LOS ANGELES — The city will stop issuing new business tax certificates to medical marijuana dispensaries under an ordinance approved Jan. 19 by the City Council.
Despite the 2013 voter approval of Proposition D, which banned most medical marijuana businesses in Los Angeles, city finance officials have continued to issue tax certificates and collect taxes from them, illegal or not.
Some medical pot shops in the city are still allowed to operate due to exceptions in Proposition D, but finance officials said they are unequipped to determine whether a medical marijuana dispensary is in compliance and must leave the potentially complex legal question to be sorted out by city attorneys.
City leaders said collecting taxes while also banning medical marijuana businesses sends a mixed message, prompting them to simply cut off the issuance of any new tax registrations.
The ordinance approved by the City Council calls for no new tax registration certificates to be issued for “any medical marijuana collective business activity.” The mayor must also sign off on the ordinance before it can go into effect.
Councilman Joe Buscaino said the few pot shops that are allowed under Proposition D had to have already registered by September 2007, so this new ordinance “finally puts an end to the issuance of business tax licenses to illegal pot shops in the city of L.A.”
He said by halting the issuance of new tax certificates to dispensaries, the city will be “inhibiting fraudulent activity” and curbing what appears to be an increase in dispensaries despite the enactment of Proposition D.
Councilman Marqueece Harris-Dawson said a “mix” of illegal and legal pot shops has “hijacked storefronts” in his district for medical marijuana sales.
“This was one of the main issues that came up in almost every neighborhood house meeting,” he said.
Some city officials have accused medical marijuana dispensaries of using the tax certificates to trick landlords and others into thinking they are permitted businesses.
City Councilwoman Nury Martinez, who pushed to discontinue the tax certificates to illegal pot shops, told City News Service last fall that because she has been trying to shut down illegal pot shops in her district, it is insincere for the city to simultaneously collect taxes from them.
“They shouldn’t be operating, because they don’t fall within the law, and we shouldn’t be collecting taxes on these businesses that are illegally operating,” Martinez said. “As much as we try to shut the illegal ones down, they turn around and we issue a [certificate] to them.”
The city collected $4.4 million from 447 dispensaries toward the end of last year, even though only an estimated 100 or so dispensaries were thought to be in compliance with Proposition D.
The city collected $5 million in 2014 from 519 tax registration certificate holders that identify themselves as marijuana businesses.
The ordinance adopted by the council was based on the idea that any newly registered medical marijuana business could not possibly qualify for the exception in Proposition D, which gives immunity to businesses that can show they registered by a certain date and comply with several other requirements.
The ordinance also makes it a misdemeanor for business operators to lie on an affidavit attesting that the dispensary complies with Proposition D.
The ordinance makes filling out the affidavits a part of the process of registration renewal, which is done through the annual payment of taxes.
Displaying or maintaining “expired, suspended or otherwise invalid” tax certificates will also be considered a misdemeanor under the ordinance.
City officials are also working to change the color of the tax certificates and include language to make it clearer that such certificates are only for “tax compliance purposes,” according to city attorneys. Efforts are also underway to stop giving medical marijuana businesses the ability to register for tax certificates or file taxes online.
Holding a certificate does not indicate that a business is legal, only that the business has applied to pay taxes to the city. Medical marijuana businesses that are permitted to operate under Proposition D are required to pay business taxes to the city.