizing marijuana.
Florida Agriculture Commissioner Nikki Fried isn’t the only supporter of medical marijuana in state politics who has been forced to find alternative ways to maintain campaign cash after being rejected by a financial institution. Pasco County marijuana activist Gary Stein is now looking for another provider to handle transactions associated with Clarity PAC, the political action committee he formed last summer to support pro-marijuana candidates and influence legislation.
Three New States Legalize Cannabis
Americans in four states had measures on their midterm ballots to legalize cannabis, whether for recreational or medical use. With enough votes in to call the results, Michigan, Utah and Missouri join the 30 states that have legalized cannabis either for medical, recreational or both usages. Specifically, Michigan joins as the 10th state to legalize recreational cannabis, and Utah and Missouri join the other 31 states that currently allow medical marijuana. However, the voters of the conservative state of North Dakota did not pass the Marijuana Legalization and Automatic Expungement Initiative, which would have legalized recreational cannabis and expunged the records of persons convicted of a drug violation where the drug at issue is now legal.
Michigan’s Marijuana Legalization Initiative allows the adult-use purchase and possession, and residential cultivation, of marijuana. It also imposes a 10% excise tax at the state level, much of which would be distributed to local governments.
The Utah Medical Cannabis Act legalized medical cannabis for the state’s patients with qualifying illnesses. Some believe that this passage is merely symbolic as the state’s lawmakers have been in the process of creating a different model for providing access to medical marijuana to the state’s patients. At a minimum, the voters’ approval puts pressure on the Utahn lawmakers to act.
The voters of Missouri passed an amendment to the state constitution, making Missouri the 32nd state to legalize medical marijuana. Of the three separate medical marijuana initiatives that were on the ballot, Missouri Amendment 2 was passed. With the legalization, sales of medical marijuana will be subject to a 4% tax. It is expected that this tax would generate an annual revenue of $24 million.
Taxnexus Predicts a Cannabis Green Wave
on November 6, 2018
States, counties and cities are piling onto the cannabis tax bandwagon. While pundits on TV talk about a pending Blue Wave on November 6th, Taxnexus sees a Green Wave of 43 new local cannabis tax measures in California and 4 state legalization measures on the ballot for this fall’s election.
Some municipalities, even though they ban the sale and use of cannabis altogether, still want a piece of the Green Pie and are putting cannabis tax measures on their November ballots.
Cannabis Tax Measures on Local Ballots in California.
In the first year of legalized adult use of cannabis in California, several taxing authorities have decided to cash in on cannabis taxes just like their neighbors have already done. With over 200 incorporated jurisdictions in California, we expect the number of tax measures to steadily grow over the next two years. Here is what you need to know about what’s happening in the cities and counties in California that have placed cannabis tax measures on their November ballots:
|Adelanto||San Bernardino||S||Adelanto Marijuana Tax||To authorize the city to impose a tax on marijuana businesses of up to $5.00 per square foot on nurseries and up to 5% on other businesses.|
|Atwater||Merced||A||Atwater Marijuana Tax||To authorize the city to impose a 15% tax on marijuana businesses.|
|Benicia||Solano||E||Benicia Marijuana Business Tax||To authorize the city to impose a tax of up to $10 per square foot for marijuana nurseries and 6% of gross receipts for other marijuana businesses.|
|Capitola||Santa Cruz||I||Capitola Marijuana Business Tax||To authorize the city to tax marijuana businesses at a rate of up to 7% with no expiration date to fund general city purposes.|
|Chula Vista||San Diego||Q||Chula Vista Marijuana Business Tax||To authorize the city to tax marijuana businesses at the following rates: 5% to 15% of gross receipts or $5 to $25 per square foot for cultivation.|
|Colfax||Placer||C||City of Colfax Cannabis Business Tax||To tax cannabis businesses at annual rates not to exceed $10.00 per canopy square foot for cultivation (adjustable for inflation), 6% of gross receipts for retail cannabis businesses, and 4% for all other cannabis businesses.|
|Colton||San Bernardino||U||Colton Marijuana Tax||To authorize the city to impose a tax on marijuana businesses of up to $25.00 per square foot on nurseries and up to 10% on other businesses.|
