BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 821 |Hearing |5/11/16 |
| | |Date: | |
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|Author: |Gipson |Tax Levy: |No |
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|Version: |1/13/16 |Fiscal: |Yes |
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|Consultant|Bouaziz |
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Sales and use taxes: administration: payments: dispensaries
Allows a medical marijuana dispensary to remit tax liability due
in a method other than an electronic funds transfer.
Background
State law imposes a sales and use tax (SUT) on the sale,
storage, or use of tangible personal property unless exempted by
state law. The current state SUT is 7.5%, but beginning January
1, 2017, the state SUT rate on tangible personal property will
be 7.25%. Cities and Counties may increase the SUT rate up to
2% as a transactions and use tax for either specific or general
purposes with a vote of the people.
Generally, medicine is exempt from the sales and use tax, but
medical marijuana does not satisfy the following elements to
qualify for the exemption. To be exempt, medication must be:
Prescribed by an authorized person and dispensed on a
prescription filled by a pharmacist;
Furnished by a licensed physician to his or her own
patient, or;
Furnished by a health facility for treatment pursuant to
a licensed physician's order, or sold to a licensed
AB 821 (Gipson) 1/13/16 Page 2
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physician.
Thus, the sale of medical marijuana is subject to both the state
and local sales and use tax.
State law provides that any person whose estimated tax liability
due to the Board of Equalization (BOE) averages $10,000 or more
per month shall remit the amounts due by an electronic funds
transfer (EFT). If a person fails to remit taxes by EFT, a 10%
penalty of the amount of taxes due is assessed, but BOE may
relieve a person of the 10% penalty if that person's failure to
utilize an EFT is due to reasonable cause and circumstances
beyond the person's control, and occurred notwithstanding the
exercise of ordinary care and in the absence of willful neglect.
Proposed Law
Senate Bill 821 allows medical marijuana dispensaries to remit
tax liability due in a method other than an electronic funds
transfer. SB 821 shall remain in effect until January 1, 2022.
State Revenue Impact
According to BOE, AB 821 would not significantly affect state
revenues.
Comments
1. Purpose of the bill. According to the author, "Currently,
due to the fact that marijuana is still federally classified as
a Schedule 1 substance, the medical marijuana industry has been
rendered unbankable. This leads to companies having to hold
large amounts of cash and requires that tax payments be made in
cash as well. This bill seeks to support the state's collection
of tax payments by removing the penalty associated with cash tax
payments above $10,000 a month in cases where an industry has
lack of access to banking services."
2. Nowhere to bank. Individuals who run a marijuana dispensary
in compliance with California law are currently shut off from
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the banking system. Marijuana is classified as a Class I drug
and the cultivation, sale, and possession can constitute a
felony. Therefore, the majority of banks and credit unions have
decided not to accept marijuana dispensaries as customers for
fear of federal sanctions. As such, less than 1% of all banks
and credit unions nationwide provide banking services to
cannabis businesses.
3. Burden on dispensaries. Taxpayers must remit tax liability
due by an EFT if the estimated tax liability averages $10,000 or
more per month, otherwise a 10% penalty of the tax amount due is
assessed on the taxpayer. Because many banks and credit unions
refuse to accept medical dispensaries as customers for fear of
federal sanctions, dispensaries that are remitting their tax
liability in a form other than an EFT are assessed a 10%
penalty. BOE may waive the 10% penalty for medical marijuana
dispensaries if it can be shown that the failure to utilize an
EFT is due to reasonable cause and circumstances beyond the
person's control, and occurred notwithstanding the exercise of
ordinary care and in the absence of willful neglect. However,
taxpayers must request a waiver every time amounts due are
remitted in a manner other than EFT, which creates an unfair
administrative burden for cash-only industries. It appears,
therefore, that the problem is not the imposition of a penalty
but the burden of having to request the waiver.
Assembly Actions
Assembly Rules 11-0
Assembly Revenue and Taxation 5-3
Assembly Appropriations 12-5
Assembly Floor 58-17
Support and
Opposition (5/4/16)
Support : 3C Medical, LP; Americans for Safe Access; Board of
Equalization Member, Fiona Ma; Board of Equalization Member,
George Runner; Board of Equalization Member, Jerome Horton;
California Growers Association; California Tax Reform
Association; 4 individuals.
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Opposition : Unknown.
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