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Home My WebLink AboutRes 2018-89 Setting Cannabis Business Tax RatesSTAFF REPORT CITY OF PALM DESERT DEPARTMENT OF COMMUNITY DEVELOPMENT DATE: December 13, 2018 PREPARED BY: Eric Ceja, Principal Planner REQUEST: Consideration of approval of a resolution adopting taxation rates for cannabis businesses operating within the City of Palm Desert. Recommendation Waive further reading and adopt City Council Resolution No. 2018- 89 , establishing tax rates and authorize the Director of Finance to establish a tax collection policy for cannabis businesses operating within the City of Palm Desert. Strategic Plan Taxation rates for cannabis businesses will be used for General Fund purposes and will assist with the Public Safety & Emergency Services mini -vision, which states: "The vision is for a high quality of life for Palm Desert as a result of its comprehensive public safety services." Executive Summary, In 2018, voters approved Measure Q, an initiative to tax certain cannabis businesses in the City of Palm Desert. The City Council needs to pass a resolution establishing the tax rates as approved by voters. In addition to establishing the taxation rates, the attached City Council resolution also authorizes the City's Director of Finance to develop and implement a tax collection policy specific to cannabis businesses. Discussion This past July, the City Council adopted Resolution 2018-61. This resolution supported the placement of a general tax measure on certain cannabis businesses on the November 2018 General Municipal Election. In the November 2018 General Municipal Election, voters overwhelmingly approved Measure Q with nearly 77% voting in favor of the proposed tax. The cannabis tax rates approved by voters established a limit on how much the businesses could be charged, and authorized the City Council to establish a tax rate that does not exceed the approved limits. The measure approved by voters included the following maximum limits on tax rates for cannabis businesses: G:\Planning\Eric Ceja\Cannabis\Tax\CC Staff Report - Taxes.doc December 13, 2018 - Staff Report Cannabis Taxation Page 2 of 2 Business Type Cultivation Manufacturer Retail and Delivery Research and Testing Max. amount allowed under Measure Q $20 per square foot 3% of gross receipts 15% of gross receipts No Tax Staff recommended rate $13 per square foot 2% of gross receipts 10% of gross receipts No Tax These initial rates are within the limits approved by voters. Staff is recommending these rates to be in -line with tax rates of other Coachella Valley cities. In addition, staff did discuss the proposed rates with approved cannabis operators in the City; many voicing support for the proposed starting rates. Fiscal Analysis Implementation of the proposed tax rates is estimated to generate up to $3,608,000 annually from cannabis businesses. Total square footage of two (2) cultivators 16,000 sq. ft. x $13 = $ 208,000 Total square footage of four (4) manufacturers $20,000,000 x 2% = $ 400,000 1 Estimated gross revenue for six (6) dispensaries $30,000,000 x 10% = $3,000,000 1 TOTAL $3,608,000 1 These estimates were calculated based on the cannabis businesses that have been approved through the City's Cannabis Regulatory and Conditional Use Permit process. There is no fiscal impact associated with the management of the City's tax collection policy. LEGA ' EVIEW DEPT. REVIEW FINANCIAL REVIEW CITY MANAGER Robe W. City Attorney reaves Ryan Stendell Moore Director of Community Director of Finance Development ATTACHMENTS: 1. Draft City Council Resolution No. 2018- 89 Lauri Aylaian City Manager G:\Planning\Eric Ceja\Cannabis\Tax\CC Staff Report - Taxes.doc RESOLUTION NO. 2018- 89 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM DESERT, CALIFORNIA, SETTING CANNABIS BUSINESS TAX RATES WHEREAS, on October 12, 2017, the Palm Desert City Council ("City Council") of Palm Desert ("City") approved Ordinance No. 1329 allowing for commercial cannabis related land -uses including cultivation, manufacturing, testing and research, distribution, delivery, and retail sales of cannabis within the City; and WHEREAS, on July 12, 2018, the City Council at a regularly held City Council meeting adopted Resolution No. 2018-61 calling for the placement of a General Tax Measure on the ballot for the November 6, 2018, General Municipal Election for the submission to qualified voters of a proposed ordinance establishing a tax on cannabis businesses operating within the City of