South El Monte Municipal Code Ch. 3.40 Cannabis Business Tax

The following definitions apply to this chapter unless the context clearly denotes otherwise. Terms not defined herein shall be given the definitions set forth in Chapter 5.26 of this Code.

"Cannabis"

shall have the meaning set forth in Section 5.26.030 of this Code.

"Cannabis products"

shall have the meaning set forth in Section 5.26.030 of this Code.

"City"

means the city of South El Monte.

"City manager"

means the city's city manager, or his or her designee.

"Code"

shall mean the South El Monte Municipal Code.

"Commercial cannabis operation"

shall have the meaning set forth in Section 5.26.030 of this Code.

"Commercial cannabis activity" and "cannabis business"

shall be synonymous with "commercial cannabis operation."

"Cultivation"

shall have the meaning set forth in Section 5.26.030 of this Code.

"Delivery"

shall have the meaning set forth in Section 5.26.030 of this Code.

"Distribution"

shall have the meaning set forth in Section 5.26.030 of this Code.

"Distributor"

shall have the meaning set forth in Section 5.26.030 of this Code.

"Edible"

shall have the meaning set forth in Section 5.26.030 of this Code.

"Location"

shall have the meaning set forth in Section 5.26.030 of this Code.

"Manufacture" or "manufacturing"

shall have the meaning set forth in Section 5.26.030 of this Code.

"Manufactured cannabis"

means raw cannabis that has undergone a process whereby the raw agricultural product has been transformed into a concentrate, an edible product, or a topical product.

"Manufacturer"

shall have the meaning set forth in Section 5.26.030 of this Code.

"Marijuana"

has the same definition as "cannabis."

"Operation"

means a "commercial cannabis operation."

"Permit" or "local permit"

means a commercial cannabis operation permit, as that term is defined in Section 5.26.030 of this Code.

"Person"

shall have the meaning set forth in Section 5.26.030 of this Code.

"Proceeds"

means total amount of gross revenue actually received or receivable by a commercial cannabis operation from all sales of goods of any kind, including, but not limited to, cannabis and cannabis products; the total amount of compensation actually received or receivable for the performance of any act or service whatever nature it may be, including, but not limited to, commercial cannabis activity, from which a charge is made or credit allowed, whether such service is done singly and/or as part of or in connection with the sale of materials; goods, wares or merchandise; discounts, rents, royalties, fees, commissions, dividends or other gains. Proceeds includes all receipts, cash, credits and property of any kind or nature, consideration of any nature, without any deduction therefrom on account of the cost of property sold, the cost of materials used, labor or services costs, interest paid or payable or losses or other expenses or deduction whatsoever. Excluded from proceeds are any taxes required by law to be added to the purchase and collected from the consumer or purchaser, such part of the sales price of any property returned by the purchaser to the seller as refunded by the seller by way of cash or credit allowances or return of refundable deposits previously included in proceeds. Proceeds may also exclude such other amounts that may be permitted by the city manager as not being included in proceeds pursuant to administrative rulings or instructions provided by the city manager. "Proceeds" is intended to include all gross revenue of the commercial operation whether for commercial cannabis activities or other activities (e.g., revenue from sales of other goods at the location).

"Retailer"

means a person engaged in the retail sale or delivery of cannabis or cannabis products to a customer. A retailer may be a storefront or non-storefront retailer.