|Emeryville||Alameda||S||Emeryville Marijuana Business Tax||To enact a marijuana business tax at a rate of up to 6% of gross receipts to fund general city purposes.|
|Fresno||Fresno||A||Fresno Marijuana Business Tax||To tax marijuana businesses at rates of up to $12 per canopy square foot and up to 10% of gross receipts for medical dispensaries and other marijuana businesses, with revenue dedicated to the city’s general fund an a community benefit fund.|
|Goleta||Santa Barbara||Z2018||Goleta Marijuana Business Tax||To authorize the city to tax marijuana businesses at the following initial rates with a cap at 10% of sales: 5% for retailers; 4% for cultivators; 2% for manufacturers; and 1% for distributors/nurseries.|
|Hesperia||San Bernardino||T||Hesperia Marijuana Tax||To authorize the city to impose a tax on marijuana businesses of up to $15.00 per square foot on nurseries and up to 6% on other businesses.|
|La Mesa||San Diego||V||La Mesa Marijuana Business Tax||To authorize the city to tax marijuana businesses at rates of up to 6% gross receipts and up to $10 per square foot of cultivation.|
|Lassen||Lassen||M||Lassen County Commercial Marijuana Business Tax||To authorize the county to enact a tax on commercial marijuana at rates of between $0.50 to $3.00 per square foot for cultivation and 2.5% to 8% on gross receipts for other businesses, such as retail, distribution, manufacturing, processing, and testing.|
|Lompoc||Santa Barbara||D2018||Lompoc Marijuana Business Tax||To authorize the city tax marijuana businesses at the following rates: $0.06 per $1 of non-medical retail sales proceeds; $0.01 per $1 of cultivation proceeds; $15,000 for net income less than $2 million of manufacturing/distribution proceeds; $30,000 for net income $2 Million or more of manufacturing/distribution proceeds; a total aggregate tax of $0.06 per $1.00 of microbusinesses proceeds; and no tax on testing.|
|Malibu||Los Angeles||G||Malibu Marijuana Business Authorization and Tax||To authorize the sale of recreational marijuana in the city and imposing a general tax at the rate of 2.5% of gross receipts on the sale of recreational marijuana.|
|Marina||Monterey||V||Marina Marijuana Business Tax||To authorize marijuana businesses to operate in the city and authorizing the city to tax marijuana businesses at rates of up to 5% of gross receipts, with revenue funding general city purposes.|
|Maywood||Los Angeles||CT||Maywood Marijuana Business Tax||To authorize the city to tax marijuana businesses at a maximum rate of 10% of gross receipts to fund general city purposes.|
|Moreno Valley||Riverside||M||City of Moreno Valley Commercial Cannabis Activity Tax||To enact a tax on cannabis sales and cultivation, not exceeding 8% of gross receipts and $15 per square foot of cultivation.|
|Morgan Hill||Santa Clara||I||Morgan Hill Marijuana Business Tax||To authorize the city to tax marijuana businesses at annual rates up to $15.00 per canopy square foot for cultivation and up to 10% of gross receipts for all other marijuana businesses.|
|Mountain View||Santa Clara||Q||Mountain View Marijuana Business Tax||To enact a tax on marijuana businesses of up to 9% of gross receipts to fund general city purposes.|
|Oakland||Alameda||V||Oakland Marijuana Business Tax Amendments||To amend the marijuana business tax law to: allow marijuana business to deduct the cost of raw materials from their gross receipts and to pay taxes on a quarterly basis; and allow the city council to amend the law in any manner that does not increase the tax rate.|
|Oroville||Butte||T||Oroville Marijuana Tax||To authorize an annual gross receipts tax on cannabis businesses at rate not to exceed 1%, with initial rates of 5% on retailers and manufacturers; 4% on cultivators; 3% on distributors; 2% on nurseries; 0% on testing laboratories; and 7% on microbusiness to generate approximately $300,000 to $600,000 in annual revenue.|
|Pomona||Los Angeles||PC||Pomona Marijuana Business Tax||To authorize the city to tax marijuana businesses at rates of $10.00 per canopy square foot for cultivation and up to 6% of gross receipts for all other marijuana businesses to fund general city purposes.|
|Riverbank||Stanislaus||B||City of Riverbank Cannabis Business License Tax||To authorize the City Council of the City to impose a business license tax at a rate of up to 10% of gross receipts on cannabis businesses and dispensaries, to help fund general municipal services.|
|San Bernardino||San Bernardino||W||San Bernardino Marijuana Tax||To authorize the city to impose a tax on marijuana businesses of up to $10.00 per square foot on nurseries and up to 6% on other businesses.|
