BILL NUMBER: AB 567	ENROLLED
	BILL TEXT

	PASSED THE SENATE  AUGUST 23, 2016
	PASSED THE ASSEMBLY  AUGUST 30, 2016
	AMENDED IN SENATE  AUGUST 19, 2016
	AMENDED IN SENATE  AUGUST 2, 2016
	AMENDED IN SENATE  JUNE 15, 2016
	AMENDED IN SENATE  MAY 24, 2016
	AMENDED IN SENATE  SEPTEMBER 4, 2015

INTRODUCED BY   Assembly Member Gipson

                        FEBRUARY 24, 2015

   An act to amend Section 19323 of the Business and Professions
Code, to amend and renumber Sections 7076, 7076.1, 7076.2, 7076.3,
7076.4, 7077, and 7078 of, and to add Article 2.1 (commencing with
Section 7077) to Chapter 8 of Part 1 of Division 2 of, the Revenue
and Taxation Code, relating to medical cannabis.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 567, Gipson. Medical cannabis: regulation and taxation amnesty.

   (1) Existing law, the Compassionate Use Act of 1996, an initiative
measure enacted by the approval of Proposition 215 at the November
5, 1996, statewide general election, exempts from specified criminal
penalties the possession or cultivation of medical marijuana by
patients and primary caregivers. Existing law, the Medical Marijuana
Program, requires the State Department of Public Health to establish
a voluntary program for the issuance of identification cards to
qualified patients and primary caregivers under the Compassionate Use
Act, and grants immunity from arrest for violation of specified
provisions relating to the cultivation, possession, transportation,
and sale of marijuana, if conditions of the act are met.
   Existing law imposes sales and use taxes collected and
administered by the State Board of Equalization. Existing law sets
forth various penalties, including penalties for the nonpayment or
late payment of those taxes, and the failure to file or intentional
filing of incorrect returns. Existing law established a tax amnesty
program, conducted in 2005, with respect to sales and use tax
penalties.
   This bill would require the State Board of Equalization to
administer a tax penalty amnesty program during the period beginning
on July 1, 2017, through December 31, 2017, inclusive, for medical
cannabis-related businesses, as provided. The bill would define a
medical cannabis-related business for these purposes as a person that
engages in the sale of cannabis for medical purposes to qualified
patients or the primary caregivers of qualified patients pursuant to
the Compassionate Use Act or the Medical Marijuana Program. The bill
would require the Department of Consumer Affairs to suspend or refuse
to issue a state license to a medical cannabis-related business that
is eligible to, but does not participate in, the program and meets
other specified conditions.
   (2) This bill would make related findings and declarations. The
bill would also make technical and conforming changes.
   (3) Existing state constitutional law prohibits the Legislature
from making any gift, or authorizing the making of any gift, of any
public money or thing of value to any individual, municipal, or other
corporation.
   This bill would make certain legislative findings and declarations
that a tax penalty amnesty program to incentivize a specific type of
business to become current with its tax obligations serves a general
public purpose and therefore is not a gift of public funds.
   (4) This bill would incorporate additional changes to Section
19323 of the Business and Professions Code proposed by AB 26 that
would become operative if this bill and AB 26 are enacted and this
bill is enacted last.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  The Legislature finds and declares all of the
following:
   (a) The voters of the State of California enacted the
Compassionate Use Act of 1996, which became effective on November 6,
1996, as Section 11362.5 of the Health and Safety Code. The act
exempts patients and their designated primary caregivers who possess
and cultivate cannabis for personal medical use upon recommendation
or approval of a physician from specified criminal laws.
   (b) In 2004, the Legislature and Governor refined the
Compassionate Use Act through SB 420, which added Sections 11362.7 to
11362.83, inclusive, to the Health and Safety Code, allows the
formation of medical cultivation collectives or cooperatives, and
provides for a voluntary state identification card system for medical
cannabis patients. SB 420 also limits the amount of medical cannabis
cardholders are allowed to possess and cultivate.
   (c) However, the sale of any cannabis still remains illegal under
federal law. At the federal level, marijuana remains classified as a
Schedule I substance under the Controlled Substances Act. Schedule I
substances are defined as drugs with no currently accepted medical
use and a high potential for abuse.
   (d) In August 2013, the United States Department of Justice issued
the "Cole Memo" to federal prosecutors, which established priorities
for federal prosecution of cannabis-related activities under the
Controlled Substances Act. The memo indicated that states with a
strong regulatory framework for legalized recreational or medical
cannabis that supports those priorities would make federal
involvement in local jurisdictions less likely.
   (e) In February 2014, the United States Department of the Treasury'
s Financial Crimes Enforcement Network (FinCEN) issued guidance to
financial institutions setting forth FinCEN's Bank Secrecy Act
expectations for financial institutions choosing to work with
cannabis-related businesses.
