The Sales and Use Tax Law, which is administered by the State Board of Equalization, requires any person whose estimated tax liability averages $10,000 or more per month to remit amounts due by electronic funds transfer, as provided. The Medical Cannabis Regulation and Safety Act provides for the licensure and regulation of medical cannabis.

This bill would authorize, before January 1, 2022, a person issued a sellers permit for a place of business that is a dispensary, as defined in the Medical Cannabis Regulation and Safety Act, to remit amounts due for retail sales at the dispensary by a means other than electronic funds transfer.

The Sales and Use Tax Law, which is administered by the State Board of Equalization, requires any person whose estimated tax liability averages $10,000 or more per month to remit amounts due by electronic funds transfer, as provided. The Medical Cannabis Regulation and Safety Act provides for the licensure and regulation of medical cannabis.

This bill would authorize, before January 1, 2022, a person issued a sellers permit for a place of business that is a dispensary, as defined in the Medical Cannabis Regulation and Safety Act, to remit amounts due for retail sales at the dispensary by a means other than electronic funds transfer.

The Sales and Use Tax Law, which is administered by the State Board of Equalization, requires any person whose estimated tax liability averages $10,000 or more per month to remit amounts due by electronic funds transfer, as provided. The Medical Marijuana Regulation and Safety Act provides for the licensure and regulation of medical marijuana.

This bill would authorize the board to allow persons to remit amounts due by other than an electronic funds transfer if the board deems it necessary to facilitate collection of amounts due. authorize, before January 1, 2022, a person issued a sellers permit for a place of business that is a dispensary, as defined in Medical Marijuana Regulation and Safety Act, to remit amounts due for retail sales at the dispensary by a means other than electronic funds transfer.

Existing sales and use tax laws impose taxes on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state and provides various exemptions from those taxes. Existing law relieves the seller from liability for the sales tax if an exemption certificate is taken in good faith, and imposes liability for sales tax on the purchaser if the tangible personal property purchased is used in a manner or for a purpose not qualifying for the exemption, as provided.

This bill would exempt from those taxes the gross receipts from the sale of, and the storage, use, or other consumption of, medical marijuana for consumption by a terminally ill patient, and would require the purchaser to provide an exemption certificate as provided.

The Bradley-Burns Uniform Local Sales and Use Tax Law authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law, and existing law authorizes districts, as specified, to impose transactions and use taxes in accordance with the Transactions and Use Tax Law, which conforms to the Sales and Use Tax Law. Amendments to state sales and use taxes are incorporated into these laws.

Section 2230 of the Revenue and Taxation Code provides that the state will reimburse counties and cities for revenue losses caused by the enactment of sales and use tax exemptions.

This bill would provide that, notwithstanding Section 2230 of the Revenue and Taxation Code, no appropriation is made and the state shall not reimburse any local agencies for sales and use tax revenues lost by them pursuant to this bill.

This bill would take effect immediately as a tax levy, but its operative date would depend on its effective date.

 THIRD READING 

Bill No: AB 821

Author: Gipson (D)

Amended: 1/13/16 in Assembly

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 6-1, 5/11/16

AYES: Hertzberg, Beall, Hernandez, Lara, Moorlach, Pavley

NOES: Nguyen

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 58-17, 1/28/16 - See last page for vote

SUBJECT: Sales and use taxes: administration: payments: dispensaries

SOURCE: Author

DIGEST:

This bill allows a medical marijuana dispensary to remit tax liability due in a method other than an electronic funds transfer.

ANALYSIS:

Existing law:

1. Imposes a sales and use tax on the sale, storage, or use of tangible personal property unless exempted by state law.
2. Provides a sales and use tax exemption related to medicine. To be exempt, medication must be:
   1. Prescribed by an authorized person and dispensed on a prescription filled by a pharmacist;
   2. Furnished by a licensed physician to his or her own patient; or
   3. Furnished by a health facility for treatment pursuant to a licensed physician’s order, or sold to a licensed physician.

This bill:

1. Allows medical marijuana dispensaries to remit tax liability due in a method other than an electronic funds transfer.
2. Remains in effect until January 1, 2022.

