BILL ANALYSIS Ó
AB 2149
Page 1
Date of Hearing: April 18, 2016
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
AB 2149
(Bonilla) - As Amended March 17, 2016
Majority vote. Fiscal committee.
SUBJECT: State Board of Equalization: state agencies:
collection of cash payments: medical marijuana-related
businesses
SUMMARY: Authorizes the State Board of Equalization (BOE) to
collect cash payments from medical marijuana-related businesses
for other state agencies, as specified. Specifically, this
bill:
1)Enacts the Medical Marijuana State Payment Collection Law
("Collection Law").
2)Authorizes the BOE to enter into an agreement with a "state
agency" to collect cash payments for any fee, fine, penalty,
or other charge payable to the "state agency" by a person that
is a medical marijuana-related business, as specified.
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3)Requires the BOE to collect fees, fines, penalties, and other
charges if the BOE enters into an agreement with a "state
agency" to make those collections. Such an agreement shall
include the following:
a) A provision that the BOE be reimbursed for the
administrative costs of the collection from the fund for
which cash payments are collected, upon appropriation by
the Legislature;
b) A provision that the BOE transmit the collected moneys
to the Treasurer to be deposited in the State Treasury to
the credit of the fund for which collection was authorized;
c) A provision describing the administrative costs the BOE
will incur in carrying out the collection and
administration, which costs shall not exceed 10% of the
moneys collected;
d) A savings clause that provides the BOE authority to
collect and to make refunds after the sunset date if a
sunset date exists; and,
e) A provision that sets forth the due date for payment of
the fee, fine, penalty, or other charge and return by the
feepayer [sic].
4)Provides that the term "state agency" includes, but is not
limited to, the following:
a) The Department of Consumer Affairs;
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b) The Department of Food and Agriculture;
c) The Department of Public Health;
d) The Employment Development Department (EDD);
e) The State Water Resources Control Board; and,
f) The Franchise Tax Board.
5)Directs the BOE to administer and collect the authorized
payments pursuant to the Fee Collection Procedures Law, except
as provided.
6)Provides that, for purposes of the Collection Law, the
references in the Fee Collection Procedures Law to "fee" shall
include any fee, fine, penalty, or other charge required to be
paid by a person that is a medical marijuana-related business,
and all references to "feepayer" shall include a person
required to pay those fees.
7)Provides that no reimbursement is required pursuant to Section
6 of Article XIII B of the California Constitution for
specified reasons.
EXISTING FEDERAL LAW prohibits the manufacture, possession,
sale, or distribution of marijuana. [21 United States Code
Section 841 et seq.]
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EXISTING STATE LAW:
1)Imposes a sales tax on retailers for the privilege of selling
tangible personal property (TPP), absent a specific exemption.
The tax is based upon the retailer's gross receipts from TPP
sales in this state.
2)Imposes a complimentary use tax on the storage, use, or other
consumption of TPP purchased out-of-state and brought into
California. The use tax is imposed on the purchaser, and
unless the purchaser pays the use tax to an out-of-state
retailer registered to collect California's use tax, the
purchaser remains liable for the tax. The use tax is set at
the same rate as the state's sales tax and must generally be
remitted to the BOE.
3)Applies the sales and use tax (SUT) to retail sales of
marijuana, including medical marijuana, to the same extent as
any other retail sale of TPP.
4)Allows, under the Compassionate Use Act of 1996 (Proposition
215), for the use of marijuana for medical purposes.
5)Allows, under the Medical Marijuana Regulation and Safety Act
(MMRSA), for the licensure and regulation of commercial
medical marijuana activity by various state entities, as
specified.
FISCAL EFFECT: The BOE estimates that this bill would not
directly impact state revenues.
COMMENTS:
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1)The author has provided the following statement in support of
this bill:
AB 2149 helps medical marijuana related businesses to pay
their state fees and taxes by allowing the Board of
Equalization (BOE) to collect cash payments on behalf of
other state entities. Medical marijuana is estimated to be
a $2.7 billion dollar industry in California.
