BILL ANALYSIS Ó
SENATE COMMITTEE ON
BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT
Senator Jerry Hill, Chair
2015 - 2016 Regular
Bill No: AB 567 Hearing Date: June 13,
2016
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|Author: |Gipson |
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|Version: |May 24, 2016 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant|Sarah Huchel |
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Subject: Medical cannabis: regulation and taxation amnesty
SUMMARY: Requires the Board of Equalization (BOE) and Employment
Development Department (EDD) to establish a tax amnesty program
(Program) for medical cannabis-related businesses and requires
state licensing authorities to revoke or refuse to issue,
reinstate, or renew a state license under the Medical Marijuana
Regulation and Safety Act (MMRSA) if a qualified taxpayer that
is eligible to participate in the Program does not come forward
and pay owed taxes and interest.
Existing law:
1)Establishes the Bureau of Medical Marijuana Regulation within
the Department of Consumer Affairs (DCA) to administer and
enforce the MMRSA. (Business and Professions Code (BPC)
19302)
2)Defines "licensing authority" as the state agency responsible
for the issuance, renewal, or reinstatement of the license, or
the state agency authorized to take disciplinary action
against the licensee.
(BPC §19300.5 (w))
3)Establishes the BOE to: (Government Code § 15606)
a) Prescribe rules and regulations to govern local boards
of equalization when equalizing, and assessors when
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assessing, including uniform procedures for the
consideration and adoption of written findings of fact by
local boards of equalization, as specified.
b) Prescribe and enforce the use of all forms for the
assessment of property for taxation, including forms to be
used for the application for reduction in assessment.
c) Prepare and issue instructions to assessors designed to
promote uniformity throughout the state and its local
taxing jurisdictions in the assessment of property for the
purposes of taxation. It may adapt the instructions to
varying local circumstances and to differences in the
character and conditions of property subject to taxation as
in its judgment is necessary to attain this uniformity.
d) Prescribe rules and regulations to govern local boards
of equalization when equalizing, and assessors when
assessing, with respect to the assessment and equalization
of possessory interests.
e) Bring an action in a court of competent jurisdiction to
compel an assessor or any city or county tax official to
comply with any provision of law, or any rule or regulation
of the BOE, as specified, governing the assessment or
taxation of property. The Attorney General shall represent
the BOE in the action.
4)Establishes the EDD in the Labor and Workforce Development
Agency responsible, for the following functions:
(Unemployment Insurance Code § 301)
a) Job creation activities.
b) Making manual computations and making or denying
recomputations of the amount and duration of benefits.
c) Determination of contribution rates and the
administration and collection of contributions, penalties
and interest, including but not limited to filing and
releasing liens.
d) Establishment, administration, and transfer of reserve
accounts.
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e) Making assessments and the administration of credits and
refunds.
f) Approving elections for coverage or for financing
unemployment and disability insurance coverage.
This bill:
1)Makes Legislative findings that, although California enacted
and expanded the Compassionate Use Act of 1996, the sale of
any cannabis still remains illegal under federal law. As a
result of uncertainty created by state and federal
differences, many medical cannabis-related businesses have
been noncompliant with tax laws since their inception, and
would owe massive penalties and interest if they were to come
into compliance.
2)Makes Legislative findings that the portions of this bill
establishing medical cannabis-related business tax penalty
programs serve a general public purpose by incentivizing a
specific type of business to become current with its tax
obligations and therefore do not constitute gifts of public
funds within the meaning of Section 6 of Article XVI of the
California Constitution.
3)Declares Legislative intent to further the public purposes of
preventing undue hardship on medical cannabis-related
businesses and providing a strong incentive for those
businesses to come forward and pay owed taxes and interest by
enacting the Medical Cannabis Tax Amnesty Act (Act).
4)Requires the BOE and EDD to develop and administer a tax
penalty amnesty program (Program) for qualified taxpayers.