   (f) A federal spending bill passed in late 2014 prohibits the use
of United States Department of Justice funds to prevent states,
including California, that authorize the use, distribution,
possession, or cultivation of cannabis for medical use from
implementing laws related to these activities. Various other federal
legislative proposals to loosen federal restrictions on the
cultivation, possession, and sale of cannabis in states where it is
legal are also pending.
   (g) Despite this identified federal guidance, the uncertainty
created by state and federal differences has left medical
cannabis-related businesses with the fear that compliance with state
tax laws could lead to federal prosecution. Thus, many of these
businesses have been noncompliant since their inception, and would
owe massive penalties and interest if they were to come into
compliance.
   (h) It is the intent of the Legislature to further the public
purposes of preventing undue hardship on medical cannabis-related
businesses and providing a strong incentive, the relief of penalties,
for those businesses to come forward and pay the taxes and interest
that they owe. In furtherance of this intent, the Legislature hereby
enacts the Medical Cannabis Tax Amnesty Act as set forth in Section
10 of this act.
  SEC. 2.  Section 19323 of the Business and Professions Code, as
amended by Chapter 32 of the Statutes of 2016, is amended to read:
   19323.  (a) A licensing authority shall deny an application if the
applicant or the premises for which a state license is applied does
not qualify for licensure under this chapter or the rules and
regulations for the state license.
   (b) A licensing authority may deny an application for licensure or
renewal of a state license, or issue a conditional license, if any
of the following conditions apply:
   (1) Failure to comply with the provisions of this chapter or any
rule or regulation adopted pursuant to this chapter, including, but
not limited to, any requirement imposed to protect natural resources,
instream flow, and water quality pursuant to subdivision (a) of
Section 19332.
   (2) Conduct that constitutes grounds for denial of licensure
pursuant to Chapter 2 (commencing with Section 480) of Division 1.5.
   (3) The applicant has failed to provide information required by
the licensing authority.
   (4) The applicant or licensee has been convicted of an offense
that is substantially related to the qualifications, functions, or
duties of the business or profession for which the application is
made, except that if the licensing authority determines that the
applicant or licensee is otherwise suitable to be issued a license
and granting the license would not compromise public safety, the
licensing authority shall conduct a thorough review of the nature of
the crime, conviction, circumstances, and evidence of rehabilitation
of the applicant, and shall evaluate the suitability of the applicant
or licensee to be issued a license based on the evidence found
through the review. In determining which offenses are substantially
related to the qualifications, functions, or duties of the business
or profession for which the application is made, the licensing
authority shall include, but not be limited to, the following:
   (A) A felony conviction for the illegal possession for sale, sale,
manufacture, transportation, or cultivation of a controlled
substance.
   (B) A violent felony conviction, as specified in subdivision (c)
of Section 667.5 of the Penal Code.
   (C) A serious felony conviction, as specified in subdivision (c)
of Section 1192.7 of the Penal Code.
   (D) A felony conviction involving fraud, deceit, or embezzlement.
   (5) The applicant, or any of its officers, directors, or owners,
is a licensed physician making patient recommendations for medical
cannabis pursuant to Section 11362.7 of the Health and Safety Code.
   (6) The applicant or any of its officers, directors, or owners has
been subject to fines or penalties for cultivation or production of
a controlled substance on public or private lands pursuant to Section
12025 or 12025.1 of the Fish and Game Code.
   (7) The applicant, or any of its officers, directors, or owners,
has been sanctioned by a licensing authority or a city, county, or
city and county for unlicensed commercial cannabis activities or has
had a license revoked under this chapter in the three years
immediately preceding the date the application is filed with the
licensing authority.
   (8) Failure to obtain and maintain a valid seller's permit
required pursuant to Part 1 (commencing with Section 6001) of
Division 2 of the Revenue and Taxation Code.
   (9) The applicant or any of its officers, directors, owners,
employees, or authorized agents have failed to comply with any
operating procedure required pursuant to subdivision (b) of Section
19322.
   (10) Conduct that constitutes grounds for disciplinary action
pursuant to this chapter.
   (c) The licensing authority shall suspend or refuse to issue,
reinstate, or renew a state license pursuant to Section 7077.4 of the
Revenue and Taxation Code.
  SEC. 2.5.  Section 19323 of the Business and Professions Code, as
amended by Chapter 32 of the Statutes of 2016, is amended to read:
   19323.  (a) A licensing authority shall deny an application if the
applicant or the premises for which a state license is applied does
not qualify for licensure under this chapter or the rules and
regulations for the state license.
   (b) A licensing authority may deny an application for licensure or