Unfortunately, because marijuana is still a Schedule 1
controlled substance under the federal Controlled Substance
Act, the same schedule as ecstasy and heroin, it is very
difficult for medical marijuana related businesses to gain
access to our traditional banking system. These businesses
are obligated to pay sales taxes, payroll taxes, water
discharge permits, and soon to be developed licensing fees
for medical marijuana related entities, among others.
Because of the difficulty in obtaining bank accounts,
marijuana related businesses pay large sums of money in
cash to meet tax and fee obligations. This poses great
difficulty to the state entities which are responsible for
collecting state obligations from these entities. Not only
must they count the cash, but contend with greater
security, surveillance, and transportation issues. AB 2149
addresses this problem by authorizing the BOE to collect
fees and taxes from medical marijuana related businesses on
behalf of other state entities. The BOE has field offices
up and down the state and has already begun to establish
protocols for how to deal with large cash payments. AB 2149
will allow the state to centralize its cash collecting
infrastructure, streamline the locations which have an
increased security need, and ensure that California
businesses can meet their state financial obligations.
2)This bill is supported by the California Growers Association,
which notes the following:
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The all cash nature of the cannabis industry is straining
the cash collection capacity of regulatory agencies that
will be interacting [with] and licensing cannabis business
owners and growers throughout the state. The lack of
financial services is inhibiting our members' ability to
meet financial obligations associated with state and local
regulatory requirements or taxes. This problem will only
get worse as comprehensive regulatory programs are brought
online over the next two years.
AB 2149 would authorize the State Board of Equalization,
and its twenty-two (22) regional field offices throughout
the state, to collect cash on behalf of state agencies for
the payment of license fees, taxes and other regulatory
payments. The bill will assist with the timely and
efficient payment of fees to regulatory agencies - namely
the Department of Consumer Affairs, the Department of Food
& Agriculture, the Department of Public Health and the
State and Regional Water Boards. The bill would harness
the resources of the Board of Equalization's existing
regional presence and capacity to accept cash payments for
tax collection.
3)The BOE notes the following in its staff analysis of this
bill:
a) Practical issues : "In addition to safety issues, this
measure compounds the BOE's administrative challenges with
accepting cash payments. The BOE's district offices
already are unequipped to handle large sums of cash for
sales and use tax payments. Collecting medical marijuana
cash payments for other state agencies, as proposed by this
bill, will require additional modifications and upgrades to
BOE district office security systems and cash storage, as
well as the BOE's computer system and cash payment
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procedures."
b) BOE's mission and tasks : "The BOE's mission 'is to
serve the public through fair, effective, and efficient tax
administration.' Arguably, facilitating cash payments for
taxpayers who have barriers to banking would create
efficiencies for those taxpayers. However, this bill's
authorization for the BOE to collect cash payments from
medical marijuana-related businesses on behalf of other
state agencies departs from the BOE's traditional 'tax
collection and enforcement' functions. In general, the BOE
does not collect cash payments on behalf of other state
agencies when it has no role in administering the
revenue-generating tax or fee, nor does it collect and
administer partial tax and fee programs that relate to a
specified category of tax and feepayers."
4)Committee staff comments:
a) An overview of federal law : Federal law prohibits the
manufacture, possession, sale, or distribution of
marijuana. Congress enacted the Controlled Substances Act
(CSA) as part of the Comprehensive Drug Abuse Prevention
and Control Act of 1970. The CSA sets forth five
"schedules" of specified drugs and other substances
designated "controlled substances." For a drug or other
substance to be designated as a "Schedule I" controlled
substance, it must be found that the substance "has a high
potential for abuse" and has "no currently accepted medical
use in treatment in the United States". Federal law lists
marijuana as a Schedule I controlled substance, deemed to
have no accepted medical use.
i) The Cole Memo : On August 29, 2013, the U.S.
