BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 643 |Hearing | 4/29/15 |
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|Author: |McGuire |Tax Levy: |No |
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|Version: |4/6/15 |Fiscal: |Yes |
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|Consultant|Grinnell & Weinberger |
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MEDICAL MARIJUANA
Enacts a new regulatory framework for medical marijuana,
authorizes local agencies to tax marijuana products, and
prohibits marijuana cultivation in areas zoned residential.
Background and Existing Law
I. Local Taxes. Section Five of Article XI of the California
Constitution allows charter cities to levy taxes which haven't
been preempted by state or federal governments. The Government
Code also allows general law cities, but not counties, to levy
any tax that a charter city can unless state law limits or
prohibits such a tax. Article XIIIA of the California
Constitution requires 2/3 voter approval when a local agency
wants to impose or increase a special tax, or majority vote for
general taxes.
In 1933, California enacted its sales tax, followed by the use
tax two years later. Charter cities began applying their own
sales taxes soon after, commencing with the City of San
Bernardino in 1945. The Legislature also first authorized
general law cities to levy their own sales and use taxes in
1949. While BOE administered the state tax, each city imposed,
collected, and audited its own sales and use tax, which could be
set at any rate the city chose, and could apply to different
products than the state or other city sales taxes.
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In 1955, the Legislature enacted the Bradley Burns Local Sales
and Use Tax Law to provide uniformity for local sales and use
taxes. The uniform act allowed local agencies to levy its own
tax of one percent, and centralized administration, collection,
and audit with the Board of Equalization (BOE), replacing the
previous system where each city implemented its own tax on
whatever products it chose. The Act required local agencies to
be perfectly uniform with each other and the state, charge the
same rate, and adopt the state's base for the sales tax, which
is "tangible personal property." This tax rate currently is
fixed at 1% of the sales price of tangible personal property
sold at retail in the local jurisdiction, or purchased outside
the jurisdiction for use within the jurisdiction. Of this 1%,
cities and counties use 0.75% to support general operations, and
the remaining 0.25% is designated by statute for county
transportation purposes. In California, all cities and counties
impose Bradley-Burns local taxes at the uniform rate of 1%.
Subsequently, the Legislature allowed cities, counties, and
special districts to impose their own Transactions and Use tax
within its jurisdiction subject to voter approval, known as
"local add-ons" or "district taxes," so long as they relied on
the same base and procedures as the sales and use tax.
Beginning April 1, 2015, 202 local jurisdictions (city, county,
and special districts) will impose a district tax for general or
specific purposes. Of the 202 jurisdictions, 48 are
county-imposed taxes 154 are levied by cities, and of the 48
county-imposed taxes, 29 are imposed for transportation
purposes. Cities and Counties may increase the sales and use tax
rate, but state law caps the total rate for any county at 2%,
with some exceptions. Cities and counties must contract with
BOE to collect and remit both taxes, and BOE retains its
administration costs before sending tax revenue to the
appropriate local agency.
II. Licensing and Regulation of Medical Marijuana. Current law
directs the Department of Consumer Affairs to regulate many
businesses and professions to ensure public health, safety, and
welfare, including the Medical Board, which licenses and
regulates physicians and surgeons.
In 1996, voters enacted the Compassionate Use Act, which
prohibits prosecution for the possession and cultivation of
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marijuana of a patient or their caregiver upon written or oral
recommendation of a physician. The Act provided that it
shouldn't be construed to supersede legislation prohibiting
conduct that endangers others, or to condone diversion of
marijuana for non-medical purposes. However, no comprehensive
statewide regulatory system currently applies to medical
marijuana.
III. Zoning. The police power is the inherent authority of
governments to regulate private behavior to protect the public
safety, health, and welfare. The California Constitution allows
counties and cities to adopt and enforce local ordinances,
provided that they don't conflict with general state laws. When
counties and cities adopt local zoning ordinances, they are
using their police powers. The Planning and Zoning Law spells
out the procedures that county supervisors and city councils
must follow when they adopt zoning ordinances.
Proposed Law
Senate Bill 643 enacts the Medical Marijuana Public Safety and
Environmental Protection Act, which creates a regulatory
structure for medical marijuana in California, allows local
agencies to levy taxes on licensees under the Act, and preempts
local zoning ordinances.
I. Local Taxes. SB 643 allows a board of supervisors or a city
council to enact an ordinance imposing a tax on the privilege of
cultivating, dispensing, producing, processing, preparing,
storing, providing, donating, selling or distributing marijuana,
as defined by the bill. The board of supervisors or city
council:
Must specify the activities subject to the tax, the
applicable rate or rates, the method of apportionment, and
the manner of collection of the tax in the ordinance.
May impose a general or special tax, so long as voters
approve the measure under the appropriate Constitutional
vote threshold.
May impose a transactions and use tax administered by
BOE only on marijuana or marijuana products, as defined,
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and any rate imposed isn't subject to the 2% cap on local
transactions and use taxes.
Provide for the collection of the tax in the same
manner, and subject to the same penalties as other local
taxes.
A county board of supervisors must specify whether the tax
applies throughout the entire county or within the
unincorporated area of the county.
The tax can be imposed on activities undertaken individually,
collectively, or cooperatively, and regardless of whether the
activity is for compensation or gratuitously. The tax need not
be apportioned based on the benefit to any person or property,
or be applied uniformly to all taxpayers or real property.
Additionally, SB 643 provides that its tax doesn't limit or
prohibit any other lawfully imposed fee.