renewal of a state license, or issue a conditional license, if any
of the following conditions apply:
   (1) Failure to comply with the provisions of this chapter or any
rule or regulation adopted pursuant to this chapter, including, but
not limited to, any requirement imposed to protect natural resources,
instream flow, and water quality pursuant to subdivision (a) of
Section 19332.
   (2) Conduct that constitutes grounds for denial of licensure
pursuant to Chapter 2 (commencing with Section 480) of Division 1.5.
   (3) The applicant has failed to provide information required by
the licensing authority.
   (4) The applicant or licensee has been convicted of an offense
that is substantially related to the qualifications, functions, or
duties of the business or profession for which the application is
made, except that if the licensing authority determines that the
applicant or licensee is otherwise suitable to be issued a license
and granting the license would not compromise public safety, the
licensing authority shall conduct a thorough review of the nature of
the crime, conviction, circumstances, and evidence of rehabilitation
of the applicant, and shall evaluate the suitability of the applicant
or licensee to be issued a license based on the evidence found
through the review. In determining which offenses are substantially
related to the qualifications, functions, or duties of the business
or profession for which the application is made, the licensing
authority shall include, but not be limited to, the following:
   (A) A felony conviction for the illegal possession for sale, sale,
manufacture, transportation, or cultivation of a controlled
substance.
   (B) A violent felony conviction, as specified in subdivision (c)
of Section 667.5 of the Penal Code.
   (C) A serious felony conviction, as specified in subdivision (c)
of Section 1192.7 of the Penal Code.
   (D) A felony conviction involving fraud, deceit, or embezzlement.
   (5) The applicant, or any of its officers, directors, or owners,
is a licensed physician making patient recommendations for medical
cannabis pursuant to Section 11362.7 of the Health and Safety Code.
   (6) The applicant or any of its officers, directors, or owners has
been subject to fines or penalties for cultivation or production of
a controlled substance on public or private lands pursuant to Section
12025 or 12025.1 of the Fish and Game Code.
   (7) The applicant, or any of its officers, directors, or owners,
has been sanctioned by a licensing authority or a city, county, or
city and county for unlicensed commercial cannabis activities or has
had a license revoked under this chapter in the three years
immediately preceding the date the application is filed with the
licensing authority.
   (8) Failure to obtain and maintain a valid seller's permit
required pursuant to Part 1 (commencing with Section 6001) of
Division 2 of the Revenue and Taxation Code.
   (9) The applicant or any of its officers, directors, owners,
employees, or authorized agents have failed to comply with any
operating procedure required pursuant to subdivision (b) of Section
19322.
   (10) Conduct that constitutes grounds for disciplinary action
pursuant to this chapter.
   (c) The licensing authority shall suspend or refuse to issue,
reinstate, or renew a state license pursuant to Section 7077.4 of the
Revenue and Taxation Code.
   (d) On and after July 1, 2018, the licensing authority shall deny
an application of an applicant with 20 or more employees unless the
applicant attests on the application that the applicant will
implement an employee training program approved by the licensing
authority within one year of licensure, pursuant to Section 19326.5.
  SEC. 3.  Section 7076 of the Revenue and Taxation Code, as added by
Section 1 of Chapter 87 of the Statutes of 2003, is amended and
renumbered to read:
   7079.  (a) The State Board of Equalization shall determine which
taxpayer's accounts are eligible for the managed audit program in a
manner that is consistent with the efficient use of its auditing
resources and the maximum effectiveness of the program.
   (b) A taxpayer is not required to participate in the managed audit
program.
  SEC. 4.  Section 7076.1 of the Revenue and Taxation Code is amended
and renumbered to read:
   7079.1.  A taxpayer's account is eligible for the managed audit
program only if the taxpayer meets all of the following criteria:
   (a) The taxpayer's business involves few or no statutory
exemptions.
   (b) The taxpayer's business involves a single or small number of
clearly defined taxability issues.
   (c) The taxpayer is taxed pursuant to this part and agrees to
participate in the managed audit program.
   (d) The taxpayer has the resources to comply with the managed
audit instructions provided by the board.
  SEC. 5.  Section 7076.2 of the Revenue and Taxation Code is amended
and renumbered to read:
   7079.2.  (a) If the board selects a taxpayer's account for a
managed audit, all of the following apply:
   (1) The board shall identify all of the following:
   (A) The audit period covered by the managed audit.
   (B) The types of transactions covered by the managed audit.
   (C) The specific procedures that the taxpayer is to follow in
determining any liability.
   (D) The records to be reviewed by the taxpayer.
   (E) The manner in which the types of transactions are to be
scheduled for review.
   (F) The time period for completion of the managed audit.
   (G) The time period for the payment of the liability and interest.

