Costa Mesa City Hall.
Costa Mesa has approved an ordinance that will reduce a business tax on all legal marijuana operations established in a city measure approved by voters in 2016.
The City Council voted 4-2 in mid-March to give final approval to the law that will reduce a 6% gross receipt tax to 1% on all distribution, manufacturing, research and development of legal marijuana, and will eliminate the tax for testing. The law goes into effect April 16.
California’s Proposition 64 (also known as The Control, Regulate and Tax Adult Use of Marijuana Act) was approved in 2016 and legalized the adult use of marijuana statewide and created two state excise taxes: a 15% wholesale tax and a $9.25 per ounce cultivation tax (recently increased to $9.65).
Along with an inability to reduce taxable income, these combined tax rates have resulted in a lack of business, causing severe economic challenges for legal marijuana businesses and have contributed to lower city revenue than anticipated, according to a city staff report.
While over 20 businesses have received permits to operate, only eight manufacturers and distributors are active in the city. It is anticipated that more may not open due to financial burdens posed by local, state and federal taxes, the staff report says.
City voters also approved Measure X in 2016, which legalized and provided regulations for the distribution, manufacturing, testing, transporting, research and development of medical marijuana. One regulation imposed was a 6% business tax on all aforementioned activities, as well as on any other marijuana-related business/operation.
In 2019, the city received a letter drafted by a collective of cannabis industry executives and business owners with requests to reduce the gross receipt tax from 6% to 2%, calling the current rate a “heavy burden placed on operators.”
The City Council subsequently established an ad hoc committee to evaluate marijuana tax rates and regulations.
According to projections from Costa Mesa’s fiscal year 2019-20 plan, the 1% gross receipt tax is expected to cut city revenue from marijuana businesses down by about $539,000, with the original revenue being about $647,000 under the 6% tax. A 2% tax, that was originally proposed, would reduce city revenue by about $431,000.
Published: April 14, 2020
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