BILL ANALYSIS Ó AB 2149 Page 1 ASSEMBLY THIRD READING AB 2149 (Bonilla) As Amended May 4, 2016 Majority vote ------------------------------------------------------------------ |Committee |Votes|Ayes |Noes | | | | | | | | | | | | | | | | |----------------+-----+----------------------+--------------------| |Revenue & |9-0 |Ridley-Thomas, | | |Taxation | |Brough, Dababneh, | | | | |Gipson, Mullin, | | | | |O'Donnell, Patterson, | | | | |Quirk, Wagner | | | | | | | |----------------+-----+----------------------+--------------------| |Appropriations |14-4 |Gonzalez, Bloom, |Bigelow, Gallagher, | | | |Bonilla, Bonta, |Jones, Wagner | | | |Calderon, Daly, | | | | |Eggman, Eduardo | | | | |Garcia, Roger | | | | |Hernández, Holden, | | | | |Quirk, Santiago, | | | | |Weber, Wood | | | | | | | | | | | | ------------------------------------------------------------------ AB 2149 Page 2 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. 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; AB 2149 Page 3 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; b) The Department of Food and Agriculture; c) The Department of Public Health; d) The Employment Development Department; e) The 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 AB 2149 Page 4 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 California Constitution Article XIII B, Section 6, for specified reasons. EXISTING FEDERAL LAW prohibits the manufacture, possession, sale, or distribution of marijuana. [21 United States Code Section 841 et seq.] 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 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 AB 2149 Page 5 215), for the use of marijuana for medical purposes. 5)Allows, under the Medical Marijuana Regulation and Safety Act, for the licensure and regulation of commercial medical marijuana activity by various state entities, as specified. FISCAL EFFECT: According to the Assembly Appropriations Committee: 1)Costs of approximately $1.2 million for BOE to expand cash collection infrastructure and operations across district offices if BOE enters into an agreement with a state agency. This bill allows BOE to be reimbursed for up to 10% of the moneys collected. Since most cannabis-related fees have not yet been established, it is unknown whether this cap is sufficient to cover BOE costs. 2)Potential unknown, ongoing administrative cost savings to state agencies that otherwise would collect fee payments themselves. BOE, by being the primary point of cash collection, can specialize and develop procedures that apply universally to collecting cash for different agencies. In contrast, each individual agency that imposes a fee on medical marijuana-related businesses would incur substantial costs to develop the infrastructure and security needed to collect cash payments. COMMENTS: 1)The author has provided the following statement in support of this bill: AB 2149 Page 6 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)Revenue and Taxation Committee comments: a) 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 AB 2149 Page 7 difficult to obtain banking services. The author notes 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. b) 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 Fiscal Year 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. The Legislature 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. AB 2149 Page 8 Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098 FN: 0003100