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Medical Marijuana Ballot Initiative <br />June 3, 2014 <br />Page 8 <br />Cannabis Business License Tax and provide quarterly installment payments of the tax, as well as <br />any applicable sales tax. Based on the City's experience with current illegal collectives and <br />relevant research regarding the costs associated with regulating these uses, the tax rate and <br />regulatory fees proposed in the collective- backed initiative are not sufficient to cover the costs to <br />regulate these types of uses. <br />Nothing in Proposition 215 or the MMPA (SB 420) authorizes collectives, cooperatives, or <br />individuals to profit from the sale or distribution of marijuana. Generally, medical marijuana <br />collectives /cooperatives are organized as non - profits. Under Article XIII, Section 26 of the <br />California Constitution, certain non - profit organizations that meet the requirements of Chapter 4 <br />(commencing with Section 23701) of Part 11 of Division 2 of the Revenue and Taxation Code or <br />Subchapter F (commencing with Section 501) of Chapter 1 of Subtitle A of the Internal Revenue <br />Code of 1986 are exempt from local taxes measured by gross receipts or income. <br />Given the taxation issues created by the collective- backed initiative, should the City elect to <br />propose a competing initiative to regulate medical marijuana collectives /cooperatives, the <br />following components would be addressed in an amendment to Chapter 21 (Business License <br />Tax code) of the Santa Ana Municipal Code: <br />1. Include sufficient definitions to address the multitude of medical marijuana business <br />operations that may wish to open in the city including registered non - profit organizations, <br />limited liability corporations and for - profit organizations. <br />2. Include a definition and taxation rate for cultivation even though the regulatory component <br />of the proposed ordinance would not allow for cultivation. This will allow the city to impose <br />a tax obligation on any illegal cultivation sites in addition to the regulatory penalties. <br />Including this definition in the tax code will also provide greater flexibility should the State <br />supersede any City regulations regarding cultivation in the future. <br />3. Include a 5 -to -6% gross receipts tax rate applicable to medical marijuana collectives/ <br />cooperatives which do not meet the requirements for exemption from local taxes <br />measured by gross receipts or income with provisions to allow the City Council by <br />ordinance to increase this rate as needed up to a maximum rate of 10% to offset the costs <br />associated with the secondary and tertiary effects of medical marijuana businesses. <br />4. Include an alternate tax of up to one hundred dollars ($100) per square foot on all <br />improvements owned, rented, leased or otherwise occupied or used by medical marijuana <br />collectives /cooperatives that meet the requirements for exemption from local taxes <br />measured by gross receipts. The tax shall initially be set at a rate of fifteen dollars ($15) <br />per square foot with provisions to allow the City Council by ordinance to increase this rate <br />as needed up to a maximum rate of one hundred dollars ($100) per square foot to offset <br />the costs associated with the secondary and tertiary effects of medical marijuana <br />businesses. <br />L. W <br />