"Space utilized as cultivation area"

shall mean any space or ground, floor or other surface area (whether horizontal or vertical) which is used during the cannabis germination, seedling, vegetative, preflowering, flowering and/or harvesting phases, including, without limitation, any space used for activities such as growing, planting, seeding, germinating, lighting, warming, cooling, aerating, fertilizing, watering, irrigating, topping, pinching, cropping, trimming, curing or drying cannabis or any such space available for or used for storing any products, supplies or equipment related to any such activities, no matter where such storage may take place or such storage space may be located. "Space used as cultivation area" shall include space used to cultivate cannabis plants on platforms and stack them in multiple layers on top of each other (i.e., vertical cultivation). "Space utilized as cultivation area" shall be calculated in square feet and measured using clearly identifiable and/or apparent boundaries, including all of the space within the boundaries. Such space may be noncontiguous but each unique area included in the total calculation shall be separated by an identifiable and/or apparent boundary, including, but not limited to, interior walls, shelves, and greenhouse walls, nursery wall or canopy walls, hoop house walls, garden benches, hedgerows, fencing, garden beds, or garden plots. "Space used as cultivation area" includes space which is immediately available for the activities described herein even if not being used at the time of determination. The city manager shall determine the "space utilized as cultivation area" during the initial term of the operation, and at least annually thereafter.

"Tax"

means the commercial cannabis tax and commercial cannabis cultivation tax imposed by this chapter.

"Term"

means such term or period of time as may be designated by the city manager for reporting or payment of tax; provided, however, that if no such term is designated, term shall mean a calendar month (meaning that the annual tax shall be divided by twelve for the appropriate fiscal year). Notwithstanding the foregoing, the term for payment of tax may be set on a monthly, quarterly, semi-annual or annual basis by the city manager. Taxes may be prorated to the extent the city manager provides for a term other than that specified above, to the extent a commercial cannabis operation commences on a date other than the first date of a term, upon cessation of the business, or for other appropriate reasons.

"Testing laboratory"

shall have the meaning set forth in Section 5.26.030 of this Code.

(Ord. 1260 §10, 2022)

A. Commercial Cannabis Tax (Non-Cultivation). Every person conducting a commercial cannabis operation other than cultivation in the city, regardless of whether such operation has a valid permit pursuant to this Code, shall pay, on a per-term basis, a commercial cannabis tax (non-cultivation) of not more than eight percent of the proceeds of the commercial cannabis operation.

B. Commercial Cannabis Cultivation Tax. Every person conducting a commercial cannabis operation involving cultivation in the city, regardless of whether such operation has a valid permit pursuant to this Code, shall pay a maximum commercial cannabis cultivation tax of no more than twenty-five dollars per square foot per fiscal year (July 1 to June 30) for space utilized as cultivation area. Notwithstanding the foregoing, taxes imposed on space utilized as cultivation area shall be adjusted annually on July 1 of each year, commencing July 1, 2023, after the date of imposition based on changes in the Consumer Price Index ("CPI") for All Urban Consumers in the Los Angeles-Long Beach-Anaheim areas (or similar index) as published by the United States Government Bureau of Labor Statistics for the prior calendar year; provided, however, no adjustment shall decrease any maximum tax imposed by this chapter.

C. Purpose of Tax. The revenue generated by the commercial cannabis tax and the commercial cannabis cultivation tax may be spent for unrestricted general revenue purposes.

D. Intent of Tax. The taxes provided for in this chapter do not authorize any commercial cannabis operation or use that is not otherwise expressly allowed by this Code. The taxes provided for in this chapter are intended to both allow the city to levy the taxes on commercial cannabis operations and uses that are authorized or allowed in the city as of the date of enactment of this chapter and to provide the city with the ability to levy the taxes on potential future commercial cannabis operations and uses that may after enactment of this chapter be allowed in the city by local ordinance or initiative. The taxes imposed by this chapter are in addition to all other applicable taxes imposed by this Code, including, but not limited to, the sales and use tax imposed by Chapter 3.04 of Title 3 and the business license fees imposed by Chapter 5.04 of Title 5.

E. Automatic Maximum Rates. The tax rates of the commercial cannabis tax (non-cultivation) and the commercial cannabis cultivation tax shall automatically be set at the maximum rates specified in this chapter each July 1 unless established otherwise at a lower rate by resolution or ordinance of the city council.