5)Defines the following terms:
a) "Amnesty period" is the period July 1, 2017, through
September 31, 2017, during which the tax penalty amnesty
program is conducted.
b) "Medical cannabis-related business" is a person that
engages in the sale of cannabis for medical purposes to
qualified patients or the primary caregivers of qualified
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patients pursuant to the Compassionate Use Act of 1996 or
the Medical Marijuana Program.
c) "Qualified taxpayer" is a seller that is a medical
cannabis-related business.
d) "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, as specified.
e) "State license" includes a license issued for any
activity of a medical cannabis-related business.
f) "Employment taxes" or "taxes" is the unemployment
insurance tax and employment training tax, as specified;
state disability insurance tax, as specified; and personal
income tax witholding, as specified.
g) "Qualified employer" is an employer or employing unit
that is a medical cannabis-related business, as specified.
6)Requires a licensing authority to revoke or refuse to issue,
reinstate, or renew a state license under the MMRSA if a
qualified taxpayer that is eligible to participate in the
Program does not participate, as specified.
7)Requires the Program to be conducted for a three-month period
beginning July 1, 2017, through September 30, 2017, and apply
to tax liabilities due and payable for tax reporting periods
beginning before January 1, 2015.
8)Requires the following to apply to any qualified taxpayer who
files an application for tax penalty amnesty and pays the
taxes and interest, as specified in Item # 11):
a) The BOE and EDD shall waive all penalties, as specified,
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 or the nonpayment or
underpayment of employment tax liabilities.
b) Prohibits a criminal action from being brought against
the qualified taxpayer for the tax reporting periods for
which tax penalty amnesty is requested based on the
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nonreporting or underreporting of tax liabilities.
c) States that (a) and (b) do not apply to the nonpayment
of any taxes, excluding employment taxes, for which a
notice of determination has previously been issued.
9)Prohibits the waiving of penalties and the prohibition against
the bringing of a criminal action for violations if the either
of the following applies as of the first day of the amnesty
period:
a) The qualified taxpayer is on notice of a criminal
investigation.
b) A court proceeding has already been initiated.
10)Prohibits a refund or credit from being granted of any
penalty paid prior to the time the qualified taxpayer makes a
request for tax penalty amnesty, as specified.
11) States that the Program shall apply to any qualified
taxpayer who, 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:
a) Files completed tax returns reporting the nonreported or
underreported tax liabilities for all tax reporting periods
for which amnesty is being applied; and,
b) Pays in full the taxes and interest due for each period
for which amnesty is requested, or applies for an
installment agreement, as specified.
12)Authorizes the BOE to enter into an installment payment
agreement that 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.
13)Authorizes the BOE to impose penalties and bring criminal
actions with respect to the difference between the amount
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shown on the return and the correct amount of tax if the BOE
issues a notice of determination after the amnesty period upon
a return filed, as specified. States that this will not
invalidate any waivers, as specified.
14)Requires the application for the Program to be in the form
and manner specified by the BOE, 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.
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 a Program application.
15)Requires the DCA to revoke or refuse to issue, reinstate, or
renew a state license of a qualified taxpayer that is eligible
to participate in the Program but does not participate in the
Program, and that does any of the following:
a) Fails to register with the BOE.
b) Has a seller's permit revoked, as specified.
c) Reports a gross understatement of tax.
16)States that the Director's revocation or refusal to issue,
reinstate, or renew a state license shall not be effective
unless the DCA, at least 60 days before the date of revocation
or refusal, mails a notice to the qualified taxpayer that
indicates that the license will be refused or revoked by that
date.
17)Requires the BOE to refuse to issue a permit to any person or
shall revoke a seller's permit issued for any person that is
both of the following:
a) Eligible to participate in the Program but does not
participate; and,
b) Engaged in retail sales of medical cannabis in this
state that would have been eligible to participate in the
Program as a medical cannabis-related business.
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18)Requires the BOE and EDD to issue forms and instructions and
take other actions needed to implement this bill.
