POT TAX, BOOST IN BUSINESS FEE MAY GO ON CITY BALLOT

The Sacramento City Council is weighing a November ballot measure that
would levy a special tax on marijuana and increase annual fees paid by
businesses.

The council will debate at its Tuesday meeting whether the city
attorney should draft a ballot measure to phase in an increase of the
business occupancy tax and create a new business tax category for pot.

The pot fee would apply not only to medical marijuana dispensaries,
but also to any business that would be permitted if a statewide ballot
measure legalizing marijuana, which is also on the November ballot, is
approved.

If adopted, the new business taxes would generate $8.8 million a year
for the city's battered general fund, which pays for police officers,
firefighters and parks. The City Council will vote Tuesday on a budget
package aimed to fill a $43 million deficit for the 2010-2011 fiscal
year, the third straight year of massive budget gaps.

Oakland is the only other city in the state to tax its medical pot
shops, levying 1.8 percent taxes on the businesses. In Sacramento,
officials are proposing a 3 percent tax starting in July 2011,
eventually increasing it to 5 percent by 2013.

San Jose, which is considering an ordinance to cap the number of local
dispensaries at 10, also is considering a November ballot initiative
on a 3 percent tax. Officials in Berkeley are contemplating a 2.5
percent tax.

Sacramento's pot tax would eventually pump $850,000 into the city
budget. The proposal got mixed, and anxious, reviews from operators of
local medical marijuana dispensaries.

"I'm so against it. It's outrageous," said Aundre Speciale, founder
and director of the Capitol Wellness Center, which operates two
dispensaries in midtown. "On one hand, they expect us to be nonprofit
or not-for-profit, and on the other hand they're expecting 3 percent
of the profit. When you operate as a nonprofit, there is nothing left."

Speciale says Capitol Wellness employs 28 people, including counselors
for AIDS/HIV patients and social workers. She said the gross receipts
tax may force it to cut back on community programs, including support
groups for veterans, a community garden and a new neighborhood
community center that offers tutoring and meal service in Oak Park.

Don Johnson, who with his wife, Ke, runs the United Non-Profit
Collective near the Capital City Freeway, says he supports the notion
of a tax. But he said the city is acting prematurely in considering
the November ballot measure when it has yet to pass an ordinance
formally allowing and regulating local medical marijuana
establishments.

"I'm all for a special tax. But it's sort of putting the cart before
the horse," Johnson said. "They're still yet to issue regulations for
us and now they're talking about taxing us. It just seems sort of
backwards to me."

The City Council this month extended a moratorium on new medical pot
dispensaries while officials finalize the details of permanent
regulations for the facilities. The delay bought more time for
negotiations on how to govern -- or restrict -- 39 pot shops
registered in the capital.

The city is proposing capping the number of dispensaries at 12 and
setting strict rules for their operations. The plan under
consideration would require dispensaries to maintain security and
would ban the hiring of workers with felony convictions.

Taxing marijuana in Sacramento is one part of the business tax
proposal.

The city's business occupancy tax, which acts as the city's business
license fee, has not been raised since 1991. Of the 10 largest cities
in California, Sacramento ranks last in per capita collection of its
business occupancy tax, said interim Assistant City Manager Patti Bisharat.

Under the current fee scale, businesses are charged 40 cents per
$1,000 in gross receipts each year. City officials want to raise the
rate to 50 cents per $1,000 in receipts starting next July. The rate
would eventually hit 70 cents per $1,000 in 2013.

As a way to attract green technology companies, the proposal calls for
waiving the business tax for clean tech firms for three years.

The tax is capped at $5,000 per business, and city officials want to
increase that cap to $50,000. Under the current cap and fee structure,
"small and medium businesses are paying a disproportionate amount of
the tax," Bisharat said.

According to a city staff report, a business generating $100,000 would
see its taxes go up by $27 a year, while a company making $10 million
would pay an additional $3,000.

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QUICK FACTS

Oakland is the only other city in the state to tax its medical pot
shops, at a rate of 1.8 percent.

San Jose and Berkeley are considering taxes on the businesses.