BILL ANALYSIS
SB 529
Page 1
Date of Hearing: July 2, 2007
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles Calderon, Chair
SB 529 (Migden) - As Amended: June 14, 2007
Majority vote. Fiscal committee.
SENATE VOTE : Not relevant
SUBJECT : Tax amnesty: medical cannabis dispensaries
SUMMARY : Requires the Board of Equalization (BOE) to administer
a tax amnesty program, as specified, for medical cannabis
dispensaries (MCDs). Specifically, this bill :
1)Provides that a MCD doing business in California, that has
failed to file a return or pay the state sales tax required
under the Sales and Use Tax Law, shall be relieved of
liability for state sales tax, additions to tax, interest, and
penalties on its sales of tangible personal property (TPP)
made before the effective date of this act, if both of the
following occur:
a) The MCD applies for voluntary disclosure relief in a
form prescribed by BOE no later than March 31, 2008; and
b) The MCD begins prospective compliance under the Sales
and Use Tax Law.
2)Specifies that a MCD begins prospective compliance when the
MCD makes a good faith effort to comply with the provisions of
the Sales and Use Tax Law, including obtaining a seller's
permit and filing returns and remitting amounts due, after the
effective date of this act. Provides that a MCD has made a
good faith effort to comply with the provisions of the Sales
and Use Tax Law when the MCD makes a reasonable and honest
effort to fulfill its duties and obligations as a seller of
TPP and does not intentionally or purposefully misrepresent
its tax obligations to BOE.
3)Provides that, if BOE finds that a MCD has failed to make a
good faith effort to comply with the Sales and Use Tax Law,
then BOE may disallow the relief provided by this act. BOE
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shall retain the right to audit MCDs and assess any tax,
penalty, and interest that may be determined to be due in
accordance with the Sales and Use Tax Law.
4)Provides that nothing in this act shall be construed to allow
for a refund to a MCD of any tax, interest, or penalty paid
before the effective date of this act, unless otherwise
allowed by law.
5)Specifies that the relief provided by this act shall not apply
to any MCD that has collected sales tax reimbursement before
the effective date of this act.
6)Provides that BOE shall separately identify in its records
MCDs that apply for voluntary disclosure relief under this
act.
7)Defines "MCD" or "dispensary" as any person or entity that
engages in retail sales of marijuana for medical purposes to
qualified patients or primary caregivers under the
Compassionate Use Act of 1996 and the Medical Marijuana
Program.
EXISTING LAW :
1)Imposes a sales tax, absent a specific exemption, on all
retailers for the privilege of selling TPP at retail in this
state.
2)Requires wholesalers and retailers of taxable TPP to apply to
BOE for a permit on a form prescribed by BOE.
3)Provides that persons who fail to file a return and pay their
tax obligations can be held liable for past tax obligations,
together with interest and penalties, for eight years. If one
files a return, the statute of limitations for past tax
liability is reduced to three years.
4)Allows persons or primary caregivers to cultivate or possess
marijuana for medical use when recommended by a physician.
However, the sale of marijuana, even for medical purposes,
remains illegal under both federal and state law.
FISCAL EFFECT : Pending
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Proposition 98 Fiscal Effects : Pending
COMMENTS :
1)The author states:
Medical Cannibus [sic] Dispensaries (MCDs) operate in
California under the constant possibility of raids by
agents from federal agencies including the Drug Enforcement
Administration, the Internal Revenue Service and the Secret
Service.
Moreover, MCDs have mostly operated without a California
sellers permit out of fear that registering with the state
could result in an increased likelihood of a federal raid -
due to information sharing agreements between federal and
state agencies. There have been over 50 raids of
California MCDs in the past two years.
There are over 400 MCDs in California today. The BOE has
been holding interested party meetings with many vendors
who would like to apply for a sellers permit and act in
accordance with California sales and use tax law. However
the liability for back taxes owed in addition to penalties
and interest is a major deterrent for these vendors from
complying.
SB 529 would offer MCDs a one time opportunity to comply
with the Board of Equalization sales tax program by March
31[,] 2008, and receive relief from back tax liability,
penalties and interest.
2)Proponents state, "We support [this] measure for many reasons,
with the largest being that under current law and practice,
Cannabis Clubs believe that they are immune from having to
comply with ANY AND ALL state laws that are not either
Proposition 65 (the actual Compassionate Use Of RX Cannabis
Act) OR SB 420 (Vasconcellous). As a result, the actions of
the majority of the businesses can only be compared to common
street drug dealers and thugs because they are not licensed,
do not comply with consumer protection laws, pay their
employees with 'product,' do not provide health insurance for
their employees or other general worker related practices, and
to add insult to injury, are abusing the good nature of the
people of the state of California by not obtaining tax
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certificates so they can pay their fair share of taxes."
3)Committee staff note that while some MCDs may take advantage
of the tax amnesty provided in this act, others will likely
continue to not report sales to BOE out of fear of federal
prosecution. This is especially true given that this act
requires BOE to separately identify in its records MCDs that
apply for amnesty.
Committee staff note that this bill provides amnesty to MCDs
for their sales of TPP. The author may wish to amend this
bill to provide that the amnesty shall only apply with respect
to past sales of medical marijuana to qualified patients or
their primary caregivers.
Committee staff note that this bill was amended in the
Assembly on June 14, 2007, to completely replace the prior
version of the bill passed out of the Senate, which dealt with
rigid plastic packaging.
Committee staff note that this measure would provide amnesty
for a MCD's underlying tax liability and not just interest and
fees. The author may wish to amend this bill to provide that
the amnesty shall only apply to interest and penalties and not
the underlying tax liability itself. Otherwise, this bill
runs the risk of actually rewarding non-filers.
Committee staff question whether the filing of an application
for amnesty could be considered a filing for purposes of
shortening the statute of limitations for past tax liability
from eight years to three. Under this bill, if a MCD files an
application for amnesty, and then fails to make a good faith
effort to comply with the Sales and Use Tax Law, BOE shall
retain the right to audit the MCD and assess any tax, penalty,
and interest. It is unclear, however, whether BOE would have
the power to audit for the past eight years or would be
limited to the past three years in such a circumstance.
Committee staff note that this bill only provides amnesty for
the state portion of the sales and use tax. If a MCD applies
for amnesty under this program, does the MCD open itself up to
potential liability for local sales tax owed on past sales?
Finally, committee staff suggest two technical amendments to
this bill. The first is designed to make the use of MCD
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terminology consistent throughout this bill. The second
specifies that the relief provided by this act shall not apply
to any liability attributable to sales by a MCD upon which
sales tax was collected prior to the effective date of this
act.
REGISTERED SUPPORT / OPPOSITION :
Support
The California Alliance for Consumer Protection
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098