Agenda No. Key Words: Marijuana Tax Meeting Date: April 26, 2016 SUMMARY REPORT CITY COUNCIL PREPARED BY: Douglas L. White, City Attorney RECOMMENDATION/REQUESTED ACTION: Adopt a resolution submitting a proposed Ordinance to establish a marijuana business tax to the qualified voters of the City of Dixon; requesting the Solano County Board of Supervisors to consolidate the Ordinance measure with the statewide general election to be held on November 8, 2016; and directing the City Elections Official, City Attorney and City staff to take additional actions to submit the measure for voter approval. BACKGROUND/DISCUSSION/ANALYSIS: In 1996, voters of the State of California approved Proposition 215, the Compassionate Use Act of 1996, which enables seriously ill Californians to legally possess, use, and cultivate marijuana for medical use under State law. In 2003, the California Legislature adopted SB 420 (the Medical Marijuana Program or "MMP"), which permits qualified patients and their primary caregivers to cultivate marijuana for medical purposes without being subject to criminal prosecution under the California Penal Code. On January 1, 2016, the Medical Marijuana Regulation and Safety Act ("MMRSA") became effective. MMRSA seeks to establish a licensing system to govern the cultivation, processing, transporting, testing, and distribution of medical marijuana to qualified patients throughout the State. In order to retain local land use control of medical marijuana, MMRSA required municipalities to have local ordinances in place regulating marijuana cultivation, processing, delivery, and dispensaries. At the time the Legislature adopted MMRSA, the Dixon Municipal Code ("D.M.C.") did not expressly address the cultivation, processing, or delivery of medical marijuana. In response to MMRSA, in order to maintain local land use control of medical and commercially grown marijuana, on January 12, 2016, the City adopted an ordinance prohibiting the cultivation and distrbution of medical marijuana. The legalization of marijuana for recreational or other non-medical use will likely be on the ballot for the statewide general election on November 8, 2016. There are currently
nineteen (19) potential initiatives proposing to legalize the recreational use of marijuana, including an initiative backed by Sean Parker and Lieutenant Governor Gavin Newsom. If marijuana use is legalized by voter initiative in November 2016, the City should have a framework in place to begin taxing businesses that cultivate and distribute marijuana. Adoption of a business operations tax, however, will not authorize businesses to engage in commercial cultivation or distribution of marijuana or cannabis products until the City's prohibition is lifted. Under the City's existing business license tax ordinance, all persons engaged in business activity in the City are required to obtain a business license tax certificate and pay the City's business license tax. The proposed Ordinance would set a business tax to be imposed on any marijuana business in the City, with a maximum tax rate of up to fifteen percent (15%) of the business's monthly gross receipts. If adopted, the actual tax rate will be set by resolution of the City Council. The City Council will also be authorized to establish penalties and fines to enforce the payment of the marijuana business tax. The City Manager will be authorized to establish rules and procedures for the collection of the business tax, and the Finance Director will be directed to audit any businesses submitting such taxes to the City. If the Ordinance measure is adopted by the qualified City voters in November 2016, the City Council will be authorized (but not required) to impose a marijuana business tax on (1) medical marijuana dispensaries and related activities, if the current City prohibition on medical marijuana dispensaries is eventually lifted or amended, or (2) non-medical marijuana, if such use is legalized by California voters and such uses and related commercial transactions are eventually allowed in the City. The marijuana business license tax proposed by this Ordinance is a general tax, as the City may use the tax revenue for any legal municipal purpose. Under Article XIIIC of the State Constitution, no local government may impose, extend, or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote. Therefore, staff is requesting approval from the City Council to put the attached Ordinance tax measure on the ballot for the general election on November 8, 2016. If the City Council decides not to submit the marijuana business operations tax fo r voter approval at the November 2016 election, the next statewide general election to submit this measure will occur in November 2018. ALTERNATIVES I OPTIONS: The City Council's options regarding the proposed Ordinance include: 1. Adopt the resolution, submitting the attached Ordinance measure for majority vote, requesting the Solano County Board of Supervisors consolidate matter with the November 2016 state general election, and directing City staff to take necessary actions; or 2. Reject the resolution and attached Ordinance.
