EUREKA CONSIDERS POT DISPENSARIES AS POSSIBLE FUNDING SOURCE

As Eureka talks about establishing some regulated medical marijuana
dispensaries as a way to increase the city's tax revenue, Arcata said
it's still working on collecting years' worth of sales tax from its
dispensaries.

At a Eureka City Council budget goal-setting session Tuesday night,
Councilwoman Linda Atkins suggested that the city pursue a way to
establish regulated medical marijuana dispensaries as a way to
increase revenue and tackle problems associated with grow houses in
the community.

"It's already there, it's happening in our community and if we
continue to let it happen ... underground, it's going to be
detrimental to our community," Atkins said.

At the next City Council meeting, she said she will formally ask staff
to look into the possibility of forming some dispensary regulations.
Atkins said she thinks that if the city keeps the dispensaries tightly
regulated, the city will benefit.

Other cities, she said, are estimating that they've been able to raise
between $500,000 and $1.5 million through medical marijuana dispensary
taxes.

But officials in Arcata, which currently has four dispensaries
operating, said the city has encountered some difficulties in
benefiting from those taxes.

Arcata's Finance Director Janet Luzzi said her records show one of the
four paid all of its sales tax. Arcata is supposed to receive 1
percent of the sales tax businesses report to the state Board of
Equalization, she said. In the last few years, the state has reported
sales tax from two of the dispensaries, and one of those paid only a
small amount, she said.

Luzzi said state confidentiality laws preclude her from revealing
which dispensaries are not paying.

When contacted by the Times-Standard, representatives from three of
the dispensaries said they have been paying taxes to the state.

Stephen Gasparas of the Arcata iCenter, attorney Greg Allen of
Humboldt Medical Supply and Carla Ritter of The Humboldt Cooperative
said their respective organizations have been dutifully paying taxes.

Attempts to contact the Humboldt Patient Resource Center were
unsuccessful.

Allen said dispensaries welcome being a part of the taxation process,
since it validates them as a part of the business community.

"This industry historically has been one created by outlaws.
Historically, because it's been done by outlaws, it has not been
taxed," he said. "The fact that we're even having this discussion now
is a big example of how far it has come."

The board amended its sales tax policy in 2005 to allow vendors of
medical marijuana to apply for a seller's permit, and report and pay
the taxes due on sales.

Sales tax amounts are reported to the state, which then reallocates
the money to local agencies based on the total of the return,
according to Anita Gore, spokeswoman for the state Board of
Equalization.

Gore said the state is not allowed to comment on the revenue of
specific businesses, due to taxpayer confidentiality rules, and the
board's database does not provide a breakdown of which permitted
businesses are medical marijuana dispensaries since the information is
self-reported.

But the state does have methods in place for ensuring that businesses
are reporting sales tax amounts accurately, she said.

"We are responsible for the auditing of companies to make sure they
pay the appropriate amount of tax," Gore said, adding that a statewide
compliance and outreach program was initiated in September. The
program will have specialists systemically visiting individual
businesses -- ZIP code by ZIP code -- to observe their
transactions.

For the city of Arcata's purposes, Luzzi said she will need to see
some proof that sales tax is being reported from the dispensaries. She
said there may be some reporting issues that she is not aware of, and
she has tried to take that into consideration.

Luzzi added that she sent out a letter in March 2008 in hopes it would
change the situation. She said she is waiting to see if the sales tax
revenue will come through by December, when all the dispensaries need
to be in compliance with the city's new land use codes.

If there is no change, she said she will vigorously pursue the
issue.

Arcata Mayor Mark Wheetely said the probelms surrounding the
collection of sales tax from dispensaries illustrates how medical
marijuana is uncharted territory for most agencies.

"There's been this rather blurry process," he said, adding that it
seems the policies of state and local agencies may now finally be
converging. Arcata may need to revisit its policies on medical
marijuana taxes if things continue to clash, he said.