Senate Bill No. 987

Introduced by Senator McGuire

February 10, 2016

An act to add Part 17 (commencing with Section 37001) to Division 2 of the Revenue and Taxation Code, relating to medical marijuana.

LEGISLATIVE COUNSEL’S DIGEST

SB 987, as introduced, McGuire. Taxation: medical marijuana: Marijuana Value Tax Act.

Existing law, the Compassionate Use Act of 1996, an initiative measure enacted by the approval of Proposition 215 at the November 5, 1996, statewide general election, allows the use of marijuana for medical purposes. The Medical Marijuana Regulation and Safety Act, operative beginning on January 1, 2016, provides for the licensure and regulation of commercial medical marijuana activity, as specified. The Fee Collection Procedures Law, the violation of which is a crime, provides procedures for the collection of certain fees and surcharges.

This bill, on and after January 1, 2018, would impose an excise tax on the consumption or other use in this state of medical marijuana purchased from any retailer for the consumption or other use in this state at the rate of 15% of the sales price of the medical marijuana. This bill would provide that a purchaser is liable for that tax and would require every retailer engaged in business in this state and making sales of medical marijuana to a purchaser for the consumption or other use in this state to separately state and collect the tax from a purchaser, as specified. This bill would also make specific violations of this bill a crime, thereby imposing a state-mandated local program.

This bill would require the State Board of Equalization to administer and collect the tax in accordance with the Fee Collection Procedures Law. By expanding the application of the Fee Collection Procedures Law, the violation of which is a crime, this bill would impose a state-mandated local program. The bill would require a retailer to register for a permit with the board, to prepare and file with the board returns, and to remit the tax quarterly. The bill would require that all revenues, less refunds, be remitted to the State Board of Equalization and deposited in the Marijuana Value Tax Fund, which the bill would establish.

This bill would require moneys in the Marijuana Value Tax Fund to be allocated by the Controller in specified percentages to the General Fund and, upon appropriation by the Legislature, to the Bureau of Medical Marijuana Regulation for the administration of a grant program to distribute grants to local agencies that oversee the regulation of cultivating, processing, manufacturing, distributing, and selling of medical marijuana; the Department of Parks and Recreation for base operations of state parks; to county and city human service departments for drug and alcohol treatment programs; to the California Natural Resources Agency for restoration and remediation of public and private lands and watersheds damaged by medical marijuana cultivation and for allocation as grants for those purposes.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 2⁄3 of the membership of each house of the Legislature.

Vote: ²⁄₃. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature finds and declares that edible
cannabis products, as defined in Section 19300.5 of the Business
and Professions Code and as applicable to Section 2 of this act,
are not considered a food product for purposes of Section 34 of
Article XIII of the California Constitution.

SEC. 2.  

Part 17 (commencing with Section 37001) is added to
Division 2 of the Revenue and Taxation Code, to read:

 

PART 17.  Marijuana Value Tax Act

 

37001.  

This part is known, and may be cited, as the “Marijuana
Value Tax Act.”

37002.  

For purposes of this part, the following definitions shall
apply:

(a) “Medical marijuana” means medical cannabis as defined in
Section 19300.5 of the Business and Professions Code.

(b) “Person” means person as defined in Section 55002.

(c) “Purchaser” means a person that purchases medical
marijuana for consumption or other use in this state.

(d) “Retail sale” or “sale at retail” means a sale for any purpose
other than resale in the regular course of business in the form of
medical marijuana.

(e) (1) “Retailer” includes every person that makes any retail
sale or sales of medical marijuana. “Retailer” also includes a person
holding a dispensary license issued pursuant to the Medical
Marijuana Regulation and Safety Act (Chapter 3.5 (commencing
with Section 19300) of Division 8 of the Business and Professions
Code).

(2) Every person making more than two retail sales of medical
marijuana during any 12-month period shall be considered a retailer
within the provisions of this part.

(f) “Retailer engaged in business in this state” means any retailer
that has substantial nexus with this state for purposes of the
commerce clause of the United States Constitution and any retailer
upon whom federal law permits this state to impose a tax collection
duty.

(g) “Sale” or “purchase” means and includes any transfer of
title or possession, exchange, or barter, conditional or otherwise,
in any manner or by any means whatsoever, of medical marijuana
for a consideration. “Transfer of possession” includes only
transactions found by the board to be in lieu of a transfer of title,
exchange, or barter.

(h) “Sales price” means the total amount for which medical
marijuana is sold, valued in money, whether paid in money or
otherwise, without any deduction on account of the cost of any
expenses.

(i) “Use” includes the exercise of any right or power over
medical marijuana incident to the ownership of that medical
marijuana, except that it does not include the sale of that medical
marijuana in the regular course of business.

37003.  

On and after January 1, 2018, there is hereby imposed
an excise tax on the consumption or other use in this state of
medical marijuana purchased from any retailer for the consumption
or other use in this state at the rate of 15 percent of the sales price
of the medical marijuana.

