I. RECOMMENDATION:
This was a future agenda item requested by Mayor Ramsey and Councilman Adkisson to create an outdoor cultivation tax at a rate of $1.00 per square foot of canopy. A resolution (No. 4078) has been attached for Council's consideration if they so choose to amend the rate.
II. BACKGROUND:
In August 2021, 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 provided information in a 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. Council chose not to proceed with amending the tax rates at the time.
III. DISCUSSION:
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 outdoor commercial cultivation.
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.
The request from Councilman Adkisson is to set the outdoor cultivation rate at $1.00 per square foot of canopy. The attached resolution reflects $1.00 per square foot. Staff also provided an alternative resolution that includes a tiered rate that is discussed in the alternatives section of this report.
IV. ALTERNATIVES:
- Council can direct staff to revise the attached resolution to another rate.
- Council can choose not to act on this item.
- Optional Tiered rate approach: It was requested that staff consider a tiered rate structure for outdoor cultivation. Here is an example as to how the Council could approach this (a resolution has been provided for this approach if the council so chooses):
Outdoor Cultivation
Tier 1: $1.00 per square foot for the first three (3) acres of canopy.
Tier 2: $0.75 per square foot for all canopy beyond three (3) acres.
V. FISCAL IMPACT:
A reduction in current tax rates would effect the anticipated revenue generated from cultivation operators based on the present tax rate. Currently, the City has one outdoor cultivation operator. They currently pay $7.00 per square foot of canopy which totals $477,568.00 per year (based on 68,224 square feet of canopy) and with the change the tax collected would be reduced to $68,224.00. However, staff agrees that the $7.00 per square foot tax on outdoor cultivation is not currently sustainable and the City risks losing this revenue altogether if a reduction is not made.
If the alternative tiered approach were to be adopted the tax collected would further be reduced to $62,058.00.
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