19)Requires the BOE to adequately publicize the Program for
medical cannabis-related businesses so as to maximize public
awareness of, and participation in, the Program. Requires the
BOE to coordinate to the highest degree possible its publicity
efforts and other actions taken in implementing this article
with similar programs administered by the EDD.
20)States that the Program shall apply to any qualified employer
that during the amnesty period files an application the
Program and, within 60 days after the conclusion of the
amnesty period, does all of the following:
a) Files quarterly contribution returns and reports
reporting the nonreported or underreported wages and taxes
for the calendar quarter that ended December 31, 2013, and
prior calendar quarters, for which amnesty is being
applied.
b) Pays in full all amounts due for all periods for which
amnesty is requested, or applies for an installment
agreement.
21)Authorizes the EDD to enter into an installment payment
agreement which shall include interest on the outstanding
amount due at the rate prescribed by law. Failure by the
qualified employer to fully comply with the terms of the
agreement renders the waiver of penalties null and void,
unless the EDD 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.
22)States that if, subsequent to the amnesty period, the EDD
issues a deficiency assessment upon a return filed, as
specified, the EDD may impose penalties and criminal action
may be brought 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 as
specified.
23)States that if the EDD issues a deficiency assessment , the
EDD may issue that deficiency assessment within 10 years from
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the last day of the calendar month following the quarterly
period for which the amount is proposed to be assessed.
24)Requires an application for the Program to be in the form and
manner specified by the EDD, 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 be deemed to
constitute an acceptable amnesty application. 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.
25)Requires the DCA to revoke or refuse to issue, reinstate, or
renew a state license of a qualified taxpayer that is eligible
to participate in the Program but does not participate in the
Program, and that does any of the following:
a) Fails to register with the EDD.
b) Reports a gross understatement of tax.
FISCAL
EFFECT: This bill is keyed "fiscal" by the Legislative Counsel.
The Assembly Appropriations Committee did not analyze this bill
because it was not in this form.
COMMENTS:
1. Purpose. This bill is Author sponsored. According to the
Author's office, this bill is necessary because many cannabis
businesses have failed to comply with California's business
tax requirements due to misunderstanding or fear of becoming
a target for investigation.
2. Background. California began regulating medical marijuana
with the passage of the Compassionate Use Act in 1996, which
exempted patients and their primary caregivers from criminal
liability under state law for the possession and cultivation
of marijuana. In 2003, the Legislature authorized the
formation of medical marijuana cooperatives-nonprofit
organizations that cultivate and distribute marijuana for
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medical uses to their members through dispensaries. Most
recently, the (MMRSA) passed in 2015, which consisted of
three separate bills enacted together to license and regulate
medical marijuana ( AB 243 (Wood, Chapter 688, Statues of
2015); AB 266 , (Bonta, Chapter 689, Statutes of 2015); and SB
643 (McGuire, Chapter 719, Statutes of 2015). These bills
created a comprehensive state licensing system for the
commercial cultivation, manufacture, retail sale, transport,
distribution, delivery, and testing of medical cannabis.
Medical marijuana cooperatives will be phased out under the
MMRSA and replaced by state-licensed businesses.
The MMRSA went into effect on January 1, 2016, and licensure
requirements will follow when the regulatory entities
responsible for implementation pass necessary regulations.
The MMRSA distributes state responsibilities among six
agencies:
DCA (Bureau of Medical Marijuana Regulation):
responsible for licensing and regulating dispensaries,
transporters, and distributors.
Department of Fish and Wildlife (DFW): monitor
and reduce environmental impacts of marijuana
cultivation.
State Water Resources Control Board (SWRCB):
regulate the environmental impacts of marijuana
cultivation on water quality and instream flows.
California Department of Food and Agriculture
(CDFA): regulate medical marijuana cultivation and
issue licenses to growers.
Department of Public Health (DPH): develop and
enforce regulations and standards for medical marijuana
product manufacturers and testing laboratories.