37004.  

(a) Every purchaser consuming or otherwise using in
this state medical marijuana that the purchaser purchased from a
retailer for consumption or other use in this state is liable for the
tax imposed by Section 37003. That purchaser’s liability is not
extinguished until the tax has been paid to this state except that a
receipt from a retailer engaged in business in this state given to a
purchaser pursuant to paragraph (2) of subdivision (b) is sufficient
to relieve the purchaser from further liability for the tax to which
the receipt refers.

(b) (1) Every retailer engaged in business in this state and
making sales of medical marijuana to a purchaser shall, at the time
of making such a sale, collect the tax as a charge separate from,
and not included in, any other fee, charge, or other amount paid
by the purchaser.

(2) Every retailer engaged in business in this state shall collect
the tax from the purchaser and give to the purchaser a receipt
therefor in the manner and form prescribed by the board.

(c) The board shall administer and collect the tax imposed by
this part pursuant to the Fee Collection Procedures Law (Part 30
(commencing with Section 55001)), except that Article 1.1
(commencing with Section 55050) of Chapter 3 of that part shall
not apply. For purposes of this part, the references in the Fee
Collection Procedures Law to “fee” shall include the tax imposed
by this part, and references to “feepayer” shall include a person
required to pay the tax imposed by this part.

(d) (1) The tax required to be collected by the retailer engaged
in business in this state, any tax collected from a purchaser that
has not been remitted to the board, and any amount unreturned to
a purchaser which is not tax but was collected from the purchaser
under the representation by the retailer that it was tax constitutes
debts owed by the retailer to this state.

(2) A retailer is relieved from liability to collect tax that became
due and payable, insofar as the measure of the tax is represented
by accounts that have been found to be worthless and charged off
by the retailer in accordance with generally accepted accounting
principles. A retailer that has previously paid the amount of the
tax may, under rules and regulations prescribed by the board, take
as a deduction on its return the amount found worthless and
charged off by the retailer. If these accounts are thereafter in whole
or in part collected by the retailer, the amount collected shall be
included in the first return filed after the collection and the amount
of the tax shall be paid with the return.

(3) The board may by regulation promulgate such other rules
with respect to uncollected or worthless accounts as it shall deem
necessary to the fair and efficient administration of this part.

(e) It is unlawful for any retailer to advertise or hold out or state
to the public or to any purchaser, directly or indirectly, that the tax
or any part thereof will be assumed or absorbed by the retailer or
that it will not be added to the selling price of the medical
marijuana sold or that if added it or any part thereof will be
refunded. Any person violating this subdivision is guilty of a
misdemeanor.

(f) The tax required to be collected by the retailer engaged in
business in this state from the purchaser shall be displayed
separately from the list price, the price advertised in the premises,
the marked price, or other price on the sales check or other proof
of sales. Any person violating this subdivision is guilty of a
misdemeanor.

(g) (1) The board may prescribe, adopt, and enforce regulations
relating to the administration and enforcement of this part.

(2) The board may prescribe, adopt, and enforce any emergency
regulations as necessary to implement this part. Any emergency
regulation prescribed, adopted, or enforced pursuant to this section
shall be adopted in accordance with Chapter 3.5 (commencing
with Section 11340) of Part 1 of Division 3 of Title 2 of the
Government Code, and, for purposes of that chapter, including
Section 11349.6 of the Government Code, the adoption of the
regulation is an emergency and shall be considered by the Office
of Administrative Law as necessary for the immediate preservation
of the public peace, health and safety, and general welfare.

(h) (1) The tax imposed by this part is due and payable to the
board quarterly on or before the last day of the month next
succeeding each quarterly period.

(2) On or before the last day of the month following each
quarterly period, a return for the preceding quarterly period shall
be filed using electronic media with the board. Returns shall be
authenticated in a form or pursuant to methods as may be
prescribed by the board.

37005.  

(a) A retailer required to collect the tax imposed under
this part shall register for a permit with the board. Every application
for registration shall be made in a form prescribed by the board
and shall set forth the name under which the applicant transacts
or intends to transact business, the location of the retailer’s place
or places of business, and any other information that the board
may require. An application for registration shall be authenticated
in a form or pursuant to methods as may be prescribed by the
board.

(b) The board shall grant and issue to each applicant that
complies with subdivision (a) a separate permit for each place of
business within the state.

(c) A permit issued pursuant to this section is not assignable
and is valid only for the person in whose name it is issued and for
the transaction of business at the place designated therein. It shall
at all times be conspicuously displayed at the place for which it is
issued.

37005.3.  

