A new cannabis tax ordinance cleared another hurdle to make the November ballot after the Santa Barbara County Board of Supervisors voted 4-1, with 5th District Supervisor Steve Lavagnino dissenting, to move forward with proposing a hybrid tax that considers gross receipts and a base square footage tax.
Currently the county uses a gross receipts model that takes 4 percent of an operator’s earnings and has generated $50 million in revenue for the county since its inception five years ago, according to previous Sun reporting. Square footage sets a dollar amount per operating square foot with prices varying between indoor and outdoor cultivation. The supervisors brought the ordinance back to the dais because of tax compliance issues, lack of forecasted revenue, and transparency concerns with a product’s value.
The proposed hybrid option creates a square footage base tax—with 25 cents for outdoor cultivation and 75 cents for non-outdoor cultivation per square foot, with a 4 percent gross receipts sales tax, County Deputy Executive Officer Brittany Odermann told supervisors during the May 14 meeting. The board will have its first reading of the ordinance on June 14 to leave room for any adjustments. It must be ready by July 9 if the county wants to include it on the general election ballot.
“If it’s determined that the base tax is greater than the gross receipts on the last day of the quarter, they would pay the base tax,” Odermann said, adding that if the base tax is less than the gross receipts reporting, cultivators would pay the gross receipts tax.
“The benefit is the county and operators share in the good times when the market is up. It does guarantee a floor minimum tax, but there is limited transparency,” Odermann said. “We can look at square footage for base tax, but still rely on reporting and doing audits and reviewing what operators are telling us. It does not reduce administrative burden in verifying gross receipts.”
By bringing the ordinance back to the ballot, the board would have the opportunity to include more flexibility in the tax measure this time around so supervisors wouldn’t have to return to the voters every time they want to make adjustments to the tax rates, she said.
“It was clear that building that flexibility in the ordinance to change the rates was important to handle market volatility,” Odermann said.
While 2nd District Supervisor Laura Capps wanted to see greater flexibility in adjusting the rates, 1st District Supervisor Das Williams was adamant about keeping the tax measures in the voters’ hands.
“I view flexibility as a negative in taxation. I just can’t imagine what kind of governance we would have if we were voting on the tax rate for the general populace every year,” Williams said. “I don’t understand why it’s so important if we have a hybrid where most people [would] pay gross receipts because they are going to make more than the minimum.”
Santa Barbara County staff proposed to create limits for when the board could make adjustments to the ordinance, such as a four-fifths vote instead of the state required three-fifths vote and a maximum amount.
Fifth District Supervisor Lavagnino said he couldn’t get behind the new ordinance because the new tax would go to all county voters, not just the unincorporated communities, and it would sit alongside school bond measures in Santa Maria, and transient occupancy tax increases in the 3rd District and possibly the county.
“You can’t put two taxes, plus two school bonds in Santa Maria—they are going to cannibalize themselves, and you’re going to get to a point where none of them pass,” Lavagnino said.
He added that several public commenters from the cannabis industry requested that the county leave the ordinance as is in order for them to stay in businesses.
“What we’ve heard every time we change the ordinance is how difficult it is to continue to respond business-wise on an ever-changing target we keep moving,” Lavagnino said.