STAFF REPORT - CITY COUNCIL/SUCCESSOR AGENCY/PUBLIC FINANCE AUTHORITY

Councilman Adkisson had requested that City staff investigate cultivation tax rates for both indoor and outdoor facilities. He also requested that staff investigate the possibility of a tiered rate structure. Staff has provided information in this report to allow the Council to provide direction to staff to see if they would like to proceed with an amendment to the City’s Cultivation tax structure.  

Staff utilized the services of Global Risk Advisors (GRA) to provide data related to cannabis taxes throughout the state of California. The reporting information that was provided included tax rates (dollar amount or percentage) and basis (square foot, min fee, gross receipts, ect.).

The City’s current tax rates for cultivation is $7 per square foot of canopy and $2 per square foot for nursery. The city does not currently have an outdoor specific rate so outdoor cultivation is charged the commercial cannabis cultivation rate.

After reviewing the data from GRA, staff made some determinations to assist the City Council in determining if they would like to proceed with a change in the tax structure for commercial cultivation (outdoor/indoor/nursery).

Outdoor Cultivation: Tax rates and basis are all over the table as it relates to outdoor cultivation rates in California. There were 38 jurisdictions identified in the data that had rate structures in place for outdoor cultivation. It was about a 50/50 split among City/County jurisdictions.  As it relates to square foot basis tax rates, they range from $0.41 (City of Adelanto) to $13.20 (City of Long Beach) per square foot. In contrast, gross receipts rates range from 2% (City of Santa Barbara) to 10% (City of San Bruno). Staff did not see any data that had tiered rates for taxes other than Mendocino County that has a minimum fee or the greater of 2.5% gross receipts however, this rate structure does not represent a true tiered rate structure.

For outdoor nurseries, the rates are lower as the majority of square foot rates were at $1.00 per square foot and 1% to 10% gross receipts with the majority around 4% gross receipts.

Indoor Cultivation: Again, tax rates and basis are all over the table as it relates to indoor cultivation as well. Basis for indoor cultivation range from gross receipts to square foot taxes. The data showed about 47 jurisdictions charging gross receipts ranging from 1% to 10% with even distribution between that spectrum. The data showed about 130 jurisdictions charging per square foot tax rates ranging from $1.00 (Grass Valley, Lassen, California City) to $17.50 (City of Bellflower). When looking at the data there is an even distribution of values for tax rates between $1.00 and $10.00 with the most landing near the $7.00 per square foot rate.

Tiered rate approach: It was requested that staff consider a tiered rate structure for both indoor and outdoor cultivation. Staff is not recommending a tiered rate for nurseries since they are typically ancillary to the main cultivation operation. Here is an example as to how the Council could approach this once a basis (rate type) is established:

Outdoor Cultivation

Tier 1: $$ per square foot for the first acre of canopy

Tier 2: $$ per square foot for the second acre of canopy

Tier 3: $$ per square foot of canopy for the 3rd acre and above

Indoor Cultivation

Tier 1: $$ per square foot for the first 20,000 square feet of canopy

Tier 2: $$ per square foot of canopy beyond 20,000 square feet

OR

Tier 1: $$ per square foot for the first 20,000 square feet of canopy

Tier 2: $$ per square foot of canopy from 20,001 to 40,000 square feet

Tier 3: $$ per square foot of canopy beyond 40,001 square feet