SAN JOSE TO START TAXING 'ILLEGAL' POT CLUBS

San Jose still considers all of the city's 100 or so medical
marijuana shops to be unlawful nuisances, but officials will welcome
the pot providers to City Hall Monday to talk about a new program of
great interest to the broke city: a marijuana tax.

Starting Tuesday, San Jose will slap a 7 percent tax on marijuana
dispensaries under a measure voters overwhelmingly approved in November.

The city -- which has emerged as a key battleground in the state's
"green wars" over medical marijuana regulation -- isn't the only
cash-strapped government with growing interest in getting a cut of the action.

Oakland and Berkeley raised their marijuana taxes in November. And
state authorities last week made clear marijuana isn't exempt as
medicine from sales taxes and demanded $6.4 million from a Berkeley dispensary.

San Jose officials argue that the taxman must be paid regardless of a
business' legal status. And though most local dispensaries already
are paying city business and California sales taxes, city officials
feel they're not getting their fair share.

"We believe we're being grossly underpaid," Deputy City Manager
Deanna Santana said.

For the city's medicinal marijuana providers, the whole situation
seems surreal.

"It's in the code that you have to tax these businesses, but you
don't have to -- even when you take their money -- say they're
legitimate businesses," said David Hodges, who founded the San Jose
Cannabis Buyers Collective, which relocated after city code enforcers
threatened to fine its landlord.

San Jose has seen the number of dispensaries soar from zero to about
100 in less than two years since Councilman Pierluigi Oliverio
suggested the city consider allowing and taxing a limited number of
them. Voters, who have seen city services pared to close chronic
deficits, approved the Oliverio-sponsored marijuana tax, Measure U,
by 78 percent in November.

With San Jose facing a $110 million deficit in a 10th straight year
of red ink, city officials are eager to start collecting the new tax
even though zoning regulations allowing medical marijuana
dispensaries are months from coming to a council vote. The city has
invited pot providers to a seminar Monday at City Hall to learn about
the new tax.

Many of the city's medical marijuana shops, however, are bristling.

Steven DeAngelo, executive director of the Harborside Health Center
in Oakland and San Jose, says San Jose's pot tax, coupled with the
9.25 percent sales tax, will push retail marijuana prices above
black-market levels and those of dispensaries in nearby cities.

"We'll see an outflow of patients to the illegal market or to other
jurisdictions," DeAngelo said.

He noted that Berkeley's medical marijuana tax is just 2.5 percent,
even after city voters in November approved an increase from 0.12
percent. Oakland voters approved raising that city's medical
marijuana tax from 1.8 percent to 5 percent.

How much money San Jose's tax might yield the city is unclear. City
officials in December said they have received a total of $13,412 in
business taxes from 88 medical marijuana providers. The city also has
received a total of $70,659 from its 1 percent share of state sales
taxes from 61 marijuana dispensaries with sales tax permits.

But Santana said that considering Oakland has received $280,000 from
$28 million in marijuana sales last year, San Jose most likely is owed more.

Not all marijuana providers are opposed to paying the tax

"It definitely would establish legitimacy," said Luke Teleske,
president of the Garden House Remedies marijuana cooperative.

City finance officials noted in a Feb. 11 memorandum that a review
has determined all of the known medical marijuana dispensaries
violate council guidelines limiting them to commercial areas and
requiring them to be at least 500 feet from homes, schools,
libraries, day-care centers and each other.

Officials last week said they hope to have an ordinance for
permitting and regulating a limited number of medical marijuana
collectives before the City Council in June.

But marijuana providers will be expected to track gross receipts for
taxes beginning Tuesday, with the first payment due April 30. Failure
to pay up can lead to stiff penalties and even misdemeanor charges.

DeAngelo said he feels as if the city has put its tax cart before its
regulatory horse.

"I can understand that it's a slow process, that it's unfamiliar
territory," said DeAngelo, a veteran marijuana activist. "But if the
city knows enough to impose a 7 percent tax, it should know enough to
regulate."

For more information: San Jose finance officials will hold a training
seminar on the city's new marijuana business tax Monday from 9-11
a.m. in the City Council Chambers at City Hall, 200 E. Santa Clara Street.