Department of Justice issued guidance to federal
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prosecutors regarding cannabis enforcement under the CSA
(referred to as the "Cole Memo"). The Cole Memo
reiterated the Department's commitment to enforcing the
CSA consistent with Congress' determination that cannabis
is a dangerous drug that provides a significant source of
revenue to large-scale criminal enterprises, gangs, and
cartels. In furtherance of this objective, the Cole Memo
instructed Department attorneys and law enforcement
officials to focus on the following eight enforcement
priorities:
(1) Preventing the distribution of marijuana to
minors;
(2) Preventing revenue from marijuana sales from
going to criminal enterprises, gangs, and cartels;
(3) Preventing the diversion of marijuana from
states where it is legal under state law in some form
to other states;
(4) Preventing state-authorized marijuana activity
from being used as a cover or pretext for the
trafficking of other illegal drugs or other illegal
activity;
(5) Preventing violence and the use of firearms in
the cultivation and distribution of marijuana;
(6) Preventing drugged driving and the
exacerbation of other adverse public health
consequences associated with marijuana use;
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(7) Preventing the growing of marijuana on public
lands and the attendant public safety and
environmental dangers posed by marijuana production on
public lands; and,
(8) Preventing marijuana possession or use on
federal property.
Under the Cole Memo, these priorities will guide the
Department's enforcement of the CSA against
marijuana-related conduct. While the Cole Memo's
guidance was issued in response to recent marijuana
legalization initiatives in other states, it applies to
all Departmental marijuana enforcement nationwide.
ii) Public Law 113-235 : Operative December 16, 2014,
Public Law 113-235 prohibits the U.S. Department of
Justice from using funds to prevent specified states,
including California, from implementing laws that
authorize the use, distribution, possession, or
cultivation of medical marijuana.
b) An overview of state law : The California Uniform
Controlled Substances Act prohibits, except as authorized,
the possession, cultivation, transportation, and sale of
marijuana and marijuana derivatives. Under Proposition
215, however, existing law does authorize a patient (or the
patient's primary caregiver) to cultivate or possess
marijuana for the patient's medical use when recommended by
a physician, as specified.
i) SB 420 : SB 420 (Vasconcellos), Chapter 875,
Statutes of 2003, established statewide guidelines for
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Proposition 215 enforcement. Specifically, SB 420 called
for the establishment of a voluntary program for the
issuance of identification cards to qualified patients.
SB 420 further specified that no patient or primary
caregiver in possession of a valid identification card
shall be subject to arrest for possession,
transportation, delivery, or cultivation of medical
marijuana, as specified.
ii) Medical Marijuana Regulation and Safety Act (MMRSA) :
In 2015, the Legislature enacted the MMRSA through a
package of bills establishing a comprehensive licensing
and regulatory framework for medical marijuana.
Specifically, the MMRSA consists of three bills: (1) SB
643 (McGuire), Chapter 719, Statutes of 2015; (2) AB 243
(Wood), Chapter 688, Statutes of 2015; and, (3) AB 266
(Bonta), Chapter 689, Statutes of 2015.
Among its provisions, the MMRSA established the Bureau of
Medical Marijuana Regulation within the Department of
Consumer Affairs to oversee and enforce the state's
medical marijuana regulations, in collaboration with the
California Department of Public Health and the California
Department of Food and Agriculture. Additionally, the
law established categories of licenses for various
medical marijuana activities, such as cultivating,
manufacturing, distributing, transporting, and selling.
The MMRSA also requires each licensing authority to
establish a scale of application, licensing, and renewal
fees, based on MMRSA enforcement costs. These fees have
not yet been set.
c) Caught in the middle : Due to the evident conflict
between federal and state drug laws noted above, many
medical marijuana-related businesses in California find it
difficult to obtain banking services. The author notes
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that this difficulty is faced by many different types of
businesses, including cultivators, transporters,
dispensaries, and manufacturers of marijuana edibles.
Moreover, the author's office notes:
Most banks refuse to accept medical marijuana businesses
as customers because they fear enforcement action by the
federal Department of Justice in regards to the Racketeer
Influence and Corrupt Organizations Act (RICO Act).
Violation of this act could risk the forfeiture of a
bank's assets or collateral used to secure loans.
