The cannabis industry in San Francisco expects to ease a little next year due to a proposed tax break likely to be advanced next week.
The enactment of the cannabis tax approved by voters in November 2018 got delayed as Supervisor Rafael Mandelman gave his one-year tax amnesty proposition. According to the budget analyst, The City’s estimated revenue loss and tax break are approximately $7.1 million.
Mandelman stated that he purposely intended to offer his proposal after Tuesday’s election. The suggestion includes three tax measures expected to produce money for the general fund. Proposition F is a business tax reform measure. Proposition I is an increase in real estate transfer tax. Proposition L is a surcharge in gross receipts when a CEO receives a lot more than the company’s employees.
“There is going to be a new revenue coming into the city,” Mandelman stated. “I think in light of that, in light of our efforts to support small businesses, this is not a time to be imposing a new tax on small business,” he added.
The proposal got approved by the Board of the Supervisors Budget and Finance on Wednesday. The full board expects to vote on the matter on Tuesday next week. The Office of Cannabis supports the suggested project.
Mandelman asserted that a tax break is necessary. When voters approved Proposition D back in 2018 to impose taxes, the expectation of the industry’s fast growth has heightened. However, city permitting delays are the primary source of slow progress.
Additionally, Mandelman stressed several other financial disputes that the cannabis industry faces. Few of the obstacles include a 15 percent state excise tax and IRS code section 280 that bans cannabis merchants from taking the usual business productions on expenses such as payroll and marketing that would lower their federal tax charges. The tax hike is expected to be implemented on January 1 of next year, provided that his legislation is approved.
“The California State Legislative Analyst’s Office has concluded that reducing cannabis tax rates would expand the legal market and reduce the size of the illicit market,” said Mandelman.
David Goldman, one of The Green Cross’ board of directors, stated that the tax hike would only promote the illicit market, hinder access, and increase costs for customers. According to Goldman, the price of cannabis will increase from 7 to 11 percent.
The chief compliance officer for NorCal Cannabis Company, AnnaRae Grabstein, expressed that the COVID-19 pandemic would worsen the tax difficulties.
“COVID-19 has been tremendously challenging in our cultivation and distribution environment,” wrote Grabstein in a letter to the board. “We have worked diligently to create new safety protocols and have paid financial support to staff to weather this pandemic,” she added.
Grabstein also noted that the pandemic impeded the efforts to adjust state taxes on cannabis.
“There is a consensus that overinflated cannabis taxes are threatening the ability of the legal market to mature and compete with illicit operators,” expressed Grabstein. According to her, there is no progress to improve state-level tax due to its postponement earlier this year by COVID-19.
Mandelman’s proposition stalls the implementation of a tax hike until January 2022. It also includes the adjustment of tax rates. For instance, the current tax excuses the first $500,000 in gross receipts, but that offers to increase to the first $1 million in gross receipts.
The latest tax has two rates for adult retail sales, 2.5 percent up to $1 million in gross receipts, and 5 percent for a surplus of $1 million. The proposition would register the 2.5 percent to the first $1.5 million in taxable gross receipts and 5 percent to gross receipt in surplus of $1.5 million.