Comments

Nowhere to bank. Individuals who run a marijuana dispensary in compliance with California law are currently shut off from the banking system. Marijuana is classified as a Class I drug and the cultivation, sale, and possession can constitute a felony. Therefore, the majority of banks and credit unions have decided not to accept marijuana dispensaries as customers for fear of federal sanctions. As such, less than 1% of all banks and credit unions nationwide provide banking services to cannabis businesses.

Burden on dispensaries. Taxpayers must remit tax liability due by an electronic funds transfer (EFT) if the estimated tax liability averages $10,000 or more per month, otherwise a 10% penalty of the tax amount due is assessed on the taxpayer. Because many banks and credit unions refuse to accept medical dispensaries as customers for fear of federal sanctions, dispensaries that are remitting their tax liability in a form other than an EFT are assessed a 10% penalty. The Board of Equalization may waive the 10% penalty for medical marijuana dispensaries if it can be shown that the failure to utilize an EFT is due to reasonable cause and circumstances beyond the person’s control, and occurred notwithstanding the exercise of ordinary care and in the absence of willful neglect. However, taxpayers must request a waiver every time amounts due are remitted in a manner other than EFT, which creates an unfair administrative burden for cash-only industries. It appears, therefore, that the problem is not the imposition of a penalty but the burden of having to request the waiver.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT: (Verified 6/28/16)

3C Medical, LP

Americans for Safe Access

Board of Equalization Member Fiona Ma

Board of Equalization Member George Runner

California Growers Association

California Tax Reform Association

Four individuals

OPPOSITION: (Verified 6/28/16)

None received

ARGUMENTS IN SUPPORT: According to the author, “Currently, due to the fact that marijuana is still federally classified as a Schedule 1 substance, the medical marijuana industry has been rendered unbankable. This leads to companies having to hold large amounts of cash and requires that tax payments be made in cash as well. This bill seeks to support the state’s collection of tax payments by removing the penalty associated with cash tax payments above $10,000 a month in cases where an industry has lack of access to banking services.”

ASSEMBLY FLOOR: 58-17, 1/28/16

AYES: Alejo, Baker, Bloom, Bonilla, Bonta, Brown, Burke, Calderon, Campos, Chau, Chiu, Chu, Cooley, Dababneh, Daly, Dodd, Eggman, Frazier, Cristina Garcia, Eduardo Garcia, Gipson, Gomez, Gonzalez, Gordon, Gray, Hadley, Roger Hernández, Holden, Irwin, Jones, Kim, Lackey, Levine, Linder, Lopez, Low, McCarty, Medina, Mullin, Nazarian, O'Donnell, Olsen, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Waldron, Weber, Wilk, Williams, Wood, Atkins

NOES: Achadjian, Travis Allen, Bigelow, Brough, Cooper, Dahle, Beth Gaines, Gallagher, Gatto, Grove, Harper, Maienschein, Mayes, Melendez, Obernolte, Patterson, Wagner

NO VOTE RECORDED: Chang, Chávez, Jones-Sawyer, Mathis

Prepared by: Myriam Bouaziz / GOV. & F. / (916) 651-4119

6/29/16 15:45:51

**** END ****

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Robert M. Hertzberg, Chair

2015 - 2016 Regular

Sales and use taxes: administration: payments: dispensaries

Allows a medical marijuana dispensary to remit tax liability due in a method other than an electronic funds transfer.

Background

State law imposes a sales and use tax (SUT) on the sale, storage, or use of tangible personal property unless exempted by state law. The current state SUT is 7.5%, but beginning January 1, 2017, the state SUT rate on tangible personal property will be 7.25%. Cities and Counties may increase the SUT rate up to 2% as a transactions and use tax for either specific or general purposes with a vote of the people.

Generally, medicine is exempt from the sales and use tax, but medical marijuana does not satisfy the following elements to qualify for the exemption. To be exempt, medication must be:

• Prescribed by an authorized person and dispensed on a prescription filled by a pharmacist;
• Furnished by a licensed physician to his or her own patient, or;
• Furnished by a health facility for treatment pursuant to a licensed physician’s order, or sold to a licensed physician.

