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The intent of this Ordinance is to levy a tax on all cannabis businesses that operate in the unincorporated area of the County, regardless of whether such business would have been legal at the time this chapter was adopted. Nothing in this chapter shall be interpreted to authorize or permit any business activity that would not otherwise be legal or permissible under laws applicable to the activity at the time the activity is undertaken.
The following words and phrases shall have the meanings set forth below when used in this chapter:
(a) An "arm's length transaction" is a sale entered into in good faith and for valuable consideration at a sales price that reflects the fair market value in the open market between two informed and willing parties, neither under any compulsion to participate in the transaction.
(b) "Business" shall include all activities engaged in or caused to be engaged in within the unincorporated area of the County, including any commercial or industrial enterprise, trade, profession, occupation, vocation, calling, or livelihood, whether or not carried on for gain or profit, but shall not include the services rendered by an employee to his or her employer.
(c) "Calendar year" means January 1 through December 31, of the same year.
(d) "Cannabis" means all parts of the plant Cannabis sativa Linnaeus, Cannabis indica, or Cannabis ruderalis, whether growing or not; the seeds thereof; the resin, whether crude or purified, extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of the plant, its seeds, or resin. "Cannabis" also means the separated resin, whether crude or purified, obtained from cannabis. "Cannabis" shall not include "industrial hemp," unless otherwise specified.
(e) "Cannabis product" means raw cannabis that has undergone a process whereby the raw agricultural product has been transformed into a concentrate, an edible product, or a topical product. "Cannabis product" also means cannabis products as defined by Section 11018.1 of the California Health and Safety Code and is not limited to medicinal cannabis products.
(f) "Canopy" means all areas occupied by any portion of a cannabis plant whether contiguous or noncontiguous on any one site. When plants occupy multiple horizontal planes (as when plants are placed on shelving above other plants) each plane shall be counted as a separate canopy area.
(g) "Cannabis business" means any business activity involving cannabis, including but not limited to cultivating, transporting, distributing, manufacturing, compounding, converting, processing, preparing, storing, packaging, delivering, testing, dispensing, retailing, and wholesaling of cannabis, cannabis products, or of ancillary products and accessories, whether or not carried on for gain or profit.
(h) "Cannabis business tax" means the tax due pursuant to this chapter for engaging in a cannabis business in the unincorporated area of the County.
(i) "Commercial cannabis cultivation" means cultivation of cannabis undertaken in the course of conducting a cannabis business.
(j) "Commercial cannabis permit" means a permit, license, certificate, or other approval issued by the County to a person to authorize that person to operate a cannabis business or engage in business as a cannabis business within the unincorporated area of the County.
(k) "Cultivation" means any activity involving the planting, growing, harvesting, drying, curing, grading, or trimming of cannabis and includes, but is not limited to, the operation of a nursery.
(l) "Employee" means each and every person engaged in the operation or conduct of any business, whether as owner, member of the owner's family, partner, associate, agent, manager, or solicitor, and each and every other person employed or working in such business for a wage, salary, commission, barter or any other form of compensation.
(m) "Engaged in business as a cannabis business" means the commencing, conducting, operating, managing, or carrying on of a cannabis business, whether done as owner, or by means of an officer, agent, manager, employee, or otherwise, whether operating from a fixed location in the unincorporated area of the County or coming into the unincorporated area of the County from an outside location to engage in such activities. A person shall be deemed engaged in business within the unincorporated area of the County if:
(1) Such person or person's employee maintains a fixed place of business within the unincorporated area of the County for the benefit or partial benefit of such person;
(2) Such person or person's employee owns or leases real property within the unincorporated area of the County for business purposes;
(3) Such person or person's employee regularly maintains a stock of tangible personal property in the unincorporated area of the County for sale in the ordinary course of business;
(4) Such person or person's employee regularly conducts solicitation of business within the unincorporated area of the County; or
(5) Such person or person's employee performs work or renders services in the unincorporated area of the County.
The foregoing specified activities shall not be a limitation on the meaning of "engaged in business."
(n) "Evidence of doing business" means evidence such as, without limitation, use of signs, circulars, cards, or any other advertising media, including the use of internet or telephone solicitation, or representation to a government agency or to the public that such person is engaged in a cannabis business in the unincorporated area of the County.