|San Diego||San Diego||AA||City Council Marijuana Business Tax Measure||To authorize the city to tax marijuana businesses at the following rates: $14 per square foot; up to 8% on manufacturing and distribution; up to 10% on medicinal retail; up to 12% on adult-use retail; and up to 3.5% on testing.|
|San Francisco||San Francisco||D||San Francisco Marijuana Business Tax Increase||To tax marijuana businesses with gross receipts over $500,000 at a rate between 1% and 5%, exempting retail sales of medical marijuana, and expanding the marijuana business tax to businesses not physically located in San Francisco.|
|Santa Ana||Orange||Y||Santa Ana Recreational Marijuana Business Tax||To authorize the city to tax marijuana businesses at rates of $0.25 to $35.00 for gross square footage and up to 10 percent for cultivating, manufacturing, distributing, selling, or testing.|
|Santa Clara||Santa Clara||M||Santa Clara Marijuana Business Tax||To authorize the city to tax commercial marijuana businesses up to 10% of gross receipts and up to $25 per square foot for cultivation.|
|Simi Valley||Ventura||Q||Cannabis Business Tax||To enact a maximum tax on gross receipts of cannabis businesses in the City after January 1, 2019, as follows: for testing, 2.5%; for retail sales, retail delivery, or microbusiness retail, 6%; for distribution not to consumers, 3%; for manufacturing, processing or nonretail microbusiness, and any other type of business not otherwise specified, 4%; and for cultivation, a tax per square foot of canopy ranging from $2.00 per square foot of canopy to $10.00 per square foot of canopy, depending on the type of lighting (artificial or natural) used.|
|Solvang||Santa Barbara||F2018||Solvang Marijuana Business Tax||To authorize the city to tax marijuana businesses at an initial rate of 5 percent of gross receipts with a cap of 10 percent and a maximum annual increase of 1 percent.|
|Sonora||Tuolumne||N||City of Sonora Cannabis Business License Tax||To enact a business license tax at a rate of up to 15% of gross receipts on cannabis businesses, to help fund general municipal services; and increasing the City’s appropriations limit for the Fiscal Years 2019-2023 by the amount of tax proceeds received.|
|Suisun||Solano||C||Suisun Marijuana Business Tax||To authorize the city to impose a tax of up to $25 per square foot and 15% gross receipts for marijuana businesses.|
|Union City||Alameda||DD||Union City Marijuana Business Tax||To authorize the city to tax marijuana businesses at rates of $12.00 per square foot for cultivation and 6 percent of gross receipts for other businesses to fund general municipal services.|
|Vista||San Diego||Z||Vista Retail Medical Marijuana Sales and Tax Initiative (November 2018)||To authorize commercial retails sales of medicinal marijuana for up to 11 retailers and enacting a 7% tax on the business’ gross receipts.|
|Contra Costa||R||Contra Costa County Marijuana Business Tax||To authorize Contra Costa County to tax commercial marijuana businesses in the unincorporated area in the amount of up to $7.00 per canopy square foot for cultivation and up to 4 percent gross receipts for all other cannabis businesses to fund general County expenses.|
|El Dorado||N, P, Q, R, S||Commercial Cannabis Tax Measures||To impose a general tax on any independently authorized commercial cannabis activity in the unincorporated areas of El Dorado County at rates up to: $30 per square foot or 15% for cultivation; 10% for distribution, manufacturing, and retail; and 5% for testing laboratories, effective until amended or repealed, with estimated annual revenue of $1,900,000 to $52,800,000.
To authorize outdoor and mixed-light (greenhouse) commercial cannabis cultivation for medicinal use on parcels of at least 10 acres zoned Rural Lands, Planned Agricultural, Limited Agricultural, and Agricultural Grazing that are restricted in canopy size, required to pay a County commercial cannabis tax, and subject to a site-specific review and discretionary permitting process with notification to surrounding property owners and environmental regulation.
To authorize outdoor and mixed-light (greenhouse) commercial cannabis cultivation for recreational adult use on parcels of at least 10 acres zoned Rural Lands, Planned Agricultural, Limited Agricultural, and Agricultural Grazing that are restricted in canopy size, required to pay a County commercial cannabis tax, and subject to a site-specific review and discretionary permitting process with notification to surrounding property owners and environmental regulation.