F. Authority to Levy Tax at Lower than Maximum Authorized Rate. The city council may, at any time, by resolution or ordinance and without voter approval, levy the tax at any rate lower than the maximum rate authorized by this chapter; provided, however, the maximum tax rate permitted to be levied without further voter approval shall be and remain the maximum tax rate set forth in this chapter.

G. Future Exemptions, Exceptions, Penalties and Interest Permitted. The city council may establish exemptions, incentives, or other reductions, and penalties and interest charges or determinations of tax due for failure to pay the tax in a timely manner, as otherwise allowed by this Code or California law. No action by the city council under this section shall prevent it from later increasing the tax or removing any exemption, incentive, or reduction, and thereby restoring the maximum tax specified in this chapter.

(Ord. 1260 §10, 2022)

A. Failure to pay the taxes set forth in this chapter shall be subject to penalties, interest charges, and determinations of tax due as set forth in this chapter and as the city council may establish, and the city may use any or all other enforcement remedies provided for in this Code, or pursuant to state law.

B. The payment of the tax required pursuant to this chapter shall not be construed as authorizing the conduct or continuance of any illegal business or of a legal business in an illegal manner. Nothing in this chapter shall be construed to authorize commercial cannabis operations.

C. Taxes provided for hereunder are not sales or use taxes and shall not be calculated or assessed as such. The taxes shall not be separately identified or otherwise specifically assessed or charged to any individual, consumer or customer; rather, the taxes are imposed upon the commercial cannabis operation.

D. The city manager shall promulgate rules, regulations, and procedures to implement and administer this chapter to ensure the efficient and timely collection of the tax imposed by this chapter, including, without limitation, formulation and implementation of penalties and interest to be assessed for failure to pay the tax as provided.

(Ord. 1260 §10, 2022)

The tax shall be due and payable as follows:

A. Each person owing tax, within forty-five days (or such other period as may be established by the city manager) after the conclusion of each term, shall prepare and submit a tax return to the city manager. The tax return shall include all information necessary to determine the amount of tax owed for the subject term, including the proceeds of the commercial cannabis operation (for all operations other than cultivation) and the total square footage of space utilized as cultivation area, for cultivation operations. At the time the tax return is filed, the full amount of the tax owed for the preceding term shall be remitted to the city. Where the term is set on an annual basis, the city manager may require prorated payments or estimated tax payments on more frequent intervals during the term, as such intervals may be established by the city manager.

B. All tax returns shall be completed on forms provided by the city manager.

C. Tax returns and payments for all outstanding taxes owed the city are immediately due to the city manager upon cessation of business of a commercial cannabis operation for any reason or upon sale of a commercial cannabis operation.

D. Whenever any payment, statement, report, request or other communication received by the city manager is received after the time prescribed by this section for the receipt thereof, but is in an envelope bearing a postmark showing that it was mailed on or prior to the date prescribed in this section for the receipt thereof, or whenever the city manager is furnished substantial proof that the payment, statement, report, request, or other communication was in fact deposited in the United States mail on or prior to the date prescribed for receipt thereof, the city manager may regard such payment, statement, report, request, or other communication as having been timely received. If the due date falls on a date the city hall is closed, or on a Saturday, Sunday, or federal holiday, the due date shall be the next regular business day on which the city hall is open to the public following the due date.

E. Unless otherwise specified in this chapter, taxes shall be deemed delinquent if not paid on or before the due date pursuant to this section.

F. The city manager is not required to send a delinquency or other notice or bill to any person subject to payment of tax pursuant to this chapter, and failure to send such notice or bill shall not affect the validity of any tax or penalty due under this chapter.

(Ord. 1260 §10, 2022)

Any person who fails or refuses to pay any tax required to be paid pursuant to this chapter on or before the due date shall pay penalties and interest as follows:

A. A penalty of no more than twenty-five percent of the amount of tax remaining unpaid (in addition to the amount of unpaid tax), plus interest on the unpaid tax calculated from the due date of the tax at a rate not to exceed twelve percent per year (or one percent per month), and these penalties and interest rates will automatically be set at the maximum amounts unless established otherwise as a lower amount by resolution of the city council.

