By: Zachary Lopez (ZachNews)
Source: City of Needles (Information)
Needles, California: Members of the Needles City Council will be discussing and possibly voting on proposed ballot measure to amend Chapter 20 of the Needles Municipal Code establishing a tax on local cannabis and hemp business activities and suspending the current tax in Article VIII during their regular meeting scheduled for 6:00 p.m. PT on Tuesday, May 24th, 2022 inside the Needles City Council Chambers.
According to information from the Needles City Clerk’s Office, on February 22, 2022, the City Council gave direction to staff to draft a Ballot Measure to be included at the General Municipal Election on Tuesday, November 8, 2022.
The City has an existing cannabis business tax (Measure S, 2012) that imposes a maximum rate of 10% on all cannabis business types. The City has the ability to adjust the rates, but has kept them at 10%. Cannabis business taxes have been an important contributor to the City’s general fund. The City anticipates that cannabis businesses will generate over $5 million in tax revenue from over $50 million in gross receipts for the current fiscal year.
Despite these revenues, the City has expressed concerns that the current gross receipts tax may not be the most appropriate basis for the City’s 14 cannabis cultivators, which could lead either to underreporting of revenue or a tax burden that is too high for these businesses, making it more difficult for them to compete in the statewide market.
To address this concern, the City has requested that HdL Companies conduct a fiscal analysis of the current gross-receipts tax rates for cultivation and develop a new cannabis tax ordinance for the City incorporating a cultivation tax based on square footage, which would be placed before the voters in November.
The City desires that the new tax rates be set at a level that will provide the same amount of revenue for the City. The tax rate for other types of cannabis businesses, including commercial industrial hemp, will be set at a maximum tax rate not to exceed ten percent (10%) of gross receipts.
The purpose of this analysis is to determine the equivalent tax rates based on square footage of canopy or state licensed cultivation area that will yield the same level of annual cannabis tax revenue. HdL determined the following:
“City’s stated desire to ensure that the revised tax rates and structure provide substantially the same level of revenue, HdL recommends that the City consider a cultivation tax based on the licensed square footage as determined by the state license type, with the rate set at $20 per square foot. The tax rate should be adjusted annually in accordance with the Consumer Price Index (CPI)”
State law requires that application of the tax on commercial cannabis or commercial industrial hemp requires voter approval on even numbered year general elections such as November 2022.
The new Article is added to the Needles Municipal Code to read, as relevant:
The maximum rate of the cannabis business tax shall be calculated as follows:
1. For every person engaged in commercial cannabis cultivation, including cultivation of industrial hemp, in the City:
a. Through January 1, 2026, the annual maximum rate shall be:
i. Twenty dollars ($20) per square foot of the state licensed maximum cultivation area in a facility that uses exclusively artificial lighting.
ii. Twenty dollars ($20) per square foot of state licensed maximum cultivation area in a facility that uses a combination of natural and supplemental lighting as defined in Section 20-40-4 (S) of this Article.
iii. Twenty dollars ($20) per square foot of state licensed maximum cultivation area in a facility that uses no artificial lighting.
iv. Twenty dollars ($20) per square foot of state licensed maximum cultivation area for any nursery.
b. The square footage tax due shall be paid based on the type of cultivation license issued by the state and/or city. The tax will not be prorated or adjusted for reduction in the square footage utilized by the business unless duly authorized by the Tax Administrator.
c. On January 1, 2026 and on each January 1, thereafter, the maximum annual tax rates specified in Subsection 20-40-5 (C) (1) (a), -shall increase by the percentage increase in the Consumer Price Index (“CPI”) for consumers in the Riverside-San Bernardino-Ontario area as published by the United States Government Bureau of Labor Statistics. However, no CPI adjustment resulting in a decrease of any tax imposed by this subsection shall be made.
2. For every person engaged in the operation of a testing laboratory for cannabis, cannabis products, industrial hemp and/or industrial hemp products the person shall be subject to the maximum tax rate not to exceed ten percent (10%) of gross receipts.
3. For every person engaged in retail sales of cannabis, cannabis products, industrial hemp, and/or industrial hemp products, including as a retailer (dispensary) or non-storefront retailer (retail delivery business), or microbusiness, the person shall be subject to the maximum tax rate not to exceed ten percent (10%) of gross receipts.
4. For every person engaged in distribution of cannabis, cannabis products, industrial hemp and/or industrial hemp products, the person shall be subject to the maximum tax rate not to exceed ten percent (10%) of gross receipts.
5. For every person engaged in manufacturing or processing of cannabis, cannabis products, industrial hemp and/or industrial hemp products, or any other type of cannabis business not described in Section 20-40-5 (C) (1), (2), (3), or (4) the person shall be subject to the maximum tax rate not to exceed ten percent (10%) of gross receipts.
As for any fiscal impact to note, the City of Needles states the equivalent rate (10% Gross Receipts) for taxing the maximum state-licensed cultivation square footage would be $20/sf.
As of any environmental related issues or information to note, the City of Needles states there is none.
According to information from the Needles City Clerk’s Office, the recommendation for members of the Needles City Council is to provide staff direction for the proposed ordinance.
The agenda item was submitted by Patrick Martinez, Needles Assistant City Manager and Needles Development Services City Management.
*** Agenda Packet Information (PDF File Download): ***
The mayor and City council members may be attending this meeting via Microsoft Teams.
The public may attend the meeting but masks are encourage or can attend via Microsoft Teams.
The public may submit any comments in writing prior to noon on the day of the meeting by emailing: email@example.com
To join the live Microsoft Teams meeting log into the City of Needles website at: https://cityofneedles.com/ to access the agenda and the meeting.
If asked, enter the following: Meeting ID: 679 735 383# or listen in and participate by calling Microsoft Teams: 1-323-488-2227 – Meeting ID: 679 735 383#.
The meetings are being recorded by the City of Needles.
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For more information, please contact Dale Jones, City Clerk at the City of Needles at: 1 (760) 326-2113.