To authorize the retail sale, delivery, distribution, and indoor cultivation of commercial cannabis for medicinal use on parcels zoned Community Commercial, Regional Commercial, General Commercial, Industrial High, and Industrial Low that are restricted in number and concentration, required to pay a County commercial cannabis tax, and subject to a site-specific review and discretionary permitting process with notification to surrounding property owners and environmental regulation.
To authorize the retail sale, delivery, distribution, and indoor cultivation of commercial cannabis for recreational adult use on parcels zoned Community Commercial, Regional Commercial, General Commercial, Industrial High, and Industrial Low that are restricted in number and concentration, required to pay a County commercial cannabis tax, and subject to a site-specific review and discretionary permitting process with notification to surrounding property owners and environmental regulation.
|Lake||K||Lake County Marijuana Business Tax||To authorize the county to enact a marijuana business tax at the rates of $1.00 per square foot for nurseries and cultivators and between 2.5% and 4% for other businesses.|
|Tuolumne||M||Tuolumne County Commercial Cannabis Business Tax||The County to impose a 0%-15% gross receipts tax on commercial cannabis businesses (but no less than $0-$15 per square foot for cultivation businesses as annually increased by a consumer price index) in the unincorporated area of Tuolumne County, and to authorize the Board of Supervisors to implement and adjust the tax at its discretion, with funds staying local for unrestricted general revenue purposes, including but not limited to public safety, health,environmental protection and addressing industry impacts, unless repealed or amended by voters.|
These Four States Are Moving to Legalize Cannabis.
Joining the 30 states that have legalized cannabis either for medical, recreational or both purposes, Michigan, North Dakota, Utah and Missouri are the latest four states that will have cannabis measures on their November 6th ballots. There are currently 9 states that allow recreational cannabis.
Michigan – Will it be the 10th State to Legalize Recreational Cannabis?
Michigan’s Marijuana Legalization Initiative, if passed, would allow the adult-use purchase and possession, and residential cultivation, of marijuana. It would also impose a 10% excise tax at the state level, much of which would be distributed to local governments.
North Dakota – Will Voters Prove Cannabis Isn’t Just an Urban Thing in America?
The conservative state of North Dakota will also have a recreational cannabis initiative on its November 6th ballot. The Marijuana Legalization and Automatic Expungement Initiative, if passed, would legalize the use and sale of adult-use cannabis. To take it one step further, it would also expunge the records of persons convicted of a drug violation where the drug at issue is now legal.
Utah – Will the Mormon State Accept Cannabis?
The Utah Medical Cannabis Act, if passed, would legalize medical cannabis for patients with qualifying illnesses. There seems to be overwhelming support for this initiative, which gives it a promising prospect for this conservative state’s patients in need of the medical benefits of cannabis.
Missouri – The Show Me State Asks Cannabis to Show Me the Money.
Missouri has three separate medical marijuana initiatives on its November ballot. Two of them are amendments to the state’s Constitution. Missouri Amendment 2, if passed, would legalize medical marijuana for patients with qualifying conditions, enact a 4% tax on medical marijuana. It is expected that this would bring in the second-highest annual revenue of $24 million. Missouri Amendment 3 would legalize medical marijuana, but put in place a 15% tax on its sale. Finally, Proposition C, would legalize medical marijuana for patients with qualifying conditions, and impose a 2% tax on each sale.
Look for our next blog after the Election Day for the results!
As the nation’s largest legal cannabis market, the regulators had projected $185M in cannabis tax revenues for the first six months of 2018. However, the cannabis taxes collected during this period have fallen significantly short.
Based on the figures released by the California Department of Tax and Fee Administration, the cannabis tax revenues were $60.9M for the first quarter and $74.2M for the second quarter. At a total of $135.1M, the state has collected far below the expected figures.
TAX COMPLIANCE IS THE KEY TO INCREASING CANNABIS TAX REVENUES
Faced with the repeated tax revenue shortfall, the state regulators continue to identify the black market, bureaucratic red tape, and the restrictive local laws causing slower implementation of licensed businesses as contributing factors for the low cannabis tax revenues. However, if the state wants to bring the cannabis revenues up to what it promised voters, cannabis tax compliance by licensed businesses requires its due attention.
Even if the aforementioned factors were eliminated, cannabis tax revenues would still fail to meet the projections as long as licensed businesses remain non-compliant. Tax compliance is necessary for the success of the cannabis industry. Yet, six months after legalization, cannabis businesses along the product chain continue to struggle to comply with the state’s complicated cannabis tax regulations. The tax regulations are simply too difficult for cannabis businesses to master on their own.
