SAN JOSE -- In an effort to crackdown on San Jose businesses -- particularly medical marijuana shops -- that skirt city tax laws, three council members are proposing an ordinance that would shut them down for not paying local taxes.
San Jose City councilmembers Sam Liccardo, Rose Herrera and Pierluigi Oliverio cited "millions" in marijuana business taxes not being paid in the past year alone by pot clubs as required under Measure U.
That law, passed by 78 percent of voters in the fall of 2010, allows the city to tax marijuana collectives up to 10 percent of their total sales, though the council later adjusted that to a maximum of 7 percent.
"Although many marijuana dispensaries are law-abiding, several dozen are saying, 'We're open for business, but we don't have any taxable revenue,''' said Liccardo. "That sounds a lot like, 'I smoked, but I didn't inhale,' and we need to clamp down on those businesses that aren't paying their fair share."
A council committee will hear the proposal Wednesday to determine whether it should be put on the council's agenda.The council trio want their colleagues to address the issue at an October meeting when they're expected to decide their top priorities through the fiscal year that ends June 2013.
Their proposal offers two options: amend a section of the Municipal Code to give the city the ability to shut down non-compliant marijuana dispensaries and revoke their licenses or consider enacting a
David Hodges, who founded the All American Cannibis Club, said the council memo is directed at someone like him, who refuses to pay city business taxes on the grounds that the medical marijuana collective is a not-for-profit business. Instead, he said, its 4,000 cooperative members either grow the marijuana, work there, or contribute money to the club to defray its operating costs.
"Our activities don't fall within taxable parameters,'' said Hodges, who noted that the city contends he owes them about $250,000 in business taxes since 2010.
But City Attorney Rick Doyle said he won't accept Hodge's explanation until the city performs its own audit of Hodges' club.
"I absolutely understand the concern that you have a tax in place and not everybody is paying it,'' said Doyle. "Everyone should pay their fair share.''
But, he added, the council needs to ensure that proper staffing and resources -- both of which have been severely cut back over the years because of budget woes -- are in place to "get serious" about improving enforcement, from tax collection to nuisance abatement.
The city is expecting a $22.5 million budget shortfall in fiscal year 2013-14.
In their two-page memo, Liccardo, Herrera and Oliverio said that the city collected more than $3.5 million in marijuana business tax during the fiscal year ending June 30. However, they say, millions more were not paid. According to the Department of Finance, 80 of the city's 158 collectives paid either no tax or paid only sporadically. Of those 80, 45 still operate.
They also cited a hotel on South First Street that they said has been a "magnet of prostitution for several months, providing headaches to nearby residents.'' The same hotel, the councilmembers said, failed to pay any Transient Occupancy Tax for years and owed the city hundreds of thousands of dollars, yet the city had no authority to take action to revoke the hotel's business license for nonpayment of taxes.
Rather, they said, the attorneys have become embroiled in time-consuming litigation over nuisance issues, which requires extensive court hearings.
An ordinance, they said, could help shut down those businesses that constitute nuisances and ignore their tax payments.
Contact Tracy Seipel at 408 275-0140.