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Sonoma County supervisors to consider cannabis tax relief options

The board on Tuesday is set to weigh a 10% cut in its cultivation tax, plus discuss a longer-term move to taxing growers on gross receipts instead of square footage.|

The debate over tax cuts for California’s struggling cannabis industry is returning to the Sonoma County Board of Supervisors Tuesday, where supervisors will consider a two-pronged tax-relief proposal.

In the short term, county staff are recommending the cultivation tax on growers be cut by 10%. The board is also set to review a longer-term plan that could switch the basis on which growers are taxed, going from square footage to gross receipts.

The proposals stem from a concerted push by industry advocates to ease the twin burdens of taxes and regulations. Local growers and others across California say they face going out business or back into the black market under the strain of paying state and local taxes and complying with a new host of land-use regulations.

A recent tax hike at the state level buoyed their calls for relief, and on Jan. 25 the Board of Supervisors unanimously approved a delay the due date for first quarter taxes to April 30.

But the assistance now proposed by county staff would come at a cost to taxpayers, reducing projected annual baseline tax revenue by $362,000, according to a staff report.

“What’s being proposed is a fairly modest piece of temporary tax relief,” Supervisor Chris Coursey said.

Cannabis cultivation and the county’s oversight rules have been a source of rancor for years, contributing to mounting tensions between neighbors and marijuana growers.

While cultivators say the county’s backlogged permitting system and fees are drowning small farmers, neighbors have voiced concerns over safety, water use and other neighborhood impacts, and have called for more stringent oversight.

“It’s an emotional issue for a lot of people,” Coursey said.

Under heavy pressure from cannabis opponents, the board last year committed to an extensive review of the county’s ordinance governing land use, including an environmental impact study. Tuesday staff will update the board with a framework outlining the review process.

However, the board’s tax relief discussion stands to have a more immediate impact.

Coursey said one of the factors he will consider is what the 10% reduction will mean for the county’s ability to cover the costs of its cannabis program. He said he wants to ensure growers have the ability to “stay legitimate within the bounds of the law,” but he does not want to use any of the county’s general fund to cover the reduced revenue.

County staff will have to answer that question Tuesday. A staff report notes the county’s available Cannabis Tax fund balance will be able to cover the 10% cut.

The second part of county staff’s tax relief proposal is to explore taxing cultivators by gross receipts rather than square footage — a change long sought by growers and industry advocates.

“We’ve been talking about this, the cultivators have been talking about this for awhile, they think it’s a fair way,” Supervisor Susan Gorin said. “There’s some concern that the (cultivators’) books may not be as transparent and accurate as possible and I tend to discount that.”

There are 171 permitted cultivators in county jurisdiction, totaling more than 2 million square feet, according to the staff report. Of those 171 cultivators, 141 are permitted for outside growing.

Sonoma County taxes growers at different rates on a per-square-foot basis for outdoor, indoor and mixed light crops. Cities can also add their own taxes.

For a cultivator who pays $40,700 annually in business taxes, those from the county amount to $8,450 or 21% of the total, the staff report said. The remainder go to the state, a point repeatedly raised by county officials in previous board discussions.

The state taxes growers by the ounce. State and local jurisdictions also charge excise tax at point-of-sale of up to 15%.

During previous discussions, including a Jan. 5 meeting, Supervisors David Rabbitt and Gorin have both pointed to the state as the main source of the financial burden facing growers.

Senate Majority Leader Mike McGuire has introduced a new bill, SB 1074, aimed at helping small cannabis cultivators by eliminating the cultivation tax in favor of a higher excise tax that would include growers.

Staff are requesting the board allow them until February 2023 to explore the costs and benefits of switching from square footage to gross receipts.

Supervisor Lynda Hopkins was unavailable to comment Monday. Rabbitt and Supervisor James Gore, the board chair, did not respond by deadline.

You can reach Staff Writer Emma Murphy at 707-521-5228 or emma.murphy@pressdemocrat.com. On Twitter @MurphReports.

Emma Murphy

County government, politics reporter

The decisions of Sonoma County’s elected leaders and those running county government departments impact people’s lives in real, direct ways. Your local leaders are responsible for managing the county’s finances, advocating for support at the state and federal levels, adopting policies on public health, housing and business — to name a few — and leading emergency response and recovery.
As The Press Democrat’s county government and politics reporter, my job is to spotlight their work and track the outcomes.

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