Pubdate: Mon, 22 Apr 2013
Source: San Diego Union Tribune (CA)
Copyright: 2013 Union-Tribune Publishing Co.
Contact:  http://www.utsandiego.com/
Details: http://www.mapinc.org/media/386
Author: Craig Gustafson
Page: A1

FILNER PLAN TO TAX POT IS IN UNCHARTED AREA

Ordinance to Be Considered by City Council Includes State's First
Marijuana Excise Levy

The City Council will once again consider an ordinance to regulate
medical marijuana dispensaries in San Diego today after Mayor Bob
Filner revived the issue this year following a failed proposal in 2011.

One of the key provisions of Filner's plan is to impose a 2 percent
excise tax on all wholesale acquisitions by the dispensaries - new
territory for a California city that could raise legal questions. In
other words, the tax would be levied on the product going into the
dispensaries, not on sales.

The increasing legalization of marijuana in states like Colorado and
Washington has led many jurisdictions to consider taxing it in some
way. The main argument for taxation is to help pay for regulation and
any increase in public safety costs.

Taxing marijuana could lead to big bucks. A 2010 study by the Cato
Institute said that if the nation legalized and taxed marijuana it
would generate $8.7 billion annually in state and federal tax revenue.

San Jose, where voters approved a 7 percent marijuana business tax in
2010, collected $290,000 in tax revenue from 73 dispensaries in its
first month. Colorado is considering a 15 percent excise tax on marijuana.

By comparison, Filner's 2 percent tax is modest although he is
coupling it with a $5,000 annual permit fee for dispensaries.

"What we call an excise tax of 2 percent on the sales of medical
marijuana (is) to make sure that the increased enforcement and
registration requirements we want to protect the public ... that we
get the money to do that," Filner told KPBS on April 8. "There is a
provision in the (state) constitution for an excise tax. It's got to
be collected through the city, the way we collect any sales tax, for
example, or any tax on tourists. ... And have that 2 percent going to
the enforcement actions that we need to do to keep our kids safe while
we are providing the humane and compassionate treatment for those who
need medical marijuana."

The exact language Filner used to describe the tax in an April 9
executive summary was "a two-percent excise tax on all medical
marijuana dispensary acquisitions from their dispensary members."

The mayor doesn't believe the excise tax requires a public vote
because Proposition 26, which requires that certain state and local
fees be approved by a two-thirds majority of a legislative body, has
exemptions for some license fees and cost-recovery efforts that would
allow the City Council to approve his plan with a simple majority.

San Diego County Assessor-Recorder-Clerk Ernest Dronenburg, who served
on the state Board of Equalization, said he's skeptical that Filner's
proposal is legal. He said there's no local excise tax in the state of
California and Filner could run afoul of the Board of Equalization,
which could stop collecting sales taxes altogether for the city if it
creates one.

"He can do it, but what he risks is that the state will stop
collecting his sales tax for him and then the city will have to put in
a city-administrated sales tax because he's outside of the law,"
Dronenburg said.

Lee Burdick, Filner's director of special projects and legal affairs,
acknowledged the mayor's taxation plan is heading into uncharted
territory and that the state board could take action against the city.
But she said she informally ran the excise tax idea by the state board
and is confident it will be viewed as sound public policy.

Burdick said the costs related to dispensaries are unique and require
a unique solution if the city is to recover its costs. The excise tax
allows the city to receive more money from larger dispensaries that
sell larger volumes and need to be watched more closely by city
officials and law enforcement.

Medical marijuana advocates are strongly in favor of the mayor's
proposal.

"We want there to be access in San Diego city," said Ken Cole,
president of the United Patients' Alliance, a trade association of
medical cannabis distributors. "However, we also want operators to
behave in a responsible manner, where the patients and public can feel
safe and respected. Mayor Filner's proposal provides both access to
patients and enhanced safety to the community."

Scott Chipman, with San Diegans for Safe Neighborhoods, a group that
opposes marijuana dispensaries, said the mayor's proposal assumes that
with proper regulation pot shops will comply with the law when there
is evidence to the contrary. He pointed out that several shops have
opened in the city since January even though they remain illegal.

"We urge the City Council to reject this proposal and any proposal
that allows for retail sales and profiteering by drug dealers,"
Chipman said.

He added that a $5,000 permit fee is "chump change" for dispensary
owners who can make that much in half a day.

Filner renewed the medical marijuana debate in January when he halted
city prosecutions of dispensaries by using his strong-mayor powers to
direct police and code enforcement officers to stop forwarding cases
to the City Attorney's Office.

The City Council reversed that decision Jan. 29 in closed session with
Filner's approval. They agreed that enforcing the city's zoning laws,
which don't allow for dispensaries, would prevent new dispensaries
from opening throughout the city ahead of a planned ordinance.

City Attorney Jan Goldsmith said enforcement is nonexistent despite
that decision. He said he's forwarded 23 complaints of dispensaries
operating illegally to the Neighborhood Code Compliance division since
January and no enforcement actions have been taken.

Goldsmith said he doesn't have an opinion on how the city should
proceed other than he wants strict enforcement of whatever rules are
put in place.

"If there is an ordinance prepared and approved that limits them to
one area, there should be considered an enforcement component for the
other areas," he said. "Right now, we don't have anything as far as
enforcement."

Goldsmith said he had not researched how the city could tax
marijuana.

An excise tax like one Filner is proposing is used on a variety of
products, including cigarettes and gasoline. It's considered an
indirect form of taxation because the government does not directly
apply the tax. The producer or merchant is charged and then must pay
the tax to the government. Often the expense is passed on to the
consumer in the form of higher prices.

So how much money would a 2 percent excise tax generate for San
Diego?

In 2011, the Patient Care Association of California estimated that
city dispensaries had a customer base of about 70,000 patients and
annual sales of $200 million. The wholesale price paid by dispensaries
would be less than $200 million, so it's difficult to say how much
money a 2 percent excise tax would generate for city coffers.

Those figures were before more than 200 medical marijuana collectives
were closed in San Diego and Imperial counties after U.S. Attorney
Laura Duffy and her colleagues announced in 2011 enforcement actions
aimed at distributors in California. The legal limbo for dispensaries
dates to 1996 when state voters approved an initiative to allow people
with recommendations from state-licensed physicians to possess and
cultivate marijuana for personal use. Marijuana is illegal under
federal law.

The City Council approved an ordinance two years ago that was later
rescinded after a successful petition drive by medical marijuana
proponents who considered it too restrictive. That plan required all
of the city's collectives to shut down and apply for permits, and then
limited them to some commercial and industrial zones.

The council won't approve an ordinance at its 2 p.m. meeting today but
rather provide direction to the city attorney on what it should
include. The council can make changes to Filner's plan, subject to a
mayoral veto.

[sidebar]

Filner's medical marijuana proposal

Dispensaries must not be within 600 feet of schools, parks, child care
facilities, playgrounds or other dispensaries. The distance
requirement doesn't include churches, libraries or youth-serving facilities.

A dispensary can't be located on a premises that includes any
residential use.

The land-use areas where dispensaries can be located include
commercial and industrial zones.

Requires dispensaries sell only to medical marijuana patients who are
registered with the state and carry a state-issued ID card.

Imposes a $5,000 annual permit fee on dispensaries.

A 2 percent excise tax on all dispensary wholesale
acquisitions.

Prohibits the use of medical marijuana vending machines.

2%

Mayor Bob Filner's proposed excise tax on all wholesale acquisitions
by dispensaries
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MAP posted-by: Matt