Palm Desert ("Cannabis Tax Measure"); and WHEREAS, the Cannabis Tax Measure passed by a majority vote of the People on November 6, 2018; and WHEREAS, the Cannabis Tax Measure added Chapter 3.50 Cannabis Business Tax to the City of Palm Desert Municipal Code ("Municipal Code"); and WHEREAS, Municipal Code Chapter 3.50 provides that tax rates can be set at a maximum of (1) twenty dollars ($20) per square foot of space utilized in connection with cannabis cultivation business, (2) three ($0.03) cents for each one dollar ($1) of gross receipts, or a fractional part thereof, for cannabis manufacturing businesses, and (3) fifteen ($0.15) cents for each one dollar ($1) of gross receipts, or a fractional part thereof for cannabis retail businesses; and WHEREAS, as allowed by Proposition 218, Municipal Code Chapter 3.50 further provides that the City Council may impose the tax detailed above at a lower rate without a vote of the People; and WHEREAS, at the regularly held City Council meeting on July 12, 2018, the City Council discussed initially setting the tax rates at (1) thirteen dollars ($13) per square foot of space utilized in connection with cannabis cultivation businesses, (2) two ($0.02) cents for each dollar ($1) of gross receipts for cannabis manufacturing businesses, and (3) ten ($0.10) cents for each dollar ($1) of gross receipts for cannabis retail businesses; and WHEREAS, at the regularly held City Council meeting on July 12, 2018, the City Council agreed to set initial cannabis business tax rates by separate Resolution in the event the Cannabis Tax Measure passed; and WHEREAS, the City Council now wishes to set the initial tax rates for cannabis businesses operating within the City by Resolution. RESOLUTION NO. 2018- NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF PALM DESERT, CALIFORNIA, DOES HEREBY RESOLVE, DECLARE, DETERMINE, AND ORDER AS FOLLOWS: SECTION 1. Incorporation of Recitals. The Recitals set forth above are true and correct and are incorporated into this Resolution by this reference. SECTION 2. Cannabis Business Tax Rates,. Pursuant to Section 3.50.030 and 3.50.050 of the Municipal Code, the City Council of the City of Palm Desert hereby sets the tax rates for cannabis businesses as follows: A. Thirteen dollars ($13) per square foot of space utilized in connection with cannabis cultivation businesses. B. Two ($0.02) cents for each $1.00 of gross receipts for cannabis manufacturing businesses; and C. Ten ($0.10) cents for each $1.00 of gross receipts for cannabis retail businesses. SECTION 3. CEQA. The City Council hereby finds and determines that this Resolution relates to organizational or administrative activities of governments that will not result in direct or indirect physical changes in the environment, and therefore is not a project within the meaning of the California Environmental Quality Act ("CEQA") and the State CEQA Guidelines, Section 15378(b)(5). SECTION 4. Severabilitv. If any provision of this Resolution or the application thereof to any person or circumstance is held invalid, such invalidity shall not affect other provisions or applications of the Resolution which can be given effect without the invalid provision or application, and to this end the provisions of this Resolution are severable. The City Council hereby declares that it would have adopted this Resolution irrespective of the invalidity of any particular portion thereof. SECTION 5. Effective Date of Resolution., This Resolution shall take effect immediately upon its adoption. PASSED, APPROVED AND ADOPTED by the City Council of the City of Palm Desert, California, at its regular meeting held on this 13th day of December 2018. AYES: NOES: ABSENT: ABSTAIN: RESOLUTION NO. 2018- SABBY JONATHAN, MAYOR ATTEST: RACHELLE D, KLASSEN, CITY CLERK CITY OF PALM DESERT, CALIFORNIA APPROVED AS TO FORM: ROBERT HARGREAVES, CITY ATTORNEY CITY OF PALM DESERT COMMUNITY DEVELOPMENT DEPARTMENT CITY COUNCIL RESOLUTION MEMORANDUM To: Honorable Mayor and Members of the City Council From: Eric Ceja, Principal Planner Date: December 13, 2018 Subject: Resolution 2018-89: Cannabis Business Tax Rates Staff has prepared a revised resolution to establish January 1, 2019 as the effective date for cannabis business taxes. • IC CEJA PRINCIPAL PLA RESOLUTION NO. 2018- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM DESERT, CALIFORNIA, SETTING CANNABIS BUSINESS TAX RATES WHEREAS, on October 12, 2017, the Palm Desert City Council ("City Council") of Palm Desert ("City") approved Ordinance