Pot Growers May Have To Pay Taxes On Crops Destroyed By Fires, Raids

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While California cannabis businesses gear up for full legalization in 2018, a crucial battle over how much taxes those businesses should pay is quietly raging behind the scenes. And depending on how it all plays out, businesses and consumers could face price hikes on pretty much everything. Currently, local governments can set their own tax rates on growing and selling cannabis. The result is a patchwork of varying rates in cities and counties across the state. And in the small town of Nevada City, pot growers may have to pay taxes on crops destroyed by fires, raids.

In Nevada City, Pot Growers May Have To Pay Taxes On Crops Destroyed By Fires, Raids

According to Jonathan Collier, a member of the Nevada Country Cannabis Alliance’s executive committee, pot taxes in Nevada City are very reasonable.

“But the whole model is flawed,” Collier explained. And the proposed change to the current tax code is a case in point.

That proposal would begin charging cannabis cultivators based on the size of their grow operations. The rate would charge growers a certain annual rate for each square foot of canopy space. And the rate would change depending on the kind of lighting in use.

The tax proposal would collect $4 per year per square foot of canopy space with artificial lighting; $3 per year per square foot of canopy space with mixed artificial and natural light; and $1 per year per square foot covered by natural lighting.

Furthermore, Nevada City would levy the local grow tax on top of California’s state-wide taxes on cannabis flowers and leaves.

But it’s not the tax rates themselves which are the problem, according to cannabis advocates. Instead, the issue is the idea of taxing based on canopy size.

Cannabis cultivators routinely face unforeseen events which trash their crops. In drought-ridden California, fires are a particularly acute risk for grow operations. Raids by aggressive regulatory agencies can also destroy cannabis crops.

But if voters approve Nevada City’s proposed cultivation tax, pot growers may have to pay taxes on crops destroyed by fires, raids.

Collier says this is an unfair burden to cannabis businesses eager to come out of the shadows.

“How fair is it to tax something you’re not even being compensated for?” he said.

Nevada City’s Proposal To Tax Growers Could Set Precedent Across California

Nevada City, Calif. has a population of just over 3,000 and a jurisdiction of just 2.2 square miles. So it isn’t exactly a hot-spot for cannabis cultivators eager to set up shop.

But if the tax plan based on grow size passes, critics worry it could set a precedent. In other words, other municipalities eager for tax revenue might follow suit.

On a large enough scale, such a tax plan doesn’t just threaten the viability of upstart cannabis businesses. It could also create a powerful incentive for consumers to stick to the illicit market.

Of course, California has one of the longest-standing medical marijuana programs and a thoroughly entrenched illegal market. As the state pivots to full adult-use legalization in 2018, taxes will play a critical role in transitioning illicit cannabis markets into legal ones.

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