BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 567|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: AB 567
Author: Gipson (D)
Amended: 8/19/16 in Senate
Vote: 21
PRIOR VOTES NOT RELEVANT
SENATE BUS., PROF. & ECON. DEV. COMMITTEE: 8-1, 6/13/16
AYES: Hill, Block, Gaines, Galgiani, Hernandez, Jackson,
Mendoza, Wieckowski
NOES: Bates
SENATE GOVERNANCE & FIN. COMMITTEE: 5-1, 6/22/16
AYES: Hertzberg, Beall, Hernandez, Moorlach, Pavley
NOES: Nguyen
NO VOTE RECORDED: Lara
SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/11/16
AYES: Lara, Beall, Hill, McGuire, Mendoza
NOES: Bates, Nielsen
SUBJECT: Medical cannabis: regulation and taxation amnesty
SOURCE: Author
DIGEST: This bill requires the Board of Equalization (BOE) to
establish a tax amnesty program (Program) for medical
cannabis-related businesses and requires state licensing
authorities to suspend 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
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participate in the Program does not pay owed taxes and interest.
Senate Floor Amendments of 8/19/16 remove conflict with AB 26
(Jones-Sawyer) by adding chaptering out language.
ANALYSIS:
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
assessing, including uniform procedures for the
consideration and adoption of written findings of fact by
local boards of equalization, as specified.
b) 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.
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c) 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.
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. 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.
2) 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).
3) Requires a licensing authority to suspend or refuse to
issue, reinstate, or renew a state license pursuant to the
tax penalty amnesty program's parameters.
4) Requires the BOE to develop and administer a tax penalty
amnesty program for qualified taxpayers.
5) Requires a licensing authority to revoke or refuse to issue,
reinstate, or renew a state license under the MMRSA if a
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qualified taxpayer that is eligible to participate in the
Program does not participate, as specified.
6) Requires the Program to be conducted for a six-month period
beginning July 1, 2017, through December 31, 2017, and apply
to tax liabilities due and payable for tax reporting periods
beginning before January 1, 2015.
7) 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.
8) 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.
9) 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.
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10)Authorizes the BOE to impose penalties at a rate that is
double the rate of penalties described in law and bring
criminal actions with respect to the difference between the
amount 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, or upon any other
nonreporting or underreporting of tax liability by any person
who could have otherwise been eligible for amnesty. States
that this will not invalidate any waivers, as specified.
11)Requires the DCA to suspend 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) 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.
12)Requires DCA to suspend or refuse to issue, reinstate, or
renew a state license of a qualified taxpayer if the BOE
issues a deficiency determination upon a specified return and
the qualified taxpayer does both of the following:
a) Reports a gross understatement of tax.
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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.
13)Authorizes the BOE to refuse to issue a permit to any
person, pursuant to the provisions applicable to the refusal
to issue a permit as specified, or may 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.
14)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.
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 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
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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.
This bill aims to bring medical cannabis dispensaries into
compliance with sales tax laws. BOE estimates a noncompliance
rate of 66% of all dispensaries selling medical marijuana. This
bill provides an incentive for those dispensaries who have
failed to remit sales tax in the past to do so prospectively.
This bill could be effective in increasing prospective sales tax
compliance to the extent a tax incentive induces medical
marijuana dispensaries to comply with sales tax law.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Senate Appropriations Committee, BOE would
incur administrative costs in the low millions of dollars
annually, resulting from taxpayer notification, amnesty
application processing, return processing, computer programming,
and public inquiry responses. The analysis notes that BOE
estimates that the bill would lead to increased one-time state
and local revenue in the range of $53 million to $106 million,
depending on the participation rate of cannabis-related
businesses. The analysis also notes that DCA would incur
first-year costs of $102,000 and $94,000 thereafter (special
funds) to process applications and verify with BOE that
distributors are in compliance with this bill's requirements.
SUPPORT: (Verified8/22/16)
Board of Equalization
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OPPOSITION: (Verified8/22/16)
None received
ARGUMENTS IN SUPPORT: The Board of Equalization writes,
"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."
Prepared by:Myriam Bouaziz / GOV. & F. / (916) 651-4119
8/22/16 22:32:18
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