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Pot dispensaries turn against L.A.'s marijuana tax proposal
March 5, 2011 - Los Angeles Times

Measure M on Tuesday's ballot would add a 5% marijuana tax to sales at pot dispensaries. Owners of the collectives once supported the idea but are now angry about the upcoming lottery to decide which ones can remain open.

When Oakland's voters slapped the nation's first tax on marijuana sales a year and a half ago, the city's dispensaries backed the ballot measure, pushing it as a way to be seen as legitimate businesses.

And when voters in 10 California cities decided on pot taxes in November, the elections were largely uncontroversial. The taxes all passed by more than two-thirds.

But in Los Angeles, where voters decide Tuesday whether to create a pot tax, medical marijuana activists who once urged City Hall to tax and regulate them are hoping to defeat the proposal, angered by the council's decision to limit the number of dispensaries to 100 and choose them by lottery.

"The city has done nothing for the patients, and I don't see why the patients have to pay a sin tax. We're not a topless bar," said Yamileth Bolanos, a dispensary operator who leads a group of the city's oldest collectives. "The city hasn't even been able to enact an ordinance that creates safe access."

Measure M would require the city's dispensaries to pay a 5% business tax on gross receipts, which is 10 times more than the city's highest tax. Councilwoman Janice Hahn, who proposed the tax, estimated that it would raise at least $10 million. The city faces a $54-million budget shortfall through June.

"It seemed to me it was a way to bring more revenue to the city to keep us from laying off any more city workers, or firefighters, or cops," Hahn said. "And I think it's a fairness issue. I think they should pay their fair share of taxes to the city. We are expending enormous resources to pass an ordinance that allows them to operate in the city of Los Angeles. I mean, we've spent building and safety time, city attorney time, city clerk time. We're going to be spending code enforcement time."

The no campaign is low-key and low-budget, targeted at urging the city's medical marijuana consumers — enough to support hundreds of retail stores — to show up to defeat what opponents disparage as an unfair tax on a medicine. But there are also a few heavyweight opponents, including Police Chief Charlie Beck, Sheriff Lee Baca, Dist. Atty. Steve Cooley and the city's two biggest daily newspapers.

On the yes side, the campaign is run by an Oakland political consulting firm that worked on last year's marijuana legalization campaign. The campaign is backed by some of the city's public employee unions, but no dispensary has publicly endorsed it. "Some are vehemently against, some are sitting on the side, and I would say a few, but not many, recognize this is how business works and will normalize their dealings with the city," said Andre Charles, a consultant with The Next Generation.

The debate centers on whether the tax is fair or even legal.

Under the city's medical marijuana ordinance, dispensaries are required to operate as nonprofits, though city officials believe many do not. The city attorney's office has told the council that the tax measure violates the city's municipal code, which exempts charitable organizations from business taxes.

This is the main reason the Los Angeles Times and the Daily News of Los Angeles editorial boards gave a thumbs-down to the initiative.

But many dispensaries that have business licenses from the city Office of Finance are already paying city taxes. Antoinette Christovale, the general manager, said her office does not track how many dispensaries there are in the city or how much money is collected from them.

Dispensaries cannot receive tax-exempt status from the Internal Revenue Service because the sale of marijuana is illegal under federal law. That means they cannot receive exemptions from the state or the city, which rely on the IRS determination.

William W. Carter, chief deputy city attorney, said that his office had to stick to the fact that Los Angeles' laws bar taxes on charitable organizations, even if they are not tax-exempt. "We interpret the law based on what it says in black and white, not on how other departments have applied it," he said. The city attorney's office, as the lawyers for the City Council, has not taken a position on the measure.

Councilman Bernard C. Parks, who opposes the measure, believes dispensaries would sue to overturn the tax. "If it passes, you'll be saying a year from now, 'Where's the tax money?' " he said. He also believes it would require the Office of Finance to add a layer of bureaucracy. Christovale said her office has not studied what it might cost to collect the tax.

Beck, who as police chief typically tries to stay out of politics, said he opposes the measure because it undermines laws that allow marijuana to be distributed only as a medicine and only by nonprofits. "When we tax it, then we wink and nod toward the fact that it is not a medicine, it is a recreational drug," Beck said. "I think that it's a wrong position for the city to take. We're not taking the moral high road. It's like saying, 'Hey, let's tax prostitution because it's happening anyway.' "

Bolanos and other medical marijuana advocates also oppose the tax as too high for a medicine. What proponents call a fair share is nearly 40 times as much as tobacco sellers and pharmacies pay. Dispensaries are also required to charge sales taxes, which are 9.75% in Los Angeles.

But Hahn said she settled on a 5% gross receipts tax because it is similar to what other California cities have imposed on the lucrative businesses, including Oakland, which tripled its tax to 5% in November. Oakland expects the tax to bring in $1.3 million this year, enough to hire seven police officers.

The potential for revenue has drawn support from unions such as United Firefighters of Los Angeles City and Service Employees International Union, Local 721, which represents about 11,000 city workers. "At the time of this financial crisis right now we need to find more ways to generate more revenues," said Bob Schoonover, Local 721's president. "We're not really making a judgment call on this at all, but marijuana is being sold, so we just think they should pay their fair share of taxes, that's all."

SEIU 721 donated $5,000 to the yes campaign, the only reported contribution so far. The campaign still hopes to raise $5,000 more. The yes position will be on some slate mailers, and the campaign has a Facebook page and a website, yesonlameasurem.com.

The no campaign, which also has a website, notaxonmedicine.org, is largely the work of a few outspoken activists, including Bolanos and Richard Eastman, who credits pot with helping him to suppress his AIDS. "I don't believe my medicine is a sin," he said. "That's what they're trying to sell with this tax."

Bolanos has spent about $800 raised from supporters and Eastman about $500, mostly on literature ("Get the greed out of the weed!") aimed at dispensary customers who would pay for the tax. "I'm going out to as many dispensaries as I can," Eastman said. "I'm a working wrecking crew."

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