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Board says paying taxes is a requirement for permit renewal

A small pile of dried marijuana flower.
A small pile of old shake.

The Board of Supervisors considered lowering the cannabis tax rate, and learned that an estimated $6.8 million in cannabis taxes has gone uncollected.

April 26, 2022 — The Board of Supervisors voted last week to require payment of cannabis taxes to renew permits, and asked the Executive Office to come back at a future meeting with more numbers about what it would mean to lower the tax rate.

In 2016, Mendocino County voters passed Measure AI, an ordinance stating that growers are liable for a 2.5% tax on their gross receipts, which amounts to a yearly minimum of $1200-$5000, depending on the size of the grow. With the price plummeting, the cannabis business sector across the state has been clamoring for tax relief.

Supervisor Ted Williams argued for a reduction, saying, “It almost doesn’t matter if theoretically, the arithmetic of however many cultivators we have times about $5,000, what that would generate for us, if we put them out of business.”

County staff estimates that currently, $6.8 million in cannabis tax revenue has been uncollected, but between calendars not aligning, a software system that requires an expensive update, and a few missing pieces in the procedure for collecting, hard numbers are hard to come by.

Supervisor John Haschak summarized the knowledge gaps, telling his colleagues that, “I’m just trying to figure out the implications to our budget if we do this. We have so many unknowns that it’s really hard to say what’s going to happen with it. And then if we require tax compliance, at this point, we don’t know how many people we would make pay who aren't paying right now.”

Williams asked Acting Treasurer-Tax Collector Julie Forrester how many people in the cannabis program are currently delinquent on paying their taxes. She told him that for the calendar year 2021, there are 551 cultivation permits that are unrecorded, 97 flat tax payments that were unrecorded, and eight dispensaries — or about half of the permit holders.

Forrester said operators will have another tax bill at the end of May, in what’s called a true-up, “Which amounts to a little over $3 million. In my understanding, historically we’ve collected about half of that true-up. We have that, and then…we have about $185,000 in the flat tax that’s unpaid.” Forrester added that “there hasn’t been any further delinquent collections of defaulted cannabis taxes to date. There’s been so many changes to the program. There’s been no actual pursuit so far of the defaulted.” Forrester told the board that collecting the cannabis tax would not be easy, cheap, or fast. With an audit, she said, her department could estimate which taxes were due, record a lien, and implement collections processes. She added that she would need to know if a lowered tax would be categorized as a reduction or a credit against the taxes due, because that would affect the kind of update she would need to request for the property tax software system. “And I would expect that to be quite a complicated program and with a hefty cost, and not a quick turnaround,” she cautioned.

But idiosyncratic software is not the only obstacle. Forrester requested more board direction for her department, which she calls the TTC. She said she had requested clarification on the ordinance, particularly what it means that the TTC is allowed to increase the tax; what it means for the TTC to assess penalties and interest; and if it can also waive them.

County Counsel Christian Curtis explained that since the cannabis tax was a voters initiative, the board can tinker with it to a degree. “As long as you’re keeping the same basic structure, you’re allowed to go lower,” he said. “You can’t go above the maximum that the voters approved, and then if you change the tax structure so you’re no longer going on gross receipts, you know, excise per pound, but if you’re going lower, you’re fine,” he assured the supervisors.

Monique Ramirez, of Covelo, thinks it’s time for the voters to revisit the tax. “I just think it makes sense to base it on what you’ve actually sold, and that’s the percentage that you pay,” she said. “Just to give you a glimpse of what it’s like for me, as a specialty cottage operator, I have only sold six pounds of flower in the market so far, from my 2021 harvest. I am living off my savings. Thank God we have chickens.”

Michael Katz, the Executive Director of the Mendocino Cannabis Alliance, supports a reduction before agreeing that paying taxes should be a condition of permit renewal. When Williams asked him if MCA supports requiring tax compliance; “in other words, in order to get your permit renewed, you have to pay your taxes;” Katz replied, “I think MCA would support this reduction for 2021 through 2023, and with that reduction, I think we would be willing to discuss that…we should be talking about how to keep people in this program, and not fine them out of it or structurally policy them out of it or overlay them out of it. Let more people in.”

Local News
Sarah Reith is the lead reporter for KZYX News. She joined the KZYX News team in 2017, and covers local politics, water, law enforcement and the arts in Mendocino County.