Residents can’t legally buy recreational marijuana in Santa Clara just yet, but voters will get a chance to approve a cannabis tax this fall to make sure the city gets a cut of the profit when that day finally comes.
On Monday night, the City Council voted 6-0 to put a cannabis business tax on the November ballot. According to a report from the city manager’s office, the tax could provide an estimated revenue boost of $2.2 million each year to the general fund once sales are legal. Right now, the city is facing likely deficits over the next decade, and the council is looking for ways to balance the budget.
“This is just to put a tax on the ballot,” said Councilwoman Teresa O’Neill at Monday’s meeting. “This is not a decision on how many outlets, the range of activities that would be conducted, limitations on where they could be located, all of those other aspects…there has not been a decision made on that.”
If voters approve the measure, the initial tax rate for retail and manufacturing would be 5 percent of gross receipts. For cultivation, the rate would be $6 per square foot or 5 percent of gross receipts, whichever is higher. And the tax rate for distribution, nurseries, testing and transportation would be 3 percent of gross receipts.
Tax rates for cannabis businesses vary widely in other California cities. San Jose, for instance, taxes 10 percent of gross receipts, while Sacramento’s rate is just 4 percent. Across the bay, Oakland’s rate is a comparable 5 percent.
The proposed Santa Clara measure also would allow the City Council to increase the tax rate once a year without going back to voters, so long as the rate doesn’t exceed more than 10 percent of gross receipts and $25 per square foot for cultivation, an attempt to balance the need for revenue with the desire to avoid encouraging black market sales.
Initial outreach shows the ballot measure has a real shot of passing, although several residents spoke out at Monday night’s meeting against allowing marijuana sales at all. More than 62 percent of respondents to a survey of residents supported the idea of a cannabis tax. And a couple of years ago, voters approved most of the more than 35 similar measures that appeared on ballots in communities across the state.[related_articles location=”left” show_article_date=”false” article_type=”automatic-primary-tag”]And while Santa Clara is still finalizing the cannabis regulations and fees that could ultimately open the door to commercial sales, the city doesn’t want to launch sales without having a tax policy ready to go at the same time. The council is set to finalize the regulatory framework by October. But the council can’t impose a marijuana business tax without getting 50 percent voter approval, and any item on the November ballot needs to be submitted by Aug. 10.
If approved, the tax would generate unrestricted funds, meaning the money could be used to pay for street repairs and to prevent cuts to the city’s fire and police departments. The fees the city can assess when it allows legal sales, on the other hand, will have to cover expenses related to cannabis sales, such as inspections and background checks on sellers.