Long Beach cannabis retailers and cultivators could get a tax break this year after the City Council requested an ordinance be drafted to lower rates for businesses that meet hiring and compensation markers and are up to date with their current tax payments.
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Currently, Long Beach charges a 6% excise tax on medical cannabis purchases and 8% on recreational adult-use sales. That’s on top of the city’s regular sales tax of 10.25% and the state’s excise tax of 15%.
The taxes have contributed millions of dollars annually to the city’s general fund since the retail industry began operating at capacity a few years ago, but retailers say they’ve undermined their ability to compete with the illicit market.
Tuesday’s vote advanced a 1 percentage point cut across the board for retailers with the opportunity to qualify for an additional 3 percentage points if they meet “good standing requirements.”
Cultivators would also get a tax break, with their square-footage tax dropping from $14.96 to $13.09, the equivalent of a 1 percentage point cut.
Any tax breaks would have to be passed along to customers.
One hurdle that could put the larger tax break out of reach for dispensary owners is that they’ll have to be caught up on prior tax payments before they’ll be eligible to apply for the new tax breaks.
Valencia Mota, the city’s manager of cannabis oversight, said that there is approximately $6.6 million in unpaid taxes. Under the proposed ordinance even businesses on payment plans wouldn’t qualify for the larger 3 percentage point cut. Mota said that the majority of businesses that are delinquent on their taxes are retailers.
Adult-use sales accounted for nearly $9 million of the roughly $13.4 million in cannabis tax revenue the city expected to collect last year. Multiple members of the council said they were concerned with the unpaid taxes and that they favored bringing those payments up to date before giving businesses any kind of deals.
“I do think we should have a heavy hand for those businesses that haven’t been compliant with our taxes,” said Councilmember Al Austin, who referenced a report last week that said the city could be staring down a $28 million budget deficit this year. “The city needs that revenue.”
Aside from being up to date with all permits and tax payments, businesses would have to meet several other requirements to qualify for the larger tax cuts, including having at least 40% of their staff be Long Beach residents and paying their employees between 110% and 115% of the state’s minimum wage.
Retailers would also have to support equity businesses by keeping their products in shops or providing mentoring and incubation support for equity operators.
If fully implemented, the tax cuts are projected to cost the city about $3 million annually, but it’s unclear how many businesses will end up qualifying for the largest reductions. The across-the-board 1 percentage point cut is anticipated to cost the city just over $1 million, according to data presented to the council Tuesday.
The council will still have to vote on the ordinance twice before the changes take effect, something that’s expected to happen in the coming months.
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