BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 987|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
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THIRD READING
Bill No: SB 987
Author: McGuire (D)
Amended: 5/31/16
Vote: 27
SENATE GOVERNANCE & FIN. COMMITTEE: 5-1, 4/6/16
AYES: Hertzberg, Beall, Hernandez, Lara, Pavley
NOES: Nguyen
NO VOTE RECORDED: Moorlach
SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/27/16
AYES: Lara, Beall, Hill, McGuire, Mendoza
NOES: Bates, Nielsen
SUBJECT: Taxation: medical marijuana: Marijuana User Fee
Act
SOURCE: Author
DIGEST: This bill establishes the Marijuana User Fee, which
imposes a 15% excise tax on medical marijuana.
ANALYSIS:
Existing law:
1)Imposes a sales and use tax on retailers for the privilege of
selling tangible personal property, absent a specific
exemption. The tax is based upon the retailer's gross
receipts from sales in California.
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2)Exempts medication from the sales and use tax, that meets the
following criteria:
Is prescribed by an authorized person and dispensed on a
prescription filled by a pharmacist,
Is furnished by a licensed physician to his or her own
patient, or
Is furnished by a health facility for treatment pursuant
to a licensed physician's order, or sold to a licensed
physician.
1)Subjects medical marijuana to both the state and local sales
and use tax.
This bill establishes the Marijuana User Fee (Fee), and requires
all revenues from the imposed tax to be deposited in the
Marijuana User Fee Fund. Specifically, this bill:
1)Imposes a 15% excise tax on medical marijuana on consumers,
purchased from a retailer on or after January 1, 2018.
2)Requires the Board of Equalization (BOE) to administer and
collect the tax from medical marijuana retailers. This bill
also requires BOE to issue permits to every retailer. The
permits are not assignable and are valid only for the person
whose name it is issued and the place of business listed.
3)Allows BOE to revoke or suspend a permit after the retailer is
given 10 days' notice in writing detailing the reason for
suspension or revocation. The notice shall also specify a
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time and place for a hearing so the retailer may have an
opportunity to show why the permit should not be revoked or
suspended.
4)Allows BOE to refuse to issue a permit if the retailer has an
outstanding final liability due for any amount under this Act,
unless the retailer has entered into an installment agreement
with BOE.
5)Requires BOE to collect the tax quarterly, on or before the
last day of the month succeeding each quarterly period.
6)Authorizes BOE to prescribe, adopt, and enforce regulations
relating to administration and enforcement. In addition, the
Act authorizes BOE to prescribe, adopt, and enforce any
emergency regulations as necessary for implementation.
7)Establishes the Marijuana User Fee Fund in the State Treasury.
This bill requires that all revenues, less refunds, collected
from the Fee must be deposited into the Marijuana User Fee
Fund, as follows:
30% to the General Fund.
30% to the Bureau of Medical Marijuana Regulation for
the administration of a grant program. The program will
provide grants to local agencies to fund the regulation of
cultivation, processing, manufacturing, distributing, and
selling of medical marijuana.
20% to the Department of Parks and Recreation for the
stewardship, operation, maintenance, and preservation of
state parks, including state parks operated by local or
regional agencies, or nonprofit agencies.
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20% to counties for drug and alcohol treatment programs,
allocated based on population.
1)Defines terms for purposes of the Fee, and only becomes
operative if Secretary of State Initiative Number 1762 is not
approved by the voters on November 8, 2016.
2)Allows BOE to receive an initial operating loan from the
General Fund for the implementation and administration of the
Fee, not to exceed $5 million.
Comments
The Colorado and Washington Experience. In November 2012,
voters in Colorado and Washington approved legal recreational
retail sales of marijuana, with Colorado sales starting January
1, 2014, and Washington sales on June 1, 2014.
Currently, Colorado collects tax revenue from recreational
marijuana sales through a 15% excise tax on the average
wholesale market rate, a 10% state tax on retail marijuana
sales, a state sales tax of 2.9%, and varied local sales taxes,
such as the 3.5% marijuana tax in Denver. A $30 sale of
recreational marijuana in the city of Denver results in $8.59 in
taxes, or about a 29% overall tax rate. Beginning on July, 1
2017, the 10% state tax rate will be reduced to 8%. The rate
change was to prevent over-taxation, although even with these
layers of taxation, Colorado has not seen additional black
market activity that can be attributed to higher costs due to
taxation. Medical marijuana is only subject to the 2.9% state
sales tax and any local sales taxes. In the first year of
taxation, Colorado's revenue from marijuana taxes and fees was
about $76 million, which includes fees on the industry, plus the
pre-existing sales taxes on medical marijuana products.
