City approves Ordinance 567
Ordinance imposes business tax on commercial cannabis businesses
The Lindsay City Council approved Tuesday resolution 18-31, calling city election for voter approval of commercial cannabis business tax and adding to the city’s municipal code.
The council also conducted the first reading of Ordinance 567 to impose a business tax on commercial cannabis businesses.
City Attorney Mario Zamora said, however, that after the council gives the second reading, it will go before the voters, but won’t be effective until 30 days after the voters approve it.
“Normally, once you have a second reading it will be effective 30 days after, but this one won’t,” Zamora said. “It will kind of just be on hold for the time being.”
Zamora said the city won’t draw sales tax until the first quarter after the election, which will be in April 2019.
Currently, the City of Lindsay prohibits all commercial cannabis business. The city council has deliberated about whether to change the Municipal Code to allow for non-retail commercial business activities and to establish the range of taxation for those non-retail commercial business activities, said City Finance Director Bret Harmon.
Harmon said the council decided to pursue a tax measure and to change the Municipal Code accordingly. He said the process includes approving resolution 1831 to call for an election, to add Chapter 5.32 to the Municipal Code and to specify the election order.
If passed, Harmon said the tax measure will set the maximum tax rates the city can apply to non-retail commercial cannabis businesses. He said the maximum tax per square foot is $25, and the maximum gross receipts tax will be 10 percent.
Harmon said the city council will set or adjust the specific tax rates by resolution. He said the tax rate per square foot will apply to growing cannabis. He said the gross receipts tax will apply to all other stages of manufacturing, testing, etc. before the retail stage, with retail not being legal in Lindsay.
Harmon said resolution 18-31 prepares the way for Ordinance 567 to establish the tax rates. He said the process to place the measure on the November 2018 ballot requires the city to establish the election order. He added that resolution 18-31 establishes the process.
If voters approve a tax measure and non-retail commercial cannabis businesses decide to locate in Lindsay, Harmon said the city would then receive tax revenue from the businesses. He said the tax revenue is difficult to estimate at this point, as the potential growing square footage and other businesses in the wholesale chain is uncertain.
Harmon said the estimate the city will include in the tax measure question will range from $500,000 to $3,500,000 annually. These revenues, he said, will come at additional cost for public safety and other negative impacts on the community.
Ultimately, Harmon said the resolution changes the city’s current policy related to non-retail commercial cannabis businesses if the voters approve the tax measure.
As far as how the tax will work, Zamora said the council will set two different tax rates — a square footage tax and a gross receipt tax.
“The reason for that is because some people aren’t going to be cultivating,” Zamora said. “If there’s just testing,
you want to have that as a revenue stream, but they are not cultivating anything. They are taking a product, testing it, and sending it right back out.”
Zamora said even though the specific rate for the square footage tax is set up to $25 a square foot, he said it will be much lower than that, possibly around $4 or $5 a square foot. Zamora said the council will be able to set the rate, including the percentage rate, by resolution.
“If market conditions change, either get better or worse, you [city council] can adjust that without having to go back to the voters,” Zamora said.
Councilmember Esteban Velasquez said he likes the fact that council doesn’t have to go back to the voters.
“That was my concern because I don’t want to tie the hands of future council members that may decide to go a different way than we have,” Velasquez said.
Councilmember Brian Watson said he also appreciates the language being in there that allows the council flexibility and not having to do another vote.
During the public hearing, Lindsay resident Eric Sinclair said he is against the resolution
because he believes it will cause problems with banks.
“When we try to get grants from banks, they don’t want to deal with the money that is involved because it is dirty money,” Sinclair said, adding, “We need to think about it.”
Zamora agreed that banks are indeed concerned.
“The banks don’t want to see an account at their bank that is cannabis money,” Zamora said, adding, “They are generally OK with everything just being put into one giant account.”
Zamora said even though the City of Woodlake, which banks with Bank of the Sierra, and the City of Coalinga, which banks with Union Bank, already receive cannabis money and have had no issues, he said issues may arise in the future.
“It may be an issue in the future if they change their attitude, but as of
right now they have been OK,” Zamora said.
Councilmember Brian Watson said he believes the future of cannabis is looking bright.
“The FDA [U.S. Food and Drug Administration] for the first time approved a medicine that actually has cannabis in it, so that is big,” Watson said, adding, “I think that might soften a lot of the administration’s views on what they will allow.”
He continued, “If you are for it, it is probably a real plus, if you are against it, it is probably a real negative because it looks like the tide may be going favorably for different cannabis-related products,” Watson said.
Although Mayor Pam Kimball has reservations about commercial cannabis businesses in Lindsay, she said she is all for putting it on the ballot and letting the voters decide.