   (H) Any other criteria that the board may require for completion
of the managed audit.
   (2) The taxpayer shall:
   (A) Examine its books, records, and equipment to determine if it
has any unreported tax liability for the audit period.
   (B) Make available to the board for verification all computations,
books, records, and equipment examined pursuant to subparagraph (A).

   (b) The information provided by the taxpayer pursuant to paragraph
(2) of subdivision (a) is the same information that is required for
the completion of any other audit that the board may conduct.
  SEC. 6.  Section 7076.3 of the Revenue and Taxation Code is amended
and renumbered to read:
   7079.3.  Nothing in this article limits the board's authority to
examine the books, papers, records, and equipment of a taxpayer under
Section 7054.
  SEC. 7.  Section 7076.4 of the Revenue and Taxation Code is amended
and renumbered to read:
   7079.4.  Upon completion of the managed audit and verification by
the board, interest on any unpaid liability shall be computed at
one-half the rate that would otherwise be imposed for liabilities
covered by the audit period. Payment of the liabilities and interest
shall be made within the time period specified by the board. If the
requirements for the managed audit are not satisfied, the board may
proceed to examine the records of the taxpayer in a manner to be
determined by the board under law.
  SEC. 8.  Section 7077 of the Revenue and Taxation Code is amended
and renumbered to read:
   7076.3.  The board shall adequately publicize the tax penalty
amnesty program so as to maximize public awareness of the
participation in the program. The board shall coordinate to the
highest degree possible its publicity efforts and other actions taken
in implementing this article with similar programs administered by
the Franchise Tax Board.
  SEC. 9.  Section 7078 of the Revenue and Taxation Code is amended
and renumbered to read:
   7076.5.  Subdivision (b) of Section 19736, to the extent feasible
and practical, shall also apply to the board.
  SEC. 10.  Article 2.1 (commencing with Section 7077) is added to
Chapter 8 of Part 1 of Division 2 of the Revenue and Taxation Code,
to read:

