Pubdate: Tue, 11 Sep 2012
Source: San Jose Mercury News (CA)
Copyright: 2012 San Jose Mercury News
Contact:  http://www.mercurynews.com/
Details: http://www.mapinc.org/media/390
Author: Tracy Seipel

POT CLUBS THAT SKIRT CITY TAX LAWS TARGETED

Ordinance Would Shut Down Shops That Don't Pay All City Taxes

SAN JOSE - In an effort to crack down on San Jose businesses -
particularly medical marijuana shops - that skirt city tax laws, three
City Council members are proposing an ordinance that would shut them
down for not paying local taxes.

Council members Sam Liccardo, Rose Herrera and Pierluigi Oliverio
cited "millions" in business taxes not being paid in the past year
alone by marijuana clubs as required under Measure U.

That law, passed by 78 percent of voters in the fall of 2010, allows
the city to tax marijuana collectives up to 10 percent of their total
sales, though the council later adjusted that to a maximum of 7 percent.

"Although many marijuana dispensaries are law- abiding, several dozen
are saying, ' We're open for business, but we don't have any taxable
revenue,' " said Liccardo. "That sounds a lot like, ' I smoked, but I
didn't inhale,' and we need to clamp down on those businesses that
aren't paying their fair share."

A council committee will hear the proposal Wednesday to determine
whether it should be put on the council's agenda. The council trio
want their colleagues to address the issue at an October meeting when
they're expected to decide their top priorities through the fiscal
year that ends June 2013.

Their proposal offers two options: amend a section of the Municipal
Code to give the city the ability to shut down noncompliant marijuana
dispensaries and revoke their licenses, or consider enacting a broader
ordinance that empowers the city manager to shut down any business -
marijuana-related or not - for nonpayment of taxes and fees.

David Hodges, who founded the All American Cannabis Club, said the
council memo is directed at someone like him, who refuses to pay city
business taxes on the grounds that the medical marijuana collective is
a not-for-profi t business. Instead, he said, its 4,000 cooperative
members either grow the marijuana, work there, or contribute money to
the club to defray its operating costs.

"Our activities don't fall within taxable parameters," said Hodges,
who noted that the city contends he owes them about $ 250,000 in
business taxes since 2010.

But City Attorney Rick Doyle said he won't accept Hodges' explanation
until the city performs its own audit of Hodges' club.

"Iabsolutely understand the concern that you have a tax in place, and
not everybody is paying it," said Doyle. "Everyone should pay their
fair share."

But, he added, the council needs to ensure that proper staffi ng and
resources - both of which havebeen severely cut back over the years
because of budget woes- are in place to "get serious" about improving
enforcement, from tax collection to nuisance abatement.

The city is expecting a $ 22.5 million budget shortfall in fiscal year
2013- 14.

In their two-page memo, Liccardo, Herrera and Oliverio said that the
city collected more than $ 3.5 million in marijuana business tax
during the fi scal year ending June 30. However, they say, millions
more were not paid. According to the Department of Finance, 80 of the
city's 158 collectives paid either no tax or paid only sporadically.
Of those 80, 45 still operate.

They also cited a hotel on South First Street that they said has been
a "magnet of prostitution for several months, providing headaches to
nearby residents." The same hotel, the council members said, failed to
pay any Transient Occupancy Tax for years and owed the city hundreds
of thousands of dollars, yet the city had no authority to take action
to revoke the hotel's business license for nonpayment of taxes.

Rather, they said, the attorneys have become embroiled in time-
consuming litigation over nuisance issues, which require extensive
court hearings.

An ordinance, they said, could help shut down businesses that
constitute nuisances and ignore their tax payments.
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