Thus, the sale of medical marijuana is subject to both the state and local sales and use tax.

State law provides that any person whose estimated tax liability due to the Board of Equalization (BOE) averages $10,000 or more per month shall remit the amounts due by an electronic funds transfer (EFT). If a person fails to remit taxes by EFT, a 10% penalty of the amount of taxes due is assessed, but BOE may relieve a person of the 10% penalty if that person's failure to utilize an EFT is due to reasonable cause and circumstances beyond the person's control, and occurred notwithstanding the exercise of ordinary care and in the absence of willful neglect.

Proposed Law

Senate Bill 821 allows medical marijuana dispensaries to remit tax liability due in a method other than an electronic funds transfer. SB 821 shall remain in effect until January 1, 2022.

State Revenue Impact

According to BOE, AB 821 would not significantly affect state revenues.

Comments

1. Purpose of the bill. According to the author, “Currently, due to the fact that marijuana is still federally classified as a Schedule 1 substance, the medical marijuana industry has been rendered unbankable. This leads to companies having to hold large amounts of cash and requires that tax payments be made in cash as well. This bill seeks to support the state’s collection of tax payments by removing the penalty associated with cash tax payments above $10,000 a month in cases where an industry has lack of access to banking services.”

2. Nowhere to bank. Individuals who run a marijuana dispensary in compliance with California law are currently shut off from the banking system. Marijuana is classified as a Class I drug and the cultivation, sale, and possession can constitute a felony. Therefore, the majority of banks and credit unions have decided not to accept marijuana dispensaries as customers for fear of federal sanctions. As such, less than 1% of all banks and credit unions nationwide provide banking services to cannabis businesses.

3. Burden on dispensaries. Taxpayers must remit tax liability due by an EFT if the estimated tax liability averages $10,000 or more per month, otherwise a 10% penalty of the tax amount due is assessed on the taxpayer. Because many banks and credit unions refuse to accept medical dispensaries as customers for fear of federal sanctions, dispensaries that are remitting their tax liability in a form other than an EFT are assessed a 10% penalty. BOE may waive the 10% penalty for medical marijuana dispensaries if it can be shown that the failure to utilize an EFT is due to reasonable cause and circumstances beyond the person’s control, and occurred notwithstanding the exercise of ordinary care and in the absence of willful neglect. However, taxpayers must request a waiver every time amounts due are remitted in a manner other than EFT, which creates an unfair administrative burden for cash-only industries. It appears, therefore, that the problem is not the imposition of a penalty but the burden of having to request the waiver.

Assembly Actions

Assembly Rules 11-0

Assembly Revenue and Taxation 5-3

Assembly Appropriations 12-5

Assembly Floor 58-17

Support and Opposition

(5/4/16)

Support: 3C Medical, LP; Americans for Safe Access; Board of Equalization Member, Fiona Ma; Board of Equalization Member, George Runner; Board of Equalization Member, Jerome Horton; California Growers Association; California Tax Reform Association; 4 individuals.

Opposition: Unknown.

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 821

Author:(Gipson)

As Amended Ver:January 13, 2016

Majority vote

SUMMARY: Authorizes that the Board of Equalization (BOE), until January 1, 2022, to allow medical marijuana dispensaries to remit tax liability due in a method other than an electronic funds transfer (EFT).

EXISTING LAW:

1. Provides that any person whose estimated tax liability averages $10,000 or more per month shall remit the amounts due by an EFT. (Revenue and Taxation Code (R&TC) Section 6479.3.)
2. Provides that any person required to remit taxes who remits those taxes by means other than appropriate EFT shall pay a penalty of 10% of the amount of taxes. (R&TC Section 6479.3.)
3. Allows the BOE to relieve a person of the 10% penalty if that person's failure to utilize an EFT is due to reasonable cause and circumstances beyond the person's control, and occurred notwithstanding the exercise of ordinary care and in the absence of willful neglect. (R&TC Section 6479.4.)

FISCAL EFFECT: According to the Assembly Appropriations Committee, minor administrative savings to the BOE in reduced requests for relief of penalties to specific individuals who currently make cash payments in excess of $10,000.