B. Whenever a check is submitted in payment of a tax and the check is subsequently returned unpaid by the bank upon which the check is drawn, and the check is not redeemed prior to the due date, the taxpayer will be liable for the tax amount due plus penalties and interest as provided for in this section, as well as any other amount allowed under state law.

C. The tax due shall be that amount due and payable from the operative date of this chapter.

D. The city manager may waive the penalties of up to twenty-five percent each imposed upon any person if:

1. The person provides evidence satisfactory to the city manager that failure to pay timely was due to circumstances beyond the control of the person and occurred notwithstanding the exercise of ordinary care and the absence of willful neglect, and the person paid the delinquent tax and accrued interest owed the city prior to applying to the city manager for a waiver.

2. The waiver provisions specified in this subsection shall not apply to interest accrued on delinquent tax, and a waiver shall be granted no more than once during any twenty-four-month period for any given payor of commercial cannabis tax (non-cultivation), and no more than once during any five-year period for any given payor of commercial cannabis cultivation tax.

(Ord. 1260 §10, 2022)

A. No refund or claim shall be made of any tax collected pursuant to this chapter, except as provided in this section.

B. No refund of any tax collected pursuant to this chapter shall be made because of the discontinuation, dissolution, or other termination of an operation.

C. Any person entitled to a refund of taxes paid pursuant to this chapter may elect in writing to have such refund applied as a credit against cannabis business taxes for the next term.

D. Whenever the amount of any tax, penalty, or interest has been overpaid, paid more than once, or has been erroneously or illegally collected or received by the city under this chapter, such amount may be refunded to the claimant who paid the tax, provided that a written claim for refund is filed with the city manager if the claim is equal to or less than five thousand dollars and the city council if the claim is more than five thousand dollars. Refund claims must be filed as set forth above within one year of the subject tax payment pursuant to Government Code Section 911.2. Each person requesting a refund or making a claim shall file the claim as provided herein. The submission of a written claim, which shall be acted upon by the city manager if less than or equal to five thousand dollars or the city council if more than five thousand dollars, shall be a prerequisite to suit thereon. (See Section 935 of the California Government Code.) The city manager, or the city council where the claim is in excess of five thousand dollars, shall act upon the refund claim within the time period set forth in Government Code Section 912.4. If the city council fails or refuses to act on a refund claim within the time prescribed by Government Section 912.4, the claim shall be deemed to have been rejected by the city council on the last day of the period within which the city council was required to act upon the claim as provided in Government Code Section 912.4. The city manager or city clerk or other officer charged with such duty shall give notice of the action in a form that substantially complies with that set forth in Government Code Section 913. To the extent allowed by law, nothing herein shall permit the filing of a claim on behalf of a class or group of taxpayers unless each member of the class has submitted a written claim as provided by this Section 3.40.060.

E. The city manager shall have the right and authority to examine and audit all the books and business records of the claimant in order to determine the eligibility of the claimant to the claimed refund. No claim for refund shall be allowed if the claimant therefor refuses to allow such examination of claimant's books and business records after request by the city manager to do so. The authorization herein shall extend to any agent hired by the city to audit the books, including an independent auditor.

F. In the event that the tax was erroneously paid and the error is attributable to the city, the entire amount of the tax erroneously paid shall be refunded to the claimant. If the error is attributable to the claimant, the city shall retain the amount set forth in this chapter from the amount to be refunded to cover expenses.

G. The city manager shall initiate a refund of any tax which has been overpaid or erroneously collected whenever the overpayment or erroneous collection is revealed by a city audit of tax receipts. In the event that the tax was erroneously paid and the error is attributable to the city, the entire amount of the tax erroneously paid shall be refunded to the claimant. If the error is attributable to the claimant, the city shall retain the amount set forth in this chapter from the amount to be refunded to cover expenses.

