BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 2149 |Hearing |6/29/16 |
| | |Date: | |
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|Author: |Bonilla |Tax Levy: |No |
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|Version: |6/22/16 |Fiscal: |Yes |
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|Consultant|Bouaziz |
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State Board of Equalization: counties: state agencies:
collection of cash payments: medical cannabis-related
businesses
Authorizes the Board of Equalization and counties to collect
cash payments from medical cannabis-related businesses for state
agencies.
Background
Prior to 1996, both federal and state law prohibited the
possession, possession with intent to sell, cultivation, sale,
transportation, importation, or furnishing of marijuana.
However, in 1996, California voters approved Proposition 215,
known as the Compassionate use Act of 1996 (CUA). Under CUA,
qualified patients with specified illnesses, and their primary
caregivers, cannot be prosecuted for possessing or cultivating
medical marijuana upon the written or oral recommendation or
approval of an attending physician. Thus, CUA allowed qualified
patients and primary caregivers to obtain and use medical
marijuana.
The Legislature clarified CUA in 2003 by enacting SB 420
(Vasconcellos, 2003). SB 420 exempted qualified patients and
caregivers from prosecution for using or from collectively or
cooperatively cultivating medical marijuana, and established a
medical marijuana card program for patients to use on a
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voluntary basis. SB 420 provides a safe harbor for qualified
patients as to the amount of marijuana they may possess and the
number of plants they may maintain. It also protects patients
with valid identification cards from both arrest and criminal
liability for possession, transportation, delivery, or
cultivation of marijuana. Thus, California's estimated one
billion dollar medical marijuana industry exists amid a conflict
between federal and state law, and within state law itself. The
industry remained largely unregulated at the same level until
2015.
Medical Marijuana Regulation and Safety Act. In 2015, the
Legislature enacted the Medical Marijuana Regulation and Safety
Act (MMRSA), a package of legislation that comprehensively
regulates many aspects of medical marijuana including
cultivation, manufacturing, transportation, distribution, sale,
and product safety. The MMRSA comprises three bills-SB 643
(McGuire, 2015), AB 243 (Wood, 2015), and AB 266 (Bonta, 2015).
Among other provisions, MMRSA establishes categories of licenses
for various medical marijuana activities, such as cultivation,
manufacturing, distribution, transportation, and sale. The MMRSA
requires each licensing authority to establish a scale of
application, licensing, and renewal fees, based upon MMRSA
enforcement costs. These fees have not yet been set.
Sales and Use Tax. 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
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a licensed physician's order, or sold to a licensed
physician.
Thus, the sale of medical marijuana is subject to both the state
and local sales and use tax. Sales and use tax imposed on
medical marijuana is collected by the Board of Equalization.
Proposed Law
Assembly Bill 2149 authorizes the Board of Equalization (BOE)
and counties to collect cash payments from medical
cannabis-related businesses for state agencies. Specifically,
the bill:
Enacts the Medical Cannabis State Payment Collection Law
("Collection Law").
Authorizes BOE and counties 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.
States that counties shall collect fees, fines,
penalties, and other charges only if both the board of
supervisors of the county, and the county tax collector or
county treasurer-tax collector approves of entering into an
agreement with a state agency to make those collections.
Provides that a state agency that enters into an
agreement with BOE or a county may impose a cash collection
fee in an amount reasonably necessary to recover the
collection costs not to exceed 10 percent of any amounts
collected. The amount of the cash collection fee shall be
determined by the state agency and BOE or county, and a
cash collection fee shall not be imposed if the fine,
penalty, or other charge already includes amounts
reasonably necessary to recover the collection costs of
cash payments.
States that any cash collection fees imposed shall be
deposited into the funds or accounts which the fine,
penalty, or other charge to be collected is deposited.
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Prohibits a cash collection fee to be imposed for the
collection of a tax
Requires an agreement with a state agency to collect
cash payments for any fee, fine, penalty, or other charge
payable to the state agency to include the following:
o A provision that BOE or the county be
reimbursed for the administrative costs of the
collection from the fund for which cash payments are
collected.
o A provision that BOE or the county transmit
the collected moneys to the Treasurer to be deposited
in the State Treasury to the credit of the funds or
accounts which the fees, fines, penalties, taxes, or
other charges are otherwise required by law to be
deposited.
o A provision that describes the administrative
costs BOE or the county will incur in carrying out the
collection, limited to no more than 10 percent of the
funds collected.
Provides that the term "state agency" includes, but is
not limited to, the following:
o The Department of Consumer Affairs.
o The Department of Food and Agriculture.
o The Department of Public Health.
o The Employment Development Department (EDD).
o The State Water Resources Control Board.
o The Franchise Tax Board.
o Regional water boards.
State Revenue Impact
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According to BOE, AB 2149 would not affect state revenues.
Comments
1. Purpose of the bill. According to the author, "AB 2149
helps medical marijuana related businesses to pay their state
fees and taxes by allowing the Board of Equalization (BOE) and
counties 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 BOE and counties 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. Nowhere to bank. Individuals who run cannabis-related
businesses in compliance with California law are currently shut
off from the banking system, by federal law, as Marijuana is
classified as a Class I drug, for which the cultivation, sale,
and possession can constitute a felony. Therefore, the majority
of banks and credit unions have decided not to accept
cannabis-related businesses 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. As
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a result, cannabis-related businesses have to remit fees, fines,
penalties, and tax liability due in cash.
3. Cash industry. In addition to safety issues, this measure
compounds BOE's administrative challenges with accepting cash
payments. 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 to BOE's computer system
and cash payment procedures. Counties would face the same
challenges that BOE has in collecting cash payments.
4. Location, location, location. Currently, certain BOE
district offices receive hundreds of thousands of dollars in
cash payments from medical marijuana-related businesses, and BOE
has 22 field offices located up and down the state. Every
county has at least one county office that could collect cash
payments from medical cannabis-related businesses. However,
many state agencies only have offices in Sacramento, so the
convenience of several BOE field offices spread out all over
California, and at least one county office is every county makes
cash payment easier for cannabis-related businesses.
Additionally, it makes 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.
5. Lack of a statewide standard. BOE has 22 field offices in
California. 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 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 why tax
agency policy would depend on the location of the taxpayer in
California. The Committee may wish consider whether policies
governing the payment of tax liabilities in cash should be
uniform throughout the state.
6. Sunset? 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
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government allow marijuana-related businesses to gain access to
bank accounts.
7. Related legislation. AB 821 (Gipson) authorizes 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 in the Senate
Committee on Appropriations.
8. Technical amendments.
Define "board" as the State Board of Equalization.
On page 4, line 31, add "in" after "accounts."
On page 4, line 39, add "in" after "accounts."
Assembly Actions
Assembly Appropriations 14-4
Assembly Floor 57-22
Support and
Opposition (6/23/16)
Support : Americans for Safe Access; California Growers
Association; California NORML; Consortium Management Group;
Fiona Ma, Board of Equalization Member; HdL Companies; Rural
County Representatives of California.
Opposition : Diane L. Harkey, State Board of Equalization
Member.
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