Humboldt County’s Cannabis Tax Could Force Legal Cannabis Farmers Out of the Business, Says Attorney ED Denson
Denson says he is interested in this case because as an attorney he feels strongly that people in authority need to be the first ones to follow the law. Denson said he was active with COG (Citizens Observation Group) and CLMP (Civil Liberties Monitoring Project) in the 1980s during the CAMP (Campaign Against Marijuana Planting) days because he felt strongly the rules of law were being broken by the authorities.
Furthermore, Denson said he has defended illegal cultivators for 20 years and that the community at large and his clients face more danger under legalization and regulation than ever before, and that this illegal tax is harming his clients, the economy, and the community. Denson avowed, “The County has done more damage than CAMP did.”
Denson explained that the cost of the new tax could force people out of their properties. Just when the price of cannabis has free-fallen to the point where it is barely profitable to produce, legalization has landowners investing tens of thousands of dollars to meet compliance standards for roads, buildings and grow sites. Simultaneously, the County is, he contends, unfairly and illegally, imposing a very large tax on the opportunity to grow cannabis.
Sean Quincey at the County Administrative Office said that between July of 2017 and April of 2018 Humboldt County received $4.4 million from the Cannabis Excise Tax. The Humboldt County Treasurer’s Office said that $9.3 million dollars will be billed for the 2018 Cannabis Excise Tax with half due on May 31, and the other half due at the end of November 2018.
The merits of the lawsuit filed May 14th primarily surround the changes the Board of Supervisors approved to the Measure S Cannabis tax.
In November of 2016 Humboldt County voters approved a tax on cultivation under Measure S which was adopted into the Humboldt County Tax Code as Ordinance 2567, but then in June of 2017, the County Board of Supervisors amended the language of Measure S and created Ordinance 2575. The changes made to Measure S as it was interpreted into Ordinance 2575 create the primary problem says Denson.
The lawsuit alleges the County broadened the scope of the tax in a number of ways. These include
- by changing the person taxed from being the cultivator to being the property owner;
- broadened the scope of the tax from the actual area under cultivation in a year to the total square feet of cultivation possible under the permit;
- increased the time the tax is imposed from the time cultivation begins and ends in a year to the entire year in which a permit is valid;
- amended the tax to be collected more often than the voters approved;
- and the lawsuit further charges that the county amended Measure S to allow taxation of permit holders not complying with federal law.
Measure S, which the voters approved, says the tax shall apply to “each person engaged…in cultivation,” where Ordinance 2575 says “each property owner whose property is subject to a commercial cannabis permit” must pay the tax. The complaint contends this puts a tax on landowners whose tenants may be the cultivators.
The Complaint argues that by making this change, Ordinance 2575 brings Proposition 218 into play. The lawsuit says the California Constitution, as amended by Proposition 218, requires a two-thirds voter approval for taxes on a “parcel of property or upon any person as an incident of property ownership except outside the context of assessments specifically authorized.” Measure S, it says, did not pass by a 2/3 majority.
Measure S said that the
Area of marijuana cultivation is the physical space where marijuana is grown and includes without limitation, garden beds or plots, the exterior dimensions of hoop houses or green houses, and the total area of each of the pots and bags containing marijuana plants on the premises.
Ordinance 2575 reads, “‘Cultivation area’ shall mean the cultivation area stated on the …permit issued….” and Ordinance 2575 reads “whether or not marijuana is actually grown on such property.”
The complaint contends that this verbage changes the cultivation area from that which is actually cultivated to the maximum amount of cultivation a permit holder might potentially undertake. Because the tax is based on a square foot basis, this broadly increased the tax amount according to the complaint.
Measure S said the tax begins to accrue on the date on which a person “becomes engaged…in marijuana cultivation.” Meanwhile, Ordinance 2575 reads, “for purposes of this Chapter, taxes shall be owed for each and every year in which a commercial marijuana cultivation permit is issued…regardless of whether or not marijuana is actually grown on such property.”
Measure S said the taxes would be collected “biennually” which is every two years. However, under Ordinance 2575 it is being collected biannually which is every six months.
And lastly, Measure S said the tax would accrue, “On the date on which a person becomes engaged in legally authorized marijuana cultivation in accordance with the applicable provisions of this Code and all other applicable State and Federal laws and regulations.” Ordinance 2575 reads, “…taxes shall be owed for each and every year in which a commercial marijuana permit is issued….”
The complaint contends this “vastly expanded” the scope of the tax without voter approval.
The lawsuit filed by Denson and Fletcher states the remedies are to refund the taxes already collected, and place the revised tax scheme before the voters for approval. And Denson says he believes the County may possibly owe, an additional amount equal to the tax collected, to the State of California under Government Code 53728 which reads, “If any local government…imposes any tax without complying with the requirements of this Article, or in excess of its authority…the amount of property tax …. shall be reduced by $1.00 for each $1.00 of revenue attributable to such tax for each year that the tax is collected.”
Denson described how the issue arose late last year. Denson said he’d been advising his clients on Measure S as he had read it during his preparation for the election. Something came up that required detailed attention and when he looked at the tax code, it wasn’t as he remembered it. That flustered him. He said, “I thought perhaps my memory was slipping.”
Denson said it took some digging to find the original Measure S and that he had to go to the Elections Department to get it. When he did find and read it, he was relieved to know his memory was okay, but he was upset to see that the Board of Supervisors had violated, in his opinion, Proposition 218 and other laws that say changing an approved tax in ways that expand or increase the tax mean that the new version must go back before the voters.
When asked why HUMMAP, the Humboldt Cannabis Taxpayers’ Association, and the Humboldt Voters’ Association are interested in filing suit, Denson said that the actual persons who feel strongly enough to file the suit did so from within these larger groups to purposefully hide their identities for the time being. Denson said that people feel very vulnerable that the County might send out extra inspectors and find a reason to revoke or deny their permits or applications for a permit. Two individuals are named as plaintiffs as John Doe and Jane Doe.
Humboldt County’s County Council, Jeff Blanck, said in a phone conversation, “We don’t think the lawsuit has merit. In addition to the applied challenge, they are also making a facial challenge…” When asked for an explanation, Blanck said that according to their complaint, the language regarding compliance with federal law as approved by the voters in Measure S would make Measure S void on its face.
Blanck said the applied challenge is the lawsuit’s allegation the County is applying Measure S wrong. Blanck said, “We are not. We are complying with the voters’ intent. The fact that it needs to be interpreted is not illegal.” Blanck emphasizes that his office has not finished reading and developing its response to the suit, but that these are his initial points.
When asked about the unpopularity of a tax on the permit instead of a tax on the production, Blanck said this was passed before the State initiated its Track and Trace system when the County was asking, ‘How do we determine what someone has actually grown?’ Blanck likens Humboldt County’s Cannabis Tax to a business license tax differentiating it from a production tax.
The County still has two weeks to file a response to the lawsuit.