II. Medical Marijuana Regulation. SB 643 creates the Bureau of
Medical Marijuana Regulation within DCA, empowering it to
license and regulate many aspects of medical marijuana
cultivation, manufacturing, transportation, storage,
distribution, and sale, and charge fees to pay for its licensing
and enforcement duties. The measure provides direction to DCA
and the Medical Board regarding regulating and sanctioning
physicians who violate the bill's terms, including creating
misdemeanor crimes for specified acts. Additionally, the
measure:
Regulates advertising physician recommendations.
Directs local agencies to have primary responsibility
for enforcement of the act's requirements.
Authorizes regulations to establish worker safety
standards.
Ensures commercial marijuana activity licensed by the
Act doesn't threaten the environment and watersheds.
Requires medical marijuana to meet certified organic
standards by January 1, 2022.
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Provides that it does not supersede provisions of
Measure D, as approved by the voters of the City of Los
Angeles, or other similar measures.
Additionally, the measure provides that licensees must abide
with any restrictions imposed by the local agency in which the
facility operates, and must not operate in any jurisdiction that
prohibits the establishment of that kind of business. For a
more thorough analysis of the measure's regulatory program,
please refer to the Committee on Business and Professions
analysis.
III. Local Zoning. SB 643 prohibits a licensed cultivation site
from being located in an area zoned residential.
IV. State Tax/BOE Report. The measure allows the Bureau to
assist state taxation authorities in the development of uniform
policies for the state taxation of licensees. Additionally, the
measure directs BOE to report to the Legislature to compile the
actual tax collected on the sale of medical marijuana using the
most current data available for years between 2016 and 2021.
The measure makes legislative findings supporting its purposes,
defines many of its term, and includes a severability clause.
The measure also makes specific findings regarding restricting
the right of public access to information due to federal medical
information laws.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . According to the author, "SB 643 seeks
to resolve many of the issues created by the enactment of the
Compassionate Use Act and subsequent legislation. SB 643
creates a statewide comprehensive program overseeing the medical
marijuana industry, from planting to consumption, and all the
steps in between. California voters made it clear that they
wanted medical marijuana to be legalized, but issues and
concerns for growers, doctors, dispensaries, law enforcement,
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district attorneys, cities, counties and others have only become
more complicated. The Author, who represents the primary
growing region for medical marijuana in the western United
States, specifically remote expanses of Mendocino, Humboldt and
Trinity counties, which are responsible for up to 70% of the
marijuana grown in the west, notes that much of this area of the
state has come to rely on the economic benefits of marijuana
cultivation, but also suffers from the negative environmental,
public safety and public health effects that can arise from
rogue cultivators and lack of regulation. The bill focuses on a
number of key aspects of medical marijuana cultivation and
proposes regulatory changes for those items, including banning
commercial cultivation sites in areas zoned residential.
According to the Author, this has been a big issue for
neighborhoods and residences around the state. Commercial and
industrial uses do not belong in residential areas, and medical
marijuana grows create special problems that neighbors shouldn't
have to deal with. The measure also allows local governments to
impose a tax or fee on cultivation, above the ultimate sales
tax, to help defray the expense of regulating the cultivation
and processing of the commodity in their jurisdiction. The
Author states that this is designed to make sure local
authorities can afford to pay for the implementation of the
regulations allowed under this legislation or any other."
2. Pay to play . SB 643 allows local agencies to impose
transactions and use taxes specifically on marijuana products
using higher rates than the current uniform rate on sales of all
other tangible personal property. However, a local agency doing
so may not receive any revenue because state law requires local
agencies to contract with BOE to collect and remit the tax, and
deduct its costs to do so from any revenue it remits to the
local agency. BOE's costs to administer the Bradley-Burns and
Transactions and Use taxes can be spread over the hundreds of
local agencies administering them, but a new tax only on one
product requires BOE to create a new infrastructure to educate
retailers, create returns, and procure information technology
necessary to collect and remit revenue. The Committee may wish
to consider deleting the measure's transactions and use tax
authority and make conforming changes, thereby ensuring that
local agencies can tailor local taxes to their needs without
incurring prohibitive costs.
3. Inputs and outputs . The bill requires BOE to report to the
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Legislature to compile the actual tax collected on the sale of
medical marijuana using the most current data available for
years between 2016 and 2021. However, retailers report one lump
sum to BOE totaling all its sales of property, which isn't
divided into individual products. Instead of directing BOE to
report information that it doesn't receive, the measure should
instead request BOE to estimate tax revenues.
4. Local control and state preemption . The California
Constitution and state statutes delegate police power control
over land use to locally elected officials. The Legislature has
taken back these controls only in unusual instances involving
important statewide objectives. SB 643 imposes a statewide ban
on locating licensed cultivations sites within areas that are
zoned for residential use. It is not clear why this state
intrusion into local control over land use is warranted. While
nothing prevents local officials from adopting zoning ordinances
to prohibit cultivation sites in residential areas, why
shouldn't they have the discretion to decide, based on local
conditions and priorities, that some cultivation sites are
compatible with residential uses?
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Additionally, charter cities have the constitutional authority
to regulate their own municipal affairs, free of legislative
interference. Their local regulations must give way only when
statutes address issues of statewide concern. Because SB 643
does not assert that a cultivation site's location is an issue
of statewide concern, the bill may not apply to California's 121
charter cities. To avoid imposing on local officials' land use
discretion in some, but not all, local jurisdictions, the
Committee may wish to consider amending SB 643 to delete the
prohibition on locating cultivation sites in residential areas.
5. Incoming ! The Senate Committee on Business and Professions
approved SB 643 by a 7-0 vote on April 20th. This Committee is
hearing the measure because of its local tax and zoning changes.
Support and
Opposition (4/23/15)
Support : Unknown.
Opposition : Unknown.
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