COMMENTS:

The author has provided the following statement in support of this bill:

Currently, due to the fact that marijuana is still federally classified as a Schedule 1 substance, the medical marijuana industry has been rendered "unbankable." This leads to companies having to hold large amounts of cash and requires that tax payments be made in cash as well.

This bill seeks to support the state's collection of tax payments by removing the penalty associated with cash tax payments above $10,000 a month in cases where an industry has lack of access to banking services.

Assembly Revenue and Taxation Committee staff comments:

1. Background. Individuals who run a marijuana dispensary in compliance with California law are currently shut off from the banking system. Marijuana is classified as a Class I drug and the cultivation, sale, and possession can constitute a felony. Therefore, the majority of banks and credit unions have decided not to accept marijuana dispensaries as customers for fear of federal sanctions. As such, less than 1% of all banks and credit unions nationwide provide banking services to cannabis businesses.
2. What is the Problem? Existing law requires that a person remit tax liability due by an EFT if the estimated tax liability averages $10,000 or more per month. A 10% penalty of the tax amount due is added if other means are utilized. Because many banks and credit unions refuse to accept medical dispensaries as customers for fear of federal sanctions, dispensaries that are remitting their tax liability have to pay a 10% penalty in order to comply with the law. Existing law also allows the BOE to waive the 10% penalty for medical marijuana dispensaries if it can be shown that the failure to utilize an EFT is due to reasonable cause and circumstances beyond the person’s control, and occurred notwithstanding the exercise of ordinary care and in the absence of willful neglect. However, the waiver must be requested and obtained every time amounts due are remitted in a manner other than EFT, which creates an unfair administrative burden for cash-only industries. It appears, therefore, that the problem is not the imposition of a penalty but the burden of having to request the waiver. This bill alleviates the administrative burden on both parties by allowing medical marijuana dispensaries to remit tax liability due, until January 1, 2021, in a method other than an EFT.

Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916) 319-2098 FN: 0002579

Date of Hearing: January 21, 2016

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Jimmy Gomez, Chair

ABPCA Bill Id:AB 821

Author:(Gipson) – As Amended Ver:January 13, 2016

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill, until January 1, 2022, authorizes the Board of Equalization (BOE) to allow medicinal marijuana dispensaries whose tax liability averages $10,000 or more per month, to make payment by other than electronic fund transfers.

FISCAL EFFECT:

Minor administrative savings to the BOE in reduced requests for relief of penalties to specific individuals who currently make cash payments in excess of $10,000.

COMMENTS:

1. Background. Current law requires that any person whose estimated tax liability to the BOE exceeds $10,000 per month remit those amounts by electronic fund transfers. Failure to make the payments by electronic fund transfer results in a penalty equal to 10% of the funds incorrectly transmitted. Current law does allow the BOE to waive the penalty for good reason, if a waiver request is made; however the penalty is waived after a taxpayer is billed for the penalty, and the taxpayer is billed every time these excessive cash payments are made.

Currently, nearly all financial institutions refuse to do business with medical marijuana dispensaries due to federal law implications. Consequently, these establishments are unable to comply with existing law and the corresponding penalty is waived, but not before a taxpayer is billed and a waiver request is submitted to the BOE.

1. Purpose. According to the author, "AB 821 seeks to increase voluntary payments of sales and use taxes by providing businesses that are "unbankable" with an exemption to current requirements that sales and use taxes over $10,000 be paid through an electronic funds transfer."

This bill will provide the BOE with the ability to establish an ongoing electronic funds transfer exemption for medicinal marijuana dispensaries in order to collect tax revenues due. This authority will sunset in five years.

Analysis Prepared by: Pedro R. Reyes / APPR. / (916) 319-2081

Date of Hearing: January 11, 2016

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Philip Ting, Chair

ABPCA Bill Id:AB 821 (

Author:Gipson) – As Amended Ver:January 4, 2016

Majority vote. Fiscal committee.

SUBJECT: Sales and use taxes: administration: payments

SUMMARY: Authorizes that the Board of Equalization (BOE) to allow a person to remit tax liability due in a method other than an electronic funds transfer (EFT) if the BOE deems it necessary to facilitate the collection of amounts due.