ENVIRONMENTAL: A business license tax on marijuana businesses does not constitute a "project" under CEQA, and as such, it is exempt from environmental review. Specifically, "the creation of government funding mechanisms or other government fiscal activities, which do not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment" is not considered a project. (Cal. Code Regs., tit. 14, 15378.) FINANCIAL IMPACT: If the Ordinance measure is adopted, and marijuana businesses are allowed to operate in the City, the Ordinance could potentially result in a significant increase in revenue to the City's general fund. The costs of consolidating this measure with the statewide general election will result in costs incurred by the Solano County Registrar of Voters that the City will be required to reimburse. The Registrar has stated that a cost of $0.25 per voter could be imposed in connection with the consolidated Ordinance measure, which would result in less than $2,500 in reimbursable costs to the City for the measure. ATTACHMENTS: Resolution Exhibit A: Ordinance APPROVALS: Finance: -~"- r-'714 --;...'- (_) a City Manag~k,Ji_ City Attomey:
Resolution No. 2016- RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DIXON ORDERING THE SUBMISSION TO THE QUALIFIED ELECTORS OF THE CITY A MEASURE APPROVING AND IMPLEMENTING A TAX ON THE OPERATIONS OF MARIJUANA BUSINESSES, AT THE GENERAL MUNICIPAL ELECTION TO BE CONSOLIDATED ON TUESDAY, NOVEMBER 8, 2016 WHEREAS, pursuant to Elections Code section 9222, the City Council desires to submit to the voters a measure and proposed ordinance relating to a general tax on marijua~a businesses ("Ordinance"); and WHEREAS, pursuant to Dixon Municipal Code section 2.11.01 0, the general municipal election of the City of Dixon shall be held on the same date as the statewide general election, which is the first Tuesday after the first Monday of November in each even-numbered year; and WHEREAS, pursuant to Government Code section 53724, the City Council desires to submit the Ordinance to the qualified electors of the City at the next statewide general election on November 8, 2016 ("General Municipal Election"); and WHEREAS, pursuant to Elections Code section 11400 et seq., the City Council finds it is necessary and desirable to request consolidation of this Ordinance measure with the Solano County Board of Supervisors and Registrar of Voters. NOW, THEREFORE, IT IS HEREBY RESOLVED by the City Council of the City of Dixon as follows: Section 1. Pursuant to the requirements of laws of the State of California, the City Council hereby orders the following measure and question to be submitted to the qualified voters of the City of Dixon at the General Municipal Election: To help fund general municipal services, including but not limited to Yes police and fire protection services, parks, recreation and library facilities, shall an ordinance be adopted to impose a business license No tax at a rate of up to fifteen percent (15%) of gross receipts on marijuana businesses and dispensaries, if marijuana businesses or dispensaries are approved to oq_erate in the City of Dixon? Section 2. The complete text of the Ordinance to be submitted to the voters is attached to this Resolution as Exhibit A. The City Clerk of the City of Dixon ("City Elections Official") shall maintain a copy of the Ordinance and upon request shall make copies of the Ordinance available for the public. Page 1 of 3
Section 3. Notice of the time and place of holding an election for the Ordinance measure is hereby given, and the City Elections Official is authorized and direction to provide further or additional notice of the election. Section 4. Pursuant to Government Code section 53723, the measure submitted to the voters pursuant to Section 1 of this Resolution shall require a majority of votes cast for adoption in order for the Ordinance to become effective. Section 5. Arguments in favor or against the above ballot measure shall be filed with the City Elections Official before 5:00 p.m. on May 23, 2016, after which no arguments for or against the City measure may be submitted to the City Elections Official. Section 6. As provided in Elections Code section 9282, any member of the City Council, or any individual voter who is eligible to vote, or bona fide association of citizens, or any combination of voters and associations, may file a written argument in favor of or against the proposed Ordinance. Each argument in favor of or against the Ordinance measure shall not exceed 300 words and shall not exceed five (5) authors. If more than one argument is submitted in favor of or against the Ordinance by the above date and time, the City Elections Official shall give preference and priority to those arguments in the manner provided by Elections Code section 9287. Section 7. Rebuttal arguments shall be filed with the City Elections Official before 5:00p.m. on June 2, 2016, and shall not exceed 250 words in length. Section 8. In accordance with Elections Code section 9280, the City Elections Official is hereby directed to transmit a copy of the Ordinance to the City Attorney, who shall prepare an impartial analysis of the measure, not to exceed 500 words in length, showing the effect of the measure on the existing law. The City Attorney is instructed to provide his impartial analysis by May 16, 2016. Section 9. Pursuant to