TAX NEWS - 2010

California Tax: California Cities Eye Tax on Marijuana Sales

Following an example set by the city of Oakland, several California municipalities are looking at taxing local marijuana sales to help bridge devastating budget deficits. And with voters set to decide on a statewide ballot initiative in November to legalize the recreational use of the drug, there could be significant money at stake, officials say.

Oakland began taxing medical marijuana in January, though the amount collected so far was not immediately available for release. On Tuesday, the city of Long Beach, near Los Angeles, took steps to adopt its own tax on local dispensaries. Sacramento, the state capital, as well as San Jose and Berkeley also are considering adding a pot tax.
 
But not all cities are jumping on the idea. In Sebastopol, north of San Francisco, the city council last month narrowly rejected a proposal to add a marijuana-related business tax, but could revisit the idea again.

For one Long Beach official, taxing legal pot makes sense.

"The city is facing an $18.5 million deficit, so we're looking in a lot of places" for new revenues, said Long Beach City Councilman Patrick O'Donnell, who would like to see a 15 to 20 percent local tax on pot sold for medicinal purposes through nonprofit co-ops.

The Long Beach council voted Tuesday night to set a hearing sometime in the next three weeks to determine whether the matter should be sent to the city's voters in November.

With the statewide initiative coming up in November, the pot business could become a lifeline for California cities hit by massive budget deficits that have led to worker furloughs, cuts in services and, in one case, the dismissal of nearly the entire municipal workforce.

It's early, but a Public Policy Institute of California Poll in May found voters evenly split over relaxing controls on personal use of marijuana. A poll last year found a majority of voters supporting it.

"The November vote may be a game-changer," O'Donnell said, "We want to be prepared, should the voters OK recreational use of marijuana, to have a revenue-enhancement tool in place."

The main state taxing authority, the State Board of Equalization, estimated last year that if pot were legalized and taxed at the state level, it could bring in as much as $1.4 billion in sales and excise taxes. But the tax experts also admitted they were guessing, since no one knows for sure what the current pot consumption levels are -- and what they would be if fear of arrest were removed.

Separately, the Rand Corp. released a report today that said legalizing marijuana would likely slash the price at the consumer level, increase pot use, reduce law enforcement costs and lead to an unpredictable increase in tax revenues.

"There is considerable uncertainty about the impact that legalizing marijuana in California would have on public budgets and consumption, with even minor changes in assumptions leading to major differences in outcomes," the report said.