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Initially, Washington collected tax revenue from recreational
marijuana sales through a 25% tax on producer sales to
processors; a 25% tax on processor sales to retailers; a 25% tax
on retailer sales to customers; a state sales tax of 6.5%; and
varied local sales taxes. The total effective tax rate is about
44%. However, due to complaints from marijuana farmers,
processors, and retailers, that heavy state and federal tax
burdens and competition from an unregulated medical marijuana
market have made it difficult for them to do business, the tax
rate and administration was revised. A single tax rate of 37%
on retail customers took effect on July 1, 2015. The excise tax
applies only to recreational marijuana sales, but medical
marijuana is subject to the state sales tax. However, beginning
on July of 2016, medical marijuana will be subject to the 37%
excise tax, but patients listed in a registry would be exempt
from sales tax on medical marijuana purchases. In the initial
year of taxation, Washington's revenue from marijuana excise
taxes was $62 million. The state's original forecast was $36
million. Additionally, when the state and local sales tax is
included, the total revenue from marijuana taxes was over $70
million.
FISCAL EFFECT: Appropriation: Yes Fiscal
Com.:YesLocal: Yes
According to the Senate Appropriations Committee, BOE estimates
that this bill will result in a revenue increase of $126 million
in 2017-18, and $251 million annually thereafter. However,
because of the nature of this market, the assumptions used to
develop these estimates are subject to considerable uncertainty.
Additionally, BOE indicates that it would incur administrative
costs of $3.1 million in 2016-17, $5.4 million in 2017-18, $5.1
million for FY 2018-19, and $4.8 million in the out-years to
implement the provisions of this bill.
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SUPPORT: (Verified5/31/16)
Rural County Representatives of California
Urban Counties of California
OPPOSITION: (Verified5/31/16)
Americans for Safe Access
California Cannabis Industry Association
California Cannabis Operators League
California NORML
Consortium Management Group
League of California Cities
Marijuana Policy Project
UFCW Western States Council
ARGUMENTS IN SUPPORT: According to the author, "During last
year's deliberation over the historic medical marijuana
regulation bills, we always maintained that regulation was just
the first step for this multi-billion dollar industry. Once the
necessary regulation was put in place, it was always our
intention was to follow it up with a Marijuana Value User Fee
and to use the proceeds to help our great state. And that is
what this bill is about. In simple terms, this bill implements
a 15 percent Point of Sale user fee on all medical marijuana
products. According to the Bureau of Equalization, this 15%
will raise between 150-250 million dollars every year -
depending on how long it takes dispensaries to come into
compliance.
"Over 60% of all the marijuana in the western US is grown in
just four counties - all in my district, and that of my
colleague in the Assembly, Dr. Jim Wood. We have seen both the
positive and negative effects of this industry first hand - and
our constituents have lived with this good and bad for decades.
We have found strong support for this tax and great need for the
revenue it will generate. I believe I can tell you honestly
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that no one has more incentive to get everyone out of the black
market than we do. The reason we worked so hard last year on
the Regulation bill was make sure we did everything we can do to
bring light into this massive industry; to regulate it for the
first time in our state, and make sure it becomes safe for
patients, safe for members of the industry, and safe for the
public."
ARGUMENTS IN OPPOSITION:Opponents argue that proposing an excise
tax on the retail component of the industry is premature and
impractical before having the regulatory structure or licensing
components in place at both the state and local government.
Furthermore, the net economic burden of these taxes will be
unsustainable in a medical only market, particularly to
low-income patients, none of whom are insured for medical
marijuana. Opponents believe the added cost will encourage the
diversion of the market from regulated medical suppliers to
untaxed, unregulated, non-medical providers.
Prepared by:Myriam Bouaziz / GOV. & F. / (916) 651-4119
5/31/16 22:13:07
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