Elections Code sections 10403 and 10418, the Solano County Board of Supervisors is hereby requested to issue instructions to the Solano County Registrar of Voters to take any and all steps necessary for the holding of the election and to consolidate this ballot measure with any other applicable election conducted on the same day in the City. Section 10. Pursuant to Elections Code section 10411, the Solano County Board of Supervisors is hereby authorized to canvass the returns of the election, including this ballot measure. Section 11. The Board of Supervisors is further requested to order the County Clerk or other such authorized person or department to set forth the full text of the Ordinance in the voter information portion of all sample ballots to be mailed to the qualified electors of the City, and to mail printed copies of the full text of the Ordinance with the sample ballots to be mailed to the qualified electors, together with the arguments and rebuttal arguments (if any) for and against the measure. Page 2 of 3
Section 12. The City of Dixon recognizes that costs will be incurred by Solano County in connection with the election and agrees to reimburse the County for any such costs. Section 13. The City Elections Official is hereby directed to file a certified copy of this Resolution with the Board of Supervisors and the Solano County Registrar of Voters. Section 14. This Resolution shall take effect immediately upon its adoption by at least two-thirds vote in the affirmative by the City Council, upon which the City Clerk shall certify the passage of this Resolution and enter it into the book of original resolutions. PASSED AND ADOPTED BY AT LEAST A TWO-THIRDS MAJORITY OF THE CITY COUNCIL THIS DAY OF 26TH DAY OF APRIL, 2016, BY THE FOLLOWING VOTE: AYES: NOES: ABSTAIN: ABSENT: ATTEST: Suellen Johnston City Clerk Jack Batchelor, Jr. Mayor Page 3 of 3
EXHIBIT A Proposed Ordinance to be Submitted to Voters of the City of Dixon
ORDINANCE NO.------- AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF DIXON, AMENDING CHAPTER 4.02, BUSINESS LICENSE TAX, TO TITLE 4, REVENUE AND FINANCE, OF THE DIXON MUNICIPAL CODE WHEREAS, in 1996, the voters of the State of California approved Proposition 215 (codified as Cal. Health and Safety Code 11362.5, and known as "The Compassionate Use Act of 1996" or "CUA''); and WHEREAS, in 2003, the California legislature passed SB 420 (Medical Marijuana Program Act), which amended the Health and Safety Code to permit the establishment of medical marijuana dispensaries for the distribution of marijuana for medical purposes; and WHEREAS, on October 9, 2015, Governor Brown signed 3 bills into law (AB 266, AB 243, and SB 643), collectively referred to as the Medical Marijuana Regulation and Safety Act (the "MMRSA"). MMRSA sets up a State licensing system for commercial medical marijuana uses while also allowing cities to maintain local control of marijuana cultivation; and WHEREAS, on January 12, 2016, in response to MMRSA, the City adopted an ordinance prohibiting marijuana cultivation and delivery in order to maintain local control of marijuana cultivation within city limits; and WHEREAS, on November 8, 2016, Californians may be asked to vote to decide whether the State should legalize the commercial sale, use, and possession of marijuana for recreational or non-medical use; and WHEREAS, if such a proposition is proposed and approved by California voters on November 8, 2016, the City intends to have in place a legal mechanism to tax businesses involved in marijuana cultivation and distribution, if such activities are authorized and approved by the City in the future; and WHEREAS, all persons engaged in business activity in the City are required to obtain a business license tax certificate and pay the city's business license tax; and WHEREAS, this Ordinance would tax businesses engaged in marijuana cultivation and distribution at a maximum rate of up to 15% of monthly gross receipts, as directed by the City Council under the business license tax section of the Dixon Municipal Code; and WHEREAS, the City Council of the City of Dixon finds that it is in the best interest of the health, welfare and safety of the public to submit this ordinance to the qualified voters of the City at the next statewide general election on November 8, 2016. Page 1 of 4
NOW, THEREFORE, THE PEOPLE OF THE CITY OF DIXON ORDAIN: SECTION 1. Chapter 4.02, Business License Tax, of Title 4, Revenue and Finance, of Dixon's Municipal Code shall be amended to read as follows: Section 4. 02.020, Definitions, shall be deleted in its entirety and replaced as follows: 4.02.020 Definitions. For the purpose of this chapter, the following words and phrases shall have the meanings respectively ascribed to them by this section: "Business" means professions, trades, occupations, gainful activities, and all and every kind of calling whether or not carried on for profit. "City" means the City of Dixon, a municipal corporation of the State of California, in its present incorporated form or in any later reorganized, consolidated, enlarged or reincorporated form. "Collector" means the Director of Finance or other City officer or employee charged with the administration of this chapter. "Fixed place of business" means the premises occupied in the City for the particular purpose of conducting a business there and