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:      |         |
          |----------+---------------------------------+-----------+---------|
          |Author:   |Gipson                           |Tax Levy:  |No       |
          |----------+---------------------------------+-----------+---------|
          |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  







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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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