May 152011

For the last couple of years, medical marijuana has been a booming business in San Jose, but now it’s also a promising new source of tax revenue, according to new figures released by the city’s finance department.

San Jose officials say the city’s medical marijuana collectives paid $290,000 in the first month the city levied a 7 percent tax on businesses selling the drug, John Woolfolk reports in the San Jose Mercury Register.

Councilman Pierluigi Oliverio, who has led the city effort to regulate and tax medical marijuana collectives, called it a positive sign for the cash-strapped city that expects to lay off hundreds of workers this year to close a $115 million budget deficit.

Voters in November overwhelmingly approved an Oliverio-sponsored measure allowing the marijuana tax, which the council later set at 7 percent. Oliverio noted that if tax payments continue at the same level, the city would reap about $3.4 million a year from the tax.

“The new revenue collected has the potential to cover approximately 17 to 18 police officers or three libraries year-round,” Oliverio said.

But that revenue might drop as a result of the City Council’s decision last month to reduce the number of pot clubs from more than a 100 to 10. But it’s also possible the remaining clubs would become much larger and sell the same amount of marijuana as is being sold now.

The $290,000 was collected during the month of March, when the new tax took effect, and was paid by 73 collectives. Four collectives also have already paid their April tax, contributing an additional $20,000.

The marijuana tax is in addition to the city’s business tax and state sales taxes, some of which are retained by the city.

But city records indicate about a quarter of the collectives may not be complying with the new tax law.

City officials have identified 105 collectives that have been issued city business tax certificates.

Officials said failure to pay triggers a 25 percent penalty, plus interest on late taxes.

On Friday, officials did not say which collectives complied with the new tax or how much each paid individually. But David Hodges, who founded the All American Cannabis Club collective, said his was among the dispensaries that didn’t pay the tax.

“I did not pay it because the language in it would make what we are doing not legal,” Hodges said.

But Goose Duarte, assistant general manager of the Harborside Health Center, said the dispensary is eager to comply with the city’s rules.

“We’re supportive of any regulations that the city puts into place that allow dispensaries to function in the city,” he said.

Duarte said that the collective hasn’t passed the 7 percent tax onto its patients. He said, however, that the added cost has forced the business to trim ancillary services such as acupuncture and counseling.

Those dispensaries that didn’t pay their tax can expect to hear from the city soon.

“Once we move forward on our staffing plan for compliance, we will immediately be following up with each of the businesses that did not submit a tax form to us,” city Finance Director Scott Johnson said. “We will look at each situation on a case-by-case basis to determine the extent of any tax, penalties and interest to be assessed.”

City code enforcement officials next week plan to mail notices to all the collectives advising them of the pending regulations.

On June 8, the city’s Planning Commission will review proposed marijuana collective zoning changes. The City Council will then vote on the zoning June 14, along with an ordinance regulating the clubs.

City officials expect in July to have more details on how collectives will apply to be among the 10 allowed to operate.

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