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Home My WebLink AboutItem 08 An Ordinance Establishing a Gross Receipts Tax on the the Sale of Marijuana in the City of Springfield AGENDA ITEM SUMMARY Meeting Date: 10/20/2014 Meeting Type: Regular Meeting Staff Contact/Dept.: Lauren King, Office of City Attorney Bob Duey, Finance Director Staff Phone No: 541-726-3740 Estimated Time: Consent Calendar S P R I N G F I E L D C I T Y C O U N C I L Council Goals: Financially Responsible and Stable Government Services ITEM TITLE: MARIJUANA TAX ACTION REQUESTED: Conduct a second reading and adopt/not adopt AN ORDINANCE ESTABLISHING A GROSS RECEIPTS TAX ON THE SALE OF MARIJUANA IN THE CITY OF SPRINGFIELD ISSUE STATEMENT: Should the City implement a marijuana gross receipts business license tax on all persons who sells marijuana within the boundaries of Springfield. The purpose of this ordinance is a pre-election response to State Ballot Measure 91 and preserving the City’s ability to tax or regulate the sale of legalized recreational and medical marijuana by state licensed dispensaries. ATTACHMENTS: Attachment 1: Council Briefing Memo Attachment 2: Ordinance Marijuana Tax DISCUSSION/ FINANCIAL IMPACT: See Council Briefing Memorandum M E M O R A N D U M City of Springfield Date: 10/20/2014 To: Gino Grimaldi COUNCIL From: Lauren King, Office of City Attorney Bob Duey, Finance Director BRIEFING Subject: Marijuana Tax MEMORANDUM ISSUE: Should the City implement a marijuana gross receipts business license tax on all persons who sell marijuana within the boundaries of Springfield? The purpose of this ordinance is in response to State Ballot Measure 91 and preserving the City’s ability to tax or regulate the sale of legalized recreational and medical marijuana by state licensed dispensaries COUNCIL GOALS/ MANDATE: Financially Responsible and Stable Government Services BACKGROUND: If passed by the voters, Ballot Measure 91 will allow adults 21 or older to recreationally use or grow marijuana. While Ballot Measure 91 is intended to only regulate recreational marijuana, the Measure presents language that may impact local governments’ ability to charge taxes or fees on recreational and medical marijuana. The proposed ordinance is being considered at this time in response to the State Measure’s intent that it would prohibit certain future regulatory and taxing authority on local jurisdictions upon the passage of the measure. Oregon voters legalized medical marijuana via initiative petition in 1999. The 2013 Oregon Legislature passed HB 3460, which created a regulatory and licensing regimen for medical marijuana dispensaries. As of October 6, 2014, there are three approved dispensaries in Springfield. On July 21, 2014, Council passed Ordinance 6324—amending the Springfield Municipal Code to regulate medical marijuana dispensaries and create a business license requirement. At that time, Council directed staff to return with amendments to the Springfield Development Code that regulate the siting of the medical marijuana dispensaries. Per Oregon land use law requirements, the Department of Land Conservation and Development has been notified of the land use changes. Staff is scheduled to bring the draft Development Code changes to the Planning Commission in a work session on January 12, 2015 and a public hearing on February 2, 2015. Additionally, Oregon voters will vote on Ballot Measure 91 this November. If passed by the voters, Ballot Measure 91 will allow adults 21 or older to recreationally use or grow marijuana (and make products in small amounts for noncommercial purposes). Overview of Ballot Measure 91—Legalized Recreational Marijuana Initiative Measure 91 authorizes commercial production, processing and retail subject to licensing by Oregon Liquor Control Commission (OLCC). OLCC will begin accepting license applications on or before January 2016. Measure 91 is not intended to amend or alter the Oregon Medical Marijuana Act; regulation of medical marijuana will remain under Oregon Health Authority’s jurisdiction. ATTACHMENT 1 Page 1 of 3 OLCC will levy a tax against producers $35 per ounce for flowers, $10 per ounce for leaves, and $5 per immature plant. The tax proceeds will be deposited into “Oregon Marijuana Account.” The Marijuana Account will be separate from the State’s General fund. Tax proceeds will then be distributed as follows: • 40% to Common School Fund • 20% to State’s Mental Health Alcoholism and Drug Services • 15% to State Police • 10% to cities—to assist local law enforcement in performing its duties under the act. (Prior to 2017 the distributions will be made according to population; after 2017 the distributions will be based on population