No. 1329 allowing for commercial cannabis related land -uses including cultivation, manufacturing, testing and research, distribution, delivery, and retail sales of cannabis within the City; and WHEREAS, on July 12, 2018, the City Council at a regularly held City Council meeting adopted Resolution No. 2018-61 calling for the placement of a General Tax Measure on the ballot for the November 6, 2018, General Municipal Election for the submission to qualified voters of a proposed ordinance establishing a tax on cannabis businesses operating within the City of Palm Desert ("Cannabis Tax Measure"); and WHEREAS, the Cannabis Tax Measure passed by a majority vote of the People on November 6, 2018; and WHEREAS, the Cannabis Tax Measure added Chapter 3.50 Cannabis Business Tax to the City of Palm Desert Municipal Code ("Municipal Code"); and WHEREAS, Municipal Code Chapter 3.50 provides that tax rates can be set at a maximum of (1) twenty dollars ($20) per square foot of space utilized in connection with cannabis cultivation business, (2) three ($0.03) cents for each one dollar ($1) of gross receipts, or a fractional part thereof, for cannabis manufacturing businesses, and (3) fifteen ($0.15) cents for each one dollar ($1) of gross receipts, or a fractional part thereof for cannabis retail businesses; and WHEREAS, as allowed by Proposition 218, Municipal Code Chapter 3.50 further provides that the City Council may impose the tax detailed above at a lower rate without a vote of the People; and WHEREAS, at the regularly held City Council meeting on July 12, 2018, the City Council discussed initially setting the tax rates at (1) thirteen dollars ($13) per square foot of space utilized in connection with cannabis cultivation businesses, (2) two ($0.02) cents for each dollar ($1) of gross receipts for cannabis manufacturing businesses, and (3) ten ($0.10) cents for each dollar ($1) of gross receipts for cannabis retail businesses; and WHEREAS, at the regularly held City Council meeting on July 12, 2018, the City Council agreed to set initial cannabis business tax rates by separate Resolution in the event the Cannabis Tax Measure passed; and WHEREAS, the City Council now wishes to set the initial tax rates for cannabis businesses operating within the City by Resolution. WHEREAS, the tax rates for cannabis businesses will be effective beginning January 1,2019;and RESOLUTION NO. 2018- NOW, THEREFORE, THE CiTY COUNCIL OF THE CITY OF PALM DESERT, CALIFORNIA, DOES HEREBY RESOLVE, DECLARE, DETERMINE, AND ORDER AS FOLLOWS: SECTION 1. Incorporation of Recitals. The Recitals set forth above are true and correct and are incorporated into this Resolution by this reference. SECTION 2. Cannabis Business Tax Rates. Pursuant to Section 3.50.030 and 3.50.050 of the Municipal Code, the City Council of the City of Palm Desert hereby sets the tax rates for cannabis businesses as follows: A. Thirteen dollars ($13) per square foot of space utilized in connection with cannabis cultivation businesses. B. Two ($0.02) cents for each $1.00 of gross receipts for cannabis manufacturing businesses; and C. Ten ($0.10) cents for each $1.00 of gross receipts for cannabis retail businesses. SECTION 3. CEQA.. The City Council hereby finds and determines that this Resolution relates to organizational or administrative activities of governments that will not result in direct or indirect physical changes in the environment, and therefore is not a project within the meaning of the California Environmental Quality Act ("CEQA") and the State CEQA Guidelines, Section 15378(b)(5). SECTION 4. Severability. If any provision of this Resolution or the application thereof to any person or circumstance is held invalid, such invalidity shall not affect other provisions or applications of the Resolution which can be given effect without the invalid provision or application, and to this end the provisions of this Resolution are severable. The City Council hereby declares that it would have adopted this Resolution irrespective of the invalidity of any particular portion thereof. SECTION 5. Effective Date of Resolution. This Resolution shall take effect immediately upon its adoption. PASSED, APPROVED AND ADOPTED by the City Council of the City of Palm Desert, California, at its regular meeting held on this 13th day of December 2018. AYES: NOES: ABSENT: ABSTAIN: RESOLUTION NO. 2018- SABBY JONATHAN, MAYOR ATTEST: RACHELLE D, KLASSEN, CITY CLERK CITY OF PALM DESERT, CALIFORNIA APPROVE❑ AS TO FORM: ROBERT HARGREAVES, CITY ATTORNEY