City of Oakland

Measure V Initiative Statute - Majority Approval Required

The City’s Business Tax

     The City of Oakland’s business tax laws are in an ordinance in Chapter 5.04 of the Oakland Municipal Code (“OMC”) (“Business Tax Ordinance” or “Ordinance”). The Business Tax Ordinance applies to all “persons” engaged in business activities in Oakland. The definition of “persons” includes but is not limited to any natural person, company, corporation, firm, estate, joint venture, club or association. (OMC section 5.04.030.)

     The Business Tax Ordinance provides the procedure to calculate the amount of business tax owed for various business activities based on a business’s “gross receipts.” “Gross receipts” means the total amount actually received or receivable by a business as a result of its business activities during a fiscal year.  The Ordinance specifically identifies the amounts that may be excluded from gross receipts in calculating the business tax.

     Current Business Tax Ordinance Does Not Allow Cannabis Businesses to Deduct the Value of Raw Materials from Gross Receipts

     OMC section 5.04.390 provides the methodology to calculate the annual tax for businesses that manufacture or process any goods, wares, merchandise, articles or commodities for sale in the City, and expressly allows deduction of the value of raw materials from gross receipts.

     Currently, the methodology for calculating the business tax for medical and non-medical cannabis businesses does not allow deduction of the value of raw materials from gross receipts. OMC section 5.04.480 of the Ordinance provides that each person engaged in a medical cannabis business shall pay a business tax of $50 for each $1,000 of gross receipts or fractional part thereof. OMC section 5.04.481 provides that each person engaged in a non-medical cannabis business shall pay a business tax of $100 for each $1,000 of gross receipts or fractional part thereof.  

     Proposed Amendments Would Allow Cannabis Businesses to Deduct the Value of Raw Materials from Gross Receipts, Pay Business Taxes on a Quarterly Basis, and Allow City Council to Amend the Cannabis Business Tax in Any Manner that Does Not Increase the Tax Rate

     This measure would amend the OMC to allow medical cannabis businesses and  non-medical cannabis businesses engaged  in manufacturing and/or cultivation activities  to (1) deduct the value of raw materials from gross receipts in the same manner that OMC section 5.04.390  provides for non -cannabis manufacturing businesses; and (2) elect to pay business taxes on a quarterly basis according to rules and procedures adopted by the Director of Finance.

     This measure also would allow the Oakland City Council, after holding a public hearing, to amend OMC section s5.04.480 and/or 5.04.481 in any manner that would not increase the tax rate applicable to medical and/or non- medical cannabis businesses, or otherwise constitute a tax increase that would require voter approval.

     This measure was placed on the ballot by the Oakland City Council. Passage of this measure requires the affirmative vote of a majority of voters (i.e., more than 50% of the votes cast).

Barbara J. Parker

City Attorney  

Summary

     This Measure, if adopted by a majority (more than 50%) of voters, would amend the City of Oakland’s Business Tax Municipal Code, related to medical cannabis (Section 5.04.480) and non-medical cannabis (Section 5.04.481) businesses. The code amendments would:

     1) allow businesses engaged in cannabis manufacturing and/or cultivation to deduct the value of raw materials from gross receipts in the calculation of business tax (similar to manufacturing businesses, Section 5.04.390);

     2) allow cannabis businesses to remit business taxes on a quarterly basis; and

     3) authorize the City Council to amend the business tax on medical and non-medical cannabis in any manner that does not increase the tax rate, following a public hearing.

Oakland currently taxes all types of cannabis businesses and the rates are based on whether they operate in the medical or non-medical industries, at 5 percent and 10 percent, respectively, of gross receipts. The tax is applied to every activity in the industry's supply chain, including cultivation, manufacturing, delivery, testing, and retail sales.

The intent of this Measure is to provide the City flexibility to respond competitively to tax rates of neighboring jurisdictions. Cannabis businesses may consider tax rates a factor when deciding where to situate their businesses. City Council may adjust the tax rate for cannabis businesses, but may not increase the tax more than the current stated rates. It cannot be quantified or confirmed that adjusting tax rates would significantly impact tax revenue to the City of Oakland.

Financial Impact

If the Measure passes, the City would incur an estimated $30,000 capital improvement cost to update its taxpayer system.

This Measure enacts a general tax for unrestricted general revenue purposes and would go into effect ten (10) days after the vote is declared by Oakland City Council.

Disclaimer

The Office of the City Auditor has not audited and, as such, has not validated the City of Oakland Finance Department’s financial and statistical analysis that supports this measure. References to this data in our independent analysis represent the best data available at this time.