(Ord. 1260 §10, 2022)

A. It shall be the duty of the city manager to enforce each and all of the provisions of this chapter.

B. For purposes of administration and enforcement of this chapter generally, the city manager, with the assistance of the city attorney, may from time to time promulgate administrative rules and regulations.

C. The city manager shall have the power to audit and examine all books and records of operations as well as persons engaged in the conducting of an operation, including both state and federal income tax returns, California sales tax returns, logs, receipts, bank records, or other evidence documenting the proceeds of the operation and/or space utilized as cultivation area, or persons engaged in the conduct of an operation, for the purpose of ascertaining the amount of tax, if any, required to be paid by the provisions of this chapter, and for the purpose of verifying any statements or any item thereof when filed by any person pursuant to this chapter. If such operation or person, after written demand by the city manager, refuses to make available for audit, examination or verification such books, records, or equipment as the city manager requests, the city manager may, after full consideration of all information within the city manager's knowledge concerning the operation and activities of the person so refusing, make a determination of tax due in the manner provided in Section 3.40.080.

D. The city manager shall have the power to enter upon the premises upon reasonable notice to the commercial cannabis operation at least once per term for the purposes of determining space utilized as cultivation area, to review items requested in subsection C of this section or as otherwise needed for enforcement of this chapter.

E. The conviction and punishment of any person for failure to pay the required tax shall not excuse or exempt such person from any civil action for the tax debt unpaid at the time of such conviction. No civil action shall prevent a criminal prosecution for any violation of the provisions of this chapter or of any state law requiring the payment of all taxes.

F. Any person violating any provision of this chapter or any regulation or rule passed in accordance herewith, or knowingly or intentionally misrepresenting to any officer or employee of the city any material fact, either concerning the operation and administration of this chapter, or as provided for in this chapter, shall be deemed guilty of a misdemeanor. Notwithstanding the foregoing, the city attorney/prosecutor, in his or her discretion, may elect to charge and prosecute any violation as an infraction in lieu of a misdemeanor or to not charge and prosecute at all.

(Ord. 1260 §10, 2022)

A. The amount of any tax, penalties, and interest imposed by this chapter shall be deemed a debt to the city, and any person conducting an operation without also making payment to the city of the taxes, penalties and interest imposed by this chapter shall be liable in an action in the name of the city in any court of competent jurisdiction for the full amount of the tax, and penalties and interest owed by such operation.

B. If the city manager is not satisfied that any statement filed as required by this chapter is correct, or that the amount of tax is correctly computed, the city manager may compute and determine the amount to be paid and make a deficiency determination upon the basis of the facts contained in the statement or upon the basis of any information in his or her possession or that may come into his or her possession. One or more deficiency determinations of the amount of tax due for a period or periods may be made. When a person ceases or discontinues an operation, a deficiency determination may be made at any time within three years thereafter as to any liability arising from engaging in such business whether or not a deficiency determination is issued prior to the date the tax would otherwise be due.

C. Under any of the following circumstances, the city manager may make and give notice of a determination of the amount of tax owed by a person under this chapter:

1. If the person has not filed any statement or return required by this chapter.

2. If the person has not paid any tax due under the provisions of this chapter.

3. If the person has not, after demand by the city manager, filed a corrected statement or return, or furnished to the city manager adequate substantiation of the information contained in a statement or return already filed, or paid any additional amount of tax due under this chapter.

4. If the city manager determines that the nonpayment of any tax due under this chapter is due to fraud, a penalty of twenty-five percent of the amount of the tax shall be added thereto in addition to penalties and interest otherwise stated in this chapter.

5. The notice of determination shall separately set forth the amount of any tax known or estimated by the city manager, after consideration of all information within his or her knowledge concerning the business and activities of the person assessed, to be due under this chapter, and such notice shall include the amount of any penalties or interest accrued on each amount to the date of the notice of determination.