      Article 2.1.  Medical Cannabis Tax Amnesty


   7077.  The board shall develop and administer a tax penalty
amnesty program for qualified taxpayers.
   7077.05.  For the purposes of this article, the following terms
have the following meanings:
   (a) "Amnesty period" means the period during which the tax penalty
amnesty program is conducted, as described in Section 7077.1.
   (b) "Medical cannabis-related business" means a person that
engages in the sale of cannabis for medical purposes to qualified
patients or the primary caregivers of qualified patients pursuant to
the Compassionate Use Act of 1996 (Section 11362.5 of the Health and
Safety Code) or Article 2.5 (commencing with Section 11362.7) of
Chapter 6 of Division 10 of the Health and Safety Code, commonly
referred to as the Medical Marijuana Program.
   (c) "Qualified taxpayer" means a seller that is a medical
cannabis-related business.
   7077.1.  The tax penalty amnesty program shall be conducted for a
six-month period beginning July 1, 2017, through December 31, 2017,
inclusive. The program shall apply to tax liabilities due and payable
for tax reporting periods beginning before January 1, 2015.
   7077.2.  (a) For any qualified taxpayer that meets the
requirements of Section 7077.3, all of the following shall apply:
   (1) The board shall waive all penalties imposed by this part, for
the tax reporting periods for which tax penalty amnesty is requested,
that are owed as a result of the nonreporting or underreporting of
tax liabilities.
   (2) No criminal action shall be brought against the qualified
taxpayer, for the tax reporting periods for which tax penalty amnesty
is requested, based on the nonreporting or underreporting of tax
liabilities.
   (3) Paragraphs (1) and (2) do not apply to the nonpayment of any
taxes for which a notice of determination has previously been issued.

   (b) This section does not apply to violations of this part for
which, as of the first day of the amnesty period, either of the
following applies:
   (1) The qualified taxpayer is on notice of a criminal
investigation by a complaint having been filed against the qualified
taxpayer or by written notice having been mailed to the qualified
taxpayer that the qualified taxpayer is under criminal investigation.

   (2) A court proceeding has already been initiated.
   (c) No refund or credit shall be granted of any penalty paid prior
to the time the qualified taxpayer makes a request for tax penalty
amnesty pursuant to Section 7077.3.
   7077.3.  (a) This article applies to any qualified taxpayer that
during the amnesty period files an application for tax penalty
amnesty and, within 60 days after the conclusion of the amnesty
period, does all of the following:
   (1) Files completed tax returns reporting the nonreported or
underreported tax liabilities for all tax reporting periods for which
amnesty is being applied.
   (2) Pays in full the taxes and interest due for each period for
which amnesty is requested, or applies for an installment agreement
under subdivision (b).
   (b) The board may enter into an installment payment agreement
pursuant to paragraph (2) of subdivision (a), which shall include
interest on the outstanding amount due at the rate prescribed by law.
Failure by the qualified taxpayer to fully comply with the terms of
the agreement renders the waiver of penalties null and void, unless
the board determines that the failure was due to reasonable causes,
and the total amount of tax, interest, and all penalties shall be
immediately due and payable.
   (c) If, subsequent to the amnesty period, the board issues a
notice of determination upon a return filed pursuant to subdivision
(a), or upon any other nonreporting or underreporting of tax
liability by any person who could have otherwise been eligible for
amnesty, the board may impose penalties at a rate that is double the
rate of penalties described in law and criminal action may be brought
under this part only with respect to the difference between the
amount shown on that return and the correct amount of tax. This
action shall not invalidate any waivers granted under Section 7077.2.

