Is San Francisco Letting Millions Go Up in Smoke?

Marijuana sales taxCities throughout the state are looking to marijuana as a way to generate revenue and help close ballooning deficits. Oakland, San Jose and Los Angeles already tax medical marijuana and several more cities are considering similar taxes. Should San Francisco join them?

A new tax on medical marijuana in San Jose is bringing in “a strong source of revenue” according to city officials. In fact, in the first month of the 7 percent tax on dispensaries San Jose reported that medical marijuana collectives paid $290,000 to the City. The revenue couldn’t have come at a better time, San Jose lawmakers are attempting to close the City’s $115 million budget deficit and major layoffs are expected.

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Potential revenue from Pot Tax can be substantial

On an annual basis the new tax on medical marijuana dispensaries in San Jose could mean nearly $3.5 million in additional revenue for the city. And San Jose is not alone; several cities throughout California have either adopted or are considering adopting similar taxes on pot clubs.

In March voters in Los Angeles passed Measure M, with about 60% of voters favoring a 5 percent tax on medical marijuana sales. The City of Los Angeles expects the new tax on pot clubs will raise between $3 million to $5 million a year. Los Angeles is facing a $319 million budget shortfall this year and the City is again planning major cuts to services and large-scale layoffs to close the deficit.

In 2009 Oakland residents also overwhelmingly supported taxing medical marijuana in order to raise badly needed revenue for the city. Measure F was approved by just fewer than 80% of the voters making Oakland the first city in the nation to impose such a tax on medical marijuana.

California lawmakers also want a piece of the action

And it’s not just cities that are considering taxing medical marijuana sales to generate badly needed revenue. Lawmakers and state officials in California have been attempting to find a way to generate revenue from medical marijuana sales for several years. This month a bill was passed out of committee in the State Senate, by a vote of 5-2, that would have the State Board of Equalization study ways to tax and license the sale of medical marijuana.

The State Board of Equalization has been asserting for years that pot clubs are not exempt from paying sales tax to the State.  The argument, according the State Board of Equalization, is that marijuana is classified by the federal government as a drug (and not medicine) thus dispensaries are not exempt from paying sales tax, regardless of nonprofit status. The issue came to a head in 2004 in a case against the Berkeley Patients Group, which audits showed it owed the State $6.4 million in taxes and interest.

With millions of dollars at stake and massive deficits looming, city and state officials will likely continue efforts to generate revenue from medical marijuana sales.

San Francisco has already taken a step in the same direction by imposing a $4000 fee on pot club for to receive a business license instead of the standard $300 for regular businesses, but the city is losing out on a tremendous revenue source by not imposing a tax on the sale of medical marijuana.

What do you think? Should San Francisco tax the sale of medical marijuana to close the City’s deficit and help fund crucial city programs?

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Paid for by Phil Ting for Assembly 2012. FPPC ID# 1343137