EXISTING LAW:

1. Provides that any person whose estimated tax liability averages $10,000 or more per month shall remit the amounts due by an EFT. (Revenue and Taxation Code (R&TC) 6479.3.)
2. Provides that any person required to remit taxes who remits those taxes by means other than appropriate EFT shall pay a penalty of 10% of the amount of taxes. (R&TC Section 6479.3.)
3. Allows the BOE to relieve a person of the 10% penalty if that person’s failure to utilize an EFT is due to reasonable cause and circumstances beyond the person’s control, and occurred notwithstanding the exercise of ordinary care and in the absence of willful neglect. (R&TC Section 6479.4.)

FISCAL EFFECT: Unknown

COMMENTS:

1. Author’s Statement. The author has provided the following statement in support of this bill:

Currently, due to the fact that marijuana is still federally classified as a Schedule 1 substance, the medical marijuana industry has been rendered “unbankable.” This leads to companies having to hold large amounts of cash and requires that tax payments be made in cash as well.

This bill seeks to support the state’s collection of tax payments by removing the penalty associated with cash tax payments above $10,000 a month in cases where an industry has lack of access to banking services.

1. Arguments in Support. According to proponents of this bill, “[c]urrent law states taxpayers whose estimated liabilities average $10,000 or more per month are required to remit their tax amounts due by EFT and must pay penalties of 10 percent (or six percent for prepayments) if they fail to do so. These penalties can be voluntarily waived for good reason, but the waiver must be requested and obtained with every payment. This creates an unfair burden on those who, for a variety of reasons, must pay with cash – for example, operators of catering trucks”
2. Background. Individuals who run a marijuana dispensary in compliance with California law are currently shut off from the banking system. Marijuana is classified as a Class I drug and the cultivation, sale, and possession can constitute a felony. Therefore, the majority of banks and credit unions have decided not to accept marijuana dispensaries as customers for fear of federal sanctions. As such, less than 1% of all banks and credit unions nationwide provide banking services to cannabis businesses.
3. What is the Problem? Existing law requires that a person remit tax liability due by an EFT if the estimated tax liability averages $10,000 or more per month. A 10% penalty of the tax amount due is added if other means are utilized. Because many banks and credit unions refuse to accept medical dispensaries as customers for fear of federal sanctions, dispensaries that are remitting their tax liability have to pay a 10% penalty in order to comply with the law. Existing law also allows the BOE to waive the 10% penalty for medical marijuana dispensaries if it can be shown that the failure to utilize an EFT is due to reasonable cause and circumstances beyond the person’s control, and occurred notwithstanding the exercise of ordinary care and in the absence of willful neglect. However, the waiver must be requested and obtained every time amounts due are remitted in a manner other than EFT, which creates an unfair administrative burden for cash-only industries. It appears, therefore, that the problem is not the imposition of a penalty but the burden of having to request the waiver. It is unclear, however, how this bill will eliminate the administrative burden currently experienced by cash industries. Since this bill does not exempt the medical marijuana industry, it appears that dispensaries would still be subject to the 10% tax penalty and a request for a waiver under the provisions of this bill would still have to be submitted to the BOE.
4. Overly Broad Solution. Under the broad language of this bill, the BOE may eliminate the 10% penalty provision for any reason that the BOE deems to be necessary to facilitate the collection of amounts due, which may include businesses beyond medical marijuana dispensaries. The broad language may also make it difficult for taxpayers to challenge an unfavorable ruling by the BOE since this bill provides no clear standard by which to judge a decision. Therefore, the Committee may wish to amend the bill to ensure that the EFT requirement is not mandated on medical marijuana dispensaries. Additionally, the Committee may wish to add a five year sunset in case the federal government makes changes in the future that would allow medical marijuana dispensaries to utilize the banking system.

REGISTERED SUPPORT / OPPOSITION:

Support

Americans for Safe Access

Board of Equalization Member, District 3

Board of Equalization Member, District 2

Board of Equalization Member, District 1

California Growers Association

3C Medical, LP

4 individuals

Opposition

None on file

Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916) 319-2098