regularly kept open for that purpose with a competent person in attendance for the purpose of attending to such business. "Gross receipts" means the total amount charged or received for the performance of any act, service or employment of whatever nature it may be, whether or not such service, act or employment is done as a part of or in connection with the sale of goods, wares, merchandise, for which a charge is made or credit allowed. Gross receipts shall be calculated without any deduction on account of any of the following: (i) the cost of tangible property sold or bartered; (ii) the cost of materials or products used, labor or service cost, interest paid, losses, or other expense; or (iii) transportation costs "Marijuana" or "Cannabis" has the meaning as defined in California Health and Safety Code section 11018. "Marijuana business" means any business activity involving the commercial cultivation, distribution and exchange of marijuana, including but not limited to the, planting, cultivation, harvesting, transporting, manufacturing, compounding, converting, Page 2 of 4
processing, preparing, storing, packaging, providing, wholesale and retail sales, whether fixed, mobile, permanent or temporary, where marijuana is made available, sold, given distributed, or otherwise provided in accordance with the existing laws of the State of California, whether for medical or non-medical reasons. "Person" means all domestic and foreign corporations, associations, syndicates, joint stock corporations, partnerships of every kind, clubs, business or common law trusts, societies and individuals transacting and carrying on any business in the City. "Reporting Period" means a year, quarter or calendar month, as determined by the collector. "Sworn statement" means an affidavit sworn to before a person authorized to take oaths or declaration or certification made under penalty of perjury Section 4.02.035, Marijuana Business Tax, shall be added as follows: 4.02.035 Marijuana Business Tax. A Every person engaged in a marijuana business shall pay an annual business license tax of up to 15 cents for each $1.00 of gross receipts, regardless whether the City has issued a permit for the marijuana business. B. The tax rate shall be set by resolution of the City Council. The City Council may, in its discretion, implement such marijuana business tax rate it deems appropriate, and may by resolution increase or lower such tax rate from time to time, provided that the marijuana business tax shall not exceed 15 cents for each $1.00 of gross receipts. C. The collector shall establish reporting periods for the periodic collection of gross receipts. The reporting period may fall under yearly, quarterly or monthly reporting, or any reasonable reporting period established by the collector. D. Failure to pay the marijuana business tax shall be subject to penalties, interest charges, and assessments as the City Council may establish, and the City may use any and all code enforcement remedies available at law to collect such payments. E. The payment of the marijuana business tax shall not be construed as authorizing the conduct or continuance of any illegal business or of a legal business in an illegal manner. Nothing in this section shall be applied or construed as authorizing the sale of marijuana. Page 3 of 4
F. The collector or his or her designee shall annually audit any marijuana business taxes imposed by this section to verify that tax revenues have been properly expended in accordance with the law. G. The marijuana business tax is not a sales tax and shall not be assessed as such. H. This section was submitted to the qualified voters of the City for approval. Any amendment to the maximum tax rate therefore may not become effective until such amendment is approved by the voters. The voters expressly authorize the City Council to amend, modify, change or revise any other provisions of this section as the City Council deems in the best interest of the City. The City Council or City Manager may promulgate rules, regulations and procedures to implement this section and to ensure the efficient and timely collection of any taxes or any related penalties imposed by this section. SECTION 2. This is a City Council-sponsored initiative ordinance that shall only be amended by the qualified voters of the City of Dixon as provided in the ordinance. The City Council reserves the right and authority to amend the ordinance as authorized, or at any time after a State or federal law is enacted which requires amendments in order for the ordinance to be in compliance with such law or laws. SECTION 3. If any provision of this ordinance or the application thereof to any person or circumstance is held invalid, such invalidity shall not affect other provisions or applications of the ordinance which can be given effect without the invalid provision or application, and to this end the provisions of this ordinance are severable. The People of the City of Dixon hereby declare that they would have adopted this ordinance irrespective of the invalidity of any particular portion thereof. SECTION 4. After it is enacted by the voters, this ordinance shall be in full force and effect ten (1 0) days after the vote is declared by the legislative body, pursuant to the provisions of Elections Code sections 9217 and 15400, and as provided by law. Page 4 of 4