and number of licenses issued by OLCC) • 10% to counties—to be administered in the same manner as cities • 5% to OHA for alcohol and drug abuse prevention Local Medical and Recreational Marijuana Tax There is nothing in current Oregon law that prohibits a local government from taxing or charging fees on medical or recreational marijuana. However, as with any major legislative change, there are many unknowns. While Ballot Measure 91 is intended to only regulate recreational marijuana, the Measure presents language that may impact local governments’ ability to charge taxes or fees on medical and recreational marijuana. In particular, it is unclear as to how the courts might interpret Section 42 of Ballot Measure 91. That section provides that “[n]o county or city of this state shall impose any fee or tax, including occupation taxes, privilege taxes and inspection fees, in connection with the purchase, sale, production, processing, transportation, and delivery of marijuana items.” This language can be interpreted to read that no city shall impose any fee or tax after the date of the measure. Therefore, it could be argued that this language would not pre-empt any taxation ordinance passed by the Council. On the other hand, the language can be read to indicate that no city shall be allowed to at any time impose any fee or tax. In addition to Section 42 (taxation preemption), Section 58 specifically provides that the Measure shall “fully replace and supersede any and all municipal charter enactments or local ordinances inconsistent with it.” Accordingly, a court could find that a tax or fee is inconsistent with the Ballot Measure and declare that tax or fee invalid. Absent adjudication, there is no guarantee that a local tax or fee on marijuana imposed prior to the passage of Ballot Measure 91 would survive beyond the effective date of the initiative. Alternatively, the Legislature may modify the language to allow taxes or fees passed prior to the passage of the Measure be grandfathered or repeal the prohibition on the local taxation of marijuana entirely. While nothing prohibits local governments from taxing or charging business license fees on medical marijuana, Ballot Measure 91 may also impact a city’s ability to tax medical marijuana. Section 42, potentially, could be interpreted to prohibit local governments from taxing or charging fees on any marijuana items, including medical marijuana. Similar to the discussion above, absent adjudication or legislative changes it is unclear should Ballot Measure 91 pass whether taxes or fees on medical marijuana will be upheld. PROPOSED ORDINANCE Attachment 2 is the proposed ordinance drafted in response to the Council work session held on this topic on September 22nd. The first reading and public hearing on the ordinance was held on October 13th. The timeline for this review and the State’s measure if it is successful is: ATTACHMENT 1 Page 2 of 3 • October 13 – conduct a first reading and public hearing • October 20 – hold a second reading and pass proposed ordinance with a standard 30 day waiting period • November 4 – state-wide election • November 20 – effective date of local ordinance • December 04 – effective date of state ballot measure (if passed by voters) and constitution requirement for 30 day waiting period The local ordinance was drafted to not exclude the sale of medical marijuana from a state licensed medical marijuana dispensary. This recommended exclusion for this initial ordinance is in response to Section 58 of the state measure that may place additional limitations on actions taken earlier by local agencies. In this case if the ability of the City to charge for a business license for state licensed medical marijuana dispensaries may be called into question, the City may want to preserve the ability to levy a tax on medical marijuana sales to continue to offset the cost of local regulatory issues. This option for including an exclusion could still be considered between the passage of this ordinance and the possible January 01, 2016 date for sale of recreation marijuana. At this time, however, there are many uncertainties about the interpretation of the state measure’s language and the possible impacts on the measure’s implementation that may resolve at the State legislature. The proposed ordinance delays the exclusion for medical marijuana dispensaries until the State has finalized their position on these matters and then the Council could revisit this discussion in the fall of 2015. RECOMMENDED ACTION: Conduct a second reading and adopt/not adopt an ordinance establishing a gross receipts business license tax on the sale of marijuana in the City of Springfield. ATTACHMENT 1 Page 3 of 3