TAXNEXUS MAKES CANNABIS TAX COMPLIANCE EASY
Non-compliant cannabis businesses are exposed to audits, and penalties that can range from monetary fines to loss of license. Thankfully, cannabis businesses are not in this alone. Taxnexus, the first cannabis tax compliance solution, provides a host of services that assists every type of cannabis business in being tax compliant with all applicable tax laws.
The Taxnexus automated cannabis tax compliance solution takes the burden of tax compliance off cannabis businesses and allows them to focus on growing their business.
WHAT ABOUT CITY AND COUNTY CANNABIS TAX REVENUES?
As revealed by the state’s low cannabis tax revenues, similar cannabis tax revenue shortfall is also being experienced by local jurisdictions. Taxnexus offers cannabis tax solutions at all jurisdictional levels.
To learn more about Taxnexus, visit www.taxnexus.net and sign up to receive information about Taxnexus services.
Some local jurisdictions across California have realized that to stay competitive and to bring, and to keep, consumers out of the black market, they need to lower their ambitiously high cannabis tax rates. Among them is Grover Beach in San Luis Obispo County.
Effective May 7, 2018, Grover City reduced its commercial cannabis tax rate from 10% to 5% for recreational retail and to 3% for cannabis manufacturers, distributors and other cannabis businesses. It also reduced its cannabis cultivation tax from $25 per square foot to $5 per square foot based on floor area.
Source: City of Grover Beach
More cities are looking to impose cannabis taxes, even some that currently do not allow commercial recreational cannabis. The Simi Valley, Thousand Oaks and Oxnard city councils have placed measures on their cities’ Nov. 6 ballots that will ask voters whether marijuana businesses in their respective towns should be taxed.
Source: Simi Valley, Thousand Oaks, place pot business tax measures on November ballots
(Photo: Associated Press)
With the new wave of cannabis legalization, not only do cannabis businesses (aka “taxpayers”) have to comply with stringent product regulations, but also with complicated tax laws. The complexity of taxes is especially felt by cannabis taxpayers in states like California where the state regulators have not placed a standard for localities for implementing cannabis tax rules and regulations.
In the absence of a statewide standard, local jurisdictions have enacted a plethora of cannabis business taxes that vary widely in rates and types. Based on a Taxnexus research into California cannabis tax laws, there are currently close to 500 different taxes in city and county ordinances. This number will continue to grow as more local jurisdictions legalize cannabis-related activities and enact new taxes to bring in the much sought-after tax dollars.
Given the multiple layers of evolving tax laws, cannabis businesses are struggling to stay compliant — whether it is figuring out accurate tax rates applicable to them, using the correct computation methods, timely filing tax returns with multiple jurisdictions, or any other tax-related requirement. Such failure to comply is met with heavy penalties. Some California local jurisdictions charge as high as 100% of the taxes owed as penalty on top of the actual taxes owed.
Some cannabis businesses have resorted to expensive in-house accounting professionals, some try to do the taxes themselves, which is rife with human error, while some have simply given up. There has been no comprehensive cannabis tax compliance solution in the space, until now.
Taxnexus is the first and only automated Transaction-to-Treasury cannabis tax compliance solution for the entire cannabis product chain. Through its sophisticated API, Taxnexus offers a suite of products that enable cannabis taxpayers to comply with all state and local tax regimens in the United States and Canada.
Taxnexus Situs delivers all cannabis tax rates applicable to a location when a taxpayer simply enters an address or the name of a city, county, or dispensary. With census-block-level accuracy and up-to-date tax data, taxpayers no longer have to worry about applying incorrect tax rates to their transactions. Taxpayers can now access Taxnexus Situs for free at local.taxnexus.net.
Taxnexus Base calculates applicable cannabis taxes to invoices, and stores cannabis excise and sales tax data in the cloud in compliance with record-keeping requirements. Using the data stored in Taxnexus Base, Taxnexus Returns generates official government tax filing documents, and timely files tax returns with all appropriate jurisdictions on behalf of the cannabis taxpayer.
Taxpayers will soon be able to use Taxnexus products through participating cannabis POS and ERP software. They can ask their POS company about adding Taxnexus to their seed-to-sale solution if they are interested in taking advantage of Taxnexus solutions. Join the Taxnexus Priority Waitlist today.