Whenever any retailer fails to comply with any
provision of this part or any rules or regulations of the board
prescribed and adopted under this part, the board upon hearing,
after giving the retailer at least 10 days’ notice in writing specifying
the time and place of the hearing and requiring the retailer to show
cause why the permit should not be revoked, may revoke or
suspend the permit held by the retailer. The board shall give to the
retailer written notice of the suspension or revocation of any of
the retailer’s permits. The notices herein required may be served
personally or by mail in the manner prescribed for service of notice
of a deficiency determination. The board shall not issue a new
permit after the revocation of a permit unless it is satisfied that the
former holder of the permit will comply with the provisions of this
part and the regulations of the board prescribed and adopted under
this part.

37005.5.  

(a) The board may refuse to issue a permit to any
person submitting an application for a permit as required in Section
37005 if the person desiring to engage in or conduct business as
a retailer within this state has an outstanding final liability with
the board for any amount due under this part.

(b) The board may also refuse to issue a permit if the person
desiring to engage in or conduct business as a retailer within this
state is not a natural person or individual and any person controlling
the person desiring to engage in or conduct business as a seller
within this state has an outstanding final liability with the board
as provided in subdivision (a). For the purposes of this section,
“controlling” has the same meaning as defined in Section 22971
of the Business and Professions Code.

(c) For purposes of this section, a liability will not be deemed
to be outstanding if the person has entered into an installment
payment agreement pursuant to Section 55209 for any liability
and is in full compliance with the terms of the installment payment
agreement.

(d) If the person submitting an application for a permit pursuant
to Section 37005 has entered into an installment payment
agreement as provided in subdivision (c) and fails to comply with
the terms of the installment payment agreement, the board may
seek revocation of the person’s permit pursuant to this section.

(e) (1) Whenever any person desiring to engage in or conduct
business as a retailer within this state is denied a permit pursuant
to this section, the board shall give to the person written notice of
the denial. The notice of the denial may be served personally, by
mail, or by other means deemed appropriate by the board. If served
by mail, the notice shall be placed in a sealed envelope, with
postage paid, addressed to the person at the address as it appears
in the records of the board. The giving of notice shall be deemed
complete at the time of deposit of the notice at the United States
Postal Service, or a mailbox, subpost office, substation or mail
chute, or other facility regularly maintained or provided by the
United States Postal Service, without extension of time for any
reason. In lieu of mailing, a notice may be served personally by
delivering to the person to be served and service shall be deemed
complete at the time of the delivery. Delivery of notice by other
means deemed appropriate by the board may include, but is not
limited to, electronic transmission. Personal service or delivery by
other means deemed appropriate by the board to a corporation may
be made by delivery of a notice to any person listed on the
application as an officer.

(2) Any person that is denied a permit pursuant to this section
may request reconsideration of the board’s denial of the permit.
This request shall be submitted in writing within 30 days of the
date of the notice of denial. Timely submission of a written request
for reconsideration shall afford the person a hearing in a manner
that is consistent with a hearing provided for by Section 37005.3.
If a request for reconsideration is not filed within the 30-day period,
the denial becomes final at the end of the 30-day period.

(f) The board shall consider offers in compromise when
determining whether to issue a permit.

37006.  

(a) The Marijuana Value Tax Fund is hereby
established in the State Treasury. All revenues, less refunds,
collected pursuant to this part shall be made in remittances to the
board and shall be deposited in the Marijuana Value Tax Fund.

(b) Moneys in the Marijuana Value Tax Fund shall be allocated
by the Controller as follows:

(1) Thirty percent to the General Fund.

(2) Thirty percent to the Bureau of Medical Marijuana
Regulation for the administration of a grant program to distribute
grants to local agencies that oversee the regulation of cultivating,
processing, manufacturing, distributing, and selling of medical
marijuana upon appropriation by the Legislature. All local agencies
shall be eligible for the grants, including, but not limited to, law
enforcement and zoning enforcement. The grants shall be made
available beginning on or before July 1, 2018. No more than 5
percent of any funds allocated may be used for administrative costs
of the grant program by the bureau or for any administrative costs
of the local agency awarded the grant.

(3) Twenty percent to the Department of Parks and Recreation
for base operations of state parks, upon appropriation by the
Legislature.

(4) Ten percent to county and city human service departments
for drug and alcohol treatment programs, distributed based on
population, upon appropriation by the Legislature. Any funds
appropriated shall be used for drug and alcohol treatment and
recovery and case management services.

(5) Ten percent to the California Natural Resources Agency for
restoration and remediation of public and private lands and
watersheds damaged by medical marijuana cultivation, including
lands affected by medical marijuana cultivation before the operative
date of this section, upon appropriation by the Legislature. Fifty
percent of any funds appropriated shall be made available as a
grant to state and local government agencies and organizations
that are exempt from federal income tax as an organization
described in Section 501(c)(3) of the Internal Revenue Code for
the purpose of restoration and remediation of affected lands. The
grants shall be made available beginning on or before July 1, 2018.
No more than 5 percent of any funds awarded as grants may be
used for the administration of the grant program.

SEC. 3.  

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.