   (d) The application required under subdivision (a) shall be in the
form and manner specified by the board, but in no case shall a mere
payment of any taxes and interest due, in whole or in part, for any
period otherwise eligible for amnesty under this part, be deemed to
constitute an acceptable amnesty application under this part. For
purposes of the preceding sentence, the application of a refund from
one period to offset a tax liability for another period otherwise
eligible for amnesty shall not be allowed without the filing of an
amnesty application under this part.
   7077.4.  (a) (1) Notwithstanding any other law, the Department of
Consumer Affairs shall suspend or refuse to issue, reinstate, or
renew a state license of a qualified taxpayer that is eligible to
participate in the tax penalty amnesty program under this article but
does not participate in the amnesty program, and that does any of
the following:
   (A) Fails to register with the board.
   (B) Has a seller's permit revoked pursuant to Section 7077.6.
   (C) Does both of the following:
   (i) Reports a gross understatement of tax.
   (ii) Fails to pay in full the taxes and interest due for each
period for which amnesty is requested or fails to fully comply with
the terms of an installment payment agreement entered into by the
board pursuant to Section 7077.3.
   (2) Notwithstanding any other law, the Department of Consumer
Affairs shall suspend or refuse to issue, reinstate, or renew a state
license of a qualified taxpayer if the board issues a deficiency
determination upon a return filed pursuant to subdivision (a) of
Section 7077.3 and the qualified taxpayer does both of the following:

   (A) Reports a gross understatement of tax.
   (B) Fails to pay in full the taxes and interest due for each
period for which amnesty is requested or fails to fully comply with
the terms of an installment payment agreement entered into by the
board pursuant to Section 7077.3.
   (3) Suspension or refusal to issue, reinstate, or renew a state
license pursuant to paragraph (1) shall not be effective unless the
Department of Consumer Affairs, at least 60 days before the date of
suspension or refusal, mails a notice to the qualified taxpayer that
indicates that the license will be suspended or refused by that date.

   (b) For purposes of this section, the following terms have the
following meanings:
   (1) "Gross understatement of tax" is a deficiency that is in
excess of 25 percent of the amount of tax reported on a qualified
taxpayer's return filed pursuant to Article 1 (commencing with
Section 6451) of Chapter 5.
   (2) "State license" includes a license issued for any activity of
a medical cannabis-related business.
   7077.6.  The board may refuse to issue a permit to any person,
pursuant to the provisions applicable to the refusal to issue a
permit as set forth in Section 6070.5, or may revoke a seller's
permit issued under this part for any person that is both of the
following:
   (a) Eligible to participate in the tax penalty amnesty program
under this article but does not participate in the amnesty program.
   (b) Engaged in retail sales of medical cannabis in this state that
would have been eligible to participate in the tax penalty amnesty
program as a medical cannabis-related business.
   7077.7.  The board shall issue forms and instructions and take
other actions needed to implement this article.
   7077.8.  The board shall adequately publicize the tax penalty
amnesty program for medical cannabis-related businesses so as to
maximize public awareness of, and participation in, the program.
  SEC. 11.  The Legislature finds and declares that Section 10 of
this act, establishing the medical cannabis tax penalty amnesty
program by adding Article 2.1 (commencing with Section 7077) to
Chapter 8 of Part 1 of Division 2 of the Revenue and Taxation Code,
serves a general public purpose by incentivizing a specific type of
business to become current with its tax obligations and therefore
does not constitute a gift of public funds within the meaning of
Section 6 of Article XVI of the California Constitution.
  SEC. 12.  Section 2.5 of this bill incorporates amendments to
Section 19323 of the Business and Professions Code proposed by both
this bill and Assembly Bill 26. It shall only become operative if (1)
both bills are enacted and become effective on or before January 1,
2017, (2) each bill amends Section 19323 of the Business and
Professions Code, and (3) this bill is enacted after Assembly Bill
26, in which case Section 2 of this bill shall not become operative.