Department of Pesticide Regulation (DPR): develop
pesticide use guidelines for the cultivation of medical
marijuana.
This bill will require these state licensing authorities to
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revoke or refuse to issue, reinstate, or renew a state
license under the MMRSA if a qualified taxpayer that is
eligible to participate in the tax amnesty program
established by the BOE and EDD does not participate in the
program.
This bill is also referred to the Senate Governance and
Finance Committee, which will analyze the tax implications of
this bill and other issues related to tax amnesty programs.
1. Related Legislation. AB 26 (Jones-Sawyer) of 2015 requires a
licensee under the Act to institute and maintain a training
program to educate, inform, and train the licensee's agents
and employees regarding compliance with the Act, and requires
the Bureau to approve and regulate the training programs.
( Status : This bill is pending in the Senate Committee on
Business, Professions and Economic Development.)
AB 2385 (Jones-Sawyer) of 2015 prohibits licensing
authorities from requiring a local license, permit, or other
authorization, and would require the issuance of state
license if the authorities determine that the applicant meets
all the requirements of the Act and specified criteria
relating to Measure D, which was approved by the voters of
the City of Los Angeles. ( Status : This bill is pending in
the Senate Committee on Business, Professions and Economic
Development.)
2. Previous Legislation. AB 266 (Bonta, Cooley, Jones-Sawyer,
Lackey, and Wood, Chapter 689, Statutes of 2015) enacted the
Act for the licensure and regulation of medical marijuana,
established the Bureau within the DCA, required the CDFA to
administer the provisions of the act related to cultivation,
required the CDPH to administer the provisions of the Act
related to manufacturing and testing of medical cannabis and
required the Board of Equalization to adopt a system for
reporting the movement of commercial cannabis and cannabis
products.
AB 243 (Wood, Chapter 688, Statutes of 2015) required the
CDFA, the DPR, the CDPH, the DFW, and the SWRCB to promulgate
regulations relating to medical marijuana and its
cultivation, as specified, required various state agencies to
take specified actions to mitigate the impact that marijuana
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cultivation has on the environment, and established the Act
Fund.
SB 643 (McGuire, Chapter 719, Statutes of 2015) established
standards for the prescription of medical cannabis, required
the Medical Board of California to prioritize its
investigative and prosecutorial resources to identify and
discipline physicians and surgeons that have repeatedly
recommended excessive cannabis to patients for medical
purposes or repeatedly recommended cannabis to patients for
medical purposes without a good faith examination, as
specified; authorized counties to impose a tax upon specified
cannabis-related activity; and set forth standards for the
licensed cultivation of medical cannabis.
3. Arguments in Support. The BOE writes in support, "Many
medical cannabis-related businesses want to be regulated,
taxed, and treated like other businesses. However, these
businesses have been operating in the shadows for years for
fear of federal prosecution. Last year, the Legislature
enacted the MMRSA, a package of legislation that establishes
a comprehensive licensing and regulatory framework for
medical marijuana including cultivation, manufacturing,
transportation, distribution, and sale. The MMRSA comports
with the enforcement priorities outlined in the U.S.
Department of Justice guidance to federal prosecutors
regarding cannabis enforcement under the Controlled
Substances Act (referred to as the Cole Memo ) and likely will
serve to shield the state's industry from federal action. As
a result, medical cannabis-related businesses that previously
operated underground may be more willing to come forward and
comply with state tax and regulatory laws."
4. Recommended Technical Amendments. The following are
technical amendments addressing drafting errors:
Page 10, line 2, replace "six" with "three"
On page 10, line 4, replace "31" with "30"
Page 17, line 24, replace "six" with "three"
On page 18, line 19, replace "2013" with "2014"
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NOTE : Double-referral to Governance and Finance Committee
SUPPORT AND OPPOSITION:
Support:
Board of Equalization
Opposition:
None on file as of June 7, 2016.
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