At the same time, however, marijuana-related businesses in
California must still find a way to remit sales taxes,
income taxes, applicable government fines, and
soon-to-be-determined licensing fees. This bill would
attempt to solve this problem, at least partially, by
authorizing the BOE to accept cash payments from
marijuana-related businesses on behalf of other state
entities that may not have the built-in infrastructure to
handle large quantities of cash.
d) The BOE's current policy against cash payments : The BOE
notes that, since early 2014, all of its field offices have
stopped accepting cash from taxpayers attempting to pay
their SUT liabilities. This "No Cash Policy" was
implemented both to reduce administrative costs and to
ensure the safety of BOE employees. The BOE does allow an
exception, however, when a taxpayer demonstrates that it is
unable to obtain a bank account. Committee staff
understands that this exception mainly applies to marijuana
dispensaries. As a result of this exception, certain BOE
district offices receive hundreds of thousands of dollars
in cash payments from medical marijuana-related businesses.
Accepting such large amounts of cash, however, creates
understandable safety concerns - both for the public and
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for BOE staff. It could be argued that if the BOE were to
accept cash payments on behalf of other state agencies,
these safety concerns would only be exacerbated.
On the other hand, it could be argued that it makes more
administrative sense to centralize cash collection so that
multiple state agencies are not required to count and
verify cash payments, purchase safes to store cash,
contract with armored cars, employ armed guards, and
install new or additional surveillance.
e) Is there a statewide standard in place ? The BOE has 22
field offices located up and down the state. The author's
office notes that, in FY 2014-15, 15 of those offices
accepted cash payments of some type. The author's office
also notes that all of the BOE's districts, with the
exception of District 4, "allowed for hardship exemptions
where the fee to pay in cash can be waived." It is not
clear to Committee staff why tax agency policy would depend
on the location of the taxpayer in California. This
Committee may wish to assess, in the context of this bill,
whether policies governing the payment of tax liabilities
in cash should be uniform throughout the state.
f) What is the BOE's administrative role under this bill ?
In its current form, this bill authorizes the BOE to
collect cash payments from medical marijuana-related
businesses for other state agencies. It would appear, at
first blush, that the BOE would have no other
administrative responsibilities. In other words, the BOE
would not be responsible for handling appeals, processing
refunds, or pursuing delinquent payments. A degree of
confusion is created, however, by this bill's requirement
for the BOE to administer and collect the authorized
payments pursuant to the Fee Collection Procedures Law.
The BOE notes that if the author intends for the BOE to
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take a more active administrative role, additional
amendments should be taken making the BOE's role clear.
For example, would medical marijuana-related businesses
making cash payments be required to register with the BOE?
Moreover, would the same state agency program be governed
by different administrative provisions? For example, would
employment taxes paid to the BOE be collected and
administered under the Fee Collection Procedures Law, while
taxes paid directly to EDD would be collected under that
agency's administrative provisions?
g) Looking ahead : The Committee may wish to consider the
inclusion of an appropriate sunset date. Specifically, the
Legislature may wish to revisit this bill's authorization
should the federal government allow marijuana-related
businesses to gain access to bank accounts.
h) Related legislation : AB 821 (Gipson) would authorize
the BOE, until January 1, 2022, to allow medical marijuana
dispensaries to remit tax liability due in a method other
than an electronic funds transfer. AB 821 is currently
pending hearing by the Senate Committee on Governance and
Finance.
i) Suggested technical amendments : Committee staff
suggests adoption of the following technical amendments:
i) On page 3, in line 23, insert "the" before
"provisions";
ii) On page 4, in line 2, strike "feepayer" and insert
"payer of the charge".
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REGISTERED SUPPORT / OPPOSITION:
Support
Americans for Safe Access
California Growers Association
California NORML
Consortium Management Group
Fiona Ma, Chairwoman, State Board of Equalization
Rural County Representatives of California
Opposition
Diane L. Harkey, Member, State Board of Equalization
Analysis Prepared by:M. David Ruff / REV. & TAX. / (916)
319-2098
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