6. The notice of determination shall be served upon the person either by handing it to him or her personally, or by a deposit of the notice in the United States mail, postage prepaid thereon, addressed to the person at the address of the location of the business appearing on the face of the business tax certificate issued under this Code or to such other address as such person shall register with the city manager for the purpose of receiving notices provided under this chapter; or, should the person have no business tax certificate issued and should the person have no address registered with the city manager for such purpose, then to such person's last known address. For the purposes of this section, a service by mail is complete at the time of deposit in the United States mail.

D. Within ten days after the date of service of a notice of determination of the amount of tax owed by a person under this chapter, or other determination of the city manager pursuant to subsection (C)(5) of this section, the person may apply in writing to the city manager for a hearing on the determination. If application for a hearing before the city is not timely made, the tax assessed by the city manager shall become final. The procedures for such a hearing shall be conducted as required by law and as follows:

1. The city council delegates its authority to conduct such a hearing on the determination to an independent hearing officer. The compensation of the hearing officer shall not depend on any particular outcome of the appeal. The hearing officer shall have full authority and duty to preside over the hearing on the determination in the manner set forth herein and as required by law.

2. Within thirty days of the receipt of any such application for hearing, the city manager shall cause the matter to be set for hearing before the independent hearing officer, unless a later date is agreed to by the city manager and the person requesting the hearing.

3. Notice of the hearing shall be given by the city manager to the person requesting the hearing not later than five days prior to the date of the hearing. For good cause, the hearing officer may continue the administrative hearing from time to time. At the hearing, the applicant may appear and offer evidence to show why the determination of the city manager should not be confirmed and fixed as the tax due or the other determination of the city manager pursuant to subsection (C)(5). In conducting the hearing, the hearing officer shall not be limited by the technical rules of evidence. Failure of the person who applied for a hearing on the determination to appear shall not affect the validity of the proceedings or order issued thereon.

4. Upon conclusion of the hearing, or no later than ten days after the conclusion of the hearing, the hearing officer shall determine and reassess the proper tax to be charged or make such other determination as provided in subsection (C)(5) and shall give written notice to the person in the manner prescribed in this chapter for giving notice of determination, and the hearing officer shall submit its decision and the record to the city clerk. The decision of the hearing officer shall be final.

5. The provisions of this section apply to any decision, deficiency determination, assessment, or other decision or ruling of the city manager, except decisions made pursuant to Section 3.40.060. Any person aggrieved by any decision subject to this section shall comply with the hearing procedure of this section. Pursuant to Government Code Section 935(b), compliance with this section shall be a prerequisite to a suit thereon. To the extent allowed by law, nothing herein shall permit the filing of a claim or action on behalf of a class or group of taxpayers.

(Ord. 1260 §10, 2022)

This chapter shall be operative ten days after the date that the city council declares that a majority of the city's voters voting at the November 8, 2022, election have voted in favor of this chapter at such election.

(Ord. 1260 §10, 2022)

The city council has the right and authority to amend this chapter, to further its purposes and intent (including, but not limited to, amendment for more efficient administration as determined by the city council), in any manner that does not increase a tax rate, or otherwise constitute a tax increase for which voter approval is required by Article XIII C of the California Constitution, pursuant to Elections Code Section 9217.

(Ord. 1260 §10, 2022)

Notwithstanding any other provision of this chapter, prior to participating in any decision relating to a cannabis business, each city councilmember shall do all of the following:

A. Disclose on the record any financial interest in the cannabis business that is subject to the decision.

B. Disclose on the record any campaign contributions and benefits or gifts received from the cannabis business that is subject to the decision.

C. Disclose on the record any ex parte communications that the city councilmember may have had with a cannabis business that is the subject of the decision.

D. Each city councilmember shall warrant and represent, on the record and in a form approved by the city council, that they have complied with these requirements and all applicable law.

(Ord. 1260 §10, 2022)