(o) "Gross Receipts," except as otherwise specifically provided, means, whether designated as a sales price, royalty, rent, membership fee, ATM service fee, delivery fee, slotting fee, any other fee, vaping room service charge, commission, dividend, or other designation, the total amount (including all receipts, cash, credits, services and property of any kind or nature) received or payable for sales of goods, wares or merchandise, or for the performance of any act or service of any nature for which a charge is made or credit allowed (whether such service, act or employment is done as part of or in connection with the sale of goods, wares, merchandise or not), without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, interest paid or payable, losses or any other expense whatsoever. In the event the business is involved in a "non-arm's length transaction" the gross receipts will be subject to the fair market value using a methodology approved by the Tax Administrator. However, the following shall be excluded from Gross Receipts:
(1) Cash discounts were allowed and taken on sales;
(2) Any tax required by law to be included in or added to the purchase price and collected from the consumer or purchaser;
(3) Such part of the sale price of any property returned by purchasers to the seller as refunded by the seller by way of cash or credit allowances or return of refundable deposits previously included in gross receipts;
(4) Receipts derived from the occasional sale of used, obsolete or surplus trade fixtures, machinery or other equipment used by the taxpayer in the regular course of the taxpayer's business;
(5) Cash value of sales, trades or transactions between departments or units of the same business located in the unincorporated area of the County of San Diego and if authorized by the Tax Administrator in writing in accordance with Section 22.414 (b);
(6) Whenever there are included within the gross receipts amounts which reflect sales for which credit is extended and such amount proved uncollectible in a subsequent year, those amounts may be excluded from the gross receipts in the year they prove to be uncollectible; provided, however, if the whole or portion of such amounts excluded as uncollectible are subsequently collected, they shall be included in the amount of gross receipts for the period when they are recovered;
(7) Receipts of refundable deposits, except that such deposits when forfeited and taken into income of the business shall not be excluded;
(8) Amounts collected for others where the business is acting as an agent or trustee and to the extent that such amounts are paid to those for whom collected. These agents or trustees must provide the Tax Administrator with the names and the addresses of the others, and the amounts paid to them. This exclusion shall not apply to any fees, percentages, or other payments retained by the agent or trustees;
(9) Retail sales of non-cannabis products, such as t-shirts, sweaters, hats, stickers, key chains, bags, books, posters, rolling papers, cannabis accessories such as pipes, pipe screens, vape pen batteries (without cannabis) or other personal tangible property which the Tax Administrator has excluded in writing by issuing an administrative ruling per Section 22.414 shall not be subject to the cannabis business tax under this chapter.
(10) Payments made by the tax-reporting cannabis business (Seller) to a cannabis business (Buyer) for the difference in the original acquisition price and subsequent renegotiated or finalized selling price of products or services sold to a specific end customer. This type of transaction is referred to as a "Billback." The tax-reporting cannabis business must provide supporting documentation to substantiate the transaction in order to be eligible for an exemption.
(p) "Industrial hemp" means a crop that is limited to types of the plant Cannabis sativa L. having no more than three-tenths of 1 percent tetrahydrocannabinol (THC) contained in the dried flowering tops, whether growing or not; the seeds of the plant; the resin extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of the plant, its seeds or resin produced therefrom. However, should the federal or state legislative body increase or decrease the percentage of THC then this new limit shall be applicable.
(q) "Lighting" means a source of light that is primarily used for promoting the biological process of plant growth. Lighting does not include sources of light that primarily exist for the safety or convenience of staff or visitors to the facility, such as emergency lighting, walkway lighting, or light admitted via small skylights, windows, or ventilation openings.
(r) "Medicinal cannabis" or "medicinal cannabis product" means cannabis or a cannabis product, intended to be sold or sold for use pursuant to the Compassionate Use Act of 1996 (Proposition 215), found at Section 11362.5 of the Health and Safety Code, for a medicinal cannabis patient in California who possesses a physician's recommendation, or a cannabis card issued pursuant to Health and Safety Code Section 11362.71.
(s) "Nursery" means a facility or part of a facility that is used only for producing clones, immature plants, seeds, and other agricultural products used specifically for the planting, propagation, and cultivation of cannabis.
(t) A "non-arm's length transaction" is a transaction that does not meet the definition of an "arm's length transaction." In other words, the transaction is not a sale that is entered into in good faith and that reflects fair market value in the open market. One example of a non-arm's length transaction would be when a cultivator sells cannabis goods to a cannabis distributor at a sales price that is lower than what the same cultivator would to other cannabis distributors, or which does not reflect the fair market value in the open market.
(u) "Person" means an individual, firm, partnership, joint venture, association, corporation, limited liability company, estate, trust, business trust, receiver, syndicate, other legal entity, or any other group or combination acting as a unit, whether organized as a nonprofit or for-profit entity, and includes the plural as well as the singular number.
(v) "Processing" means a cultivation site that conducts only trimming, drying, curing, grading, packaging, or labeling of cannabis, and nonmanufactured cannabis products.
(w) "Retailer" means a person as defined in Section 22.404(u) who sells cannabis or cannabis products at their place of business or by delivery to an end user or customer for use or consumption rather than to another person or business for resale.
(x) "Sale" "Sell" and "to sell" means and includes any sale, exchange, or barter either as a retailer or wholesaler by a person as defined by Section 22.404(u). It shall also mean any transaction whereby, for any consideration, title to cannabis, cannabis products, are transferred from one person to another and includes the delivery of cannabis, cannabis products, pursuant to an order placed for the purchase of the same, but does not include the return of cannabis, cannabis products to the licensee from whom the cannabis, cannabis product was purchased.
(y) "State" means the State of California.
(z) "State license," "license," or "registration" means a state license issued pursuant to California Business & Professions Code Section 26050, and all other applicable state laws, required for operating a cannabis business.
(aa) "Tax Administrator" means the Treasurer-Tax Collector of the County of San Diego or his or her designee.
(ab) "Testing Laboratory" means a cannabis business that (i) offers or performs tests of cannabis, cannabis products, (ii) offers no service other than such tests, (iii) sells no products, excepting only testing supplies and materials, (iv) is accredited by an accrediting body that is independent from all other persons involved in the cannabis industry in the state and (v) is registered with the Department of Cannabis Control or other state agency.
(a) Beginning January 1, 2023, there is imposed upon each person who is engaged in business as a cannabis business a cannabis business tax. Such tax is payable regardless of whether the person has been issued a commercial cannabis permit to operate lawfully in the unincorporated area of the County or is operating unlawfully. The County's acceptance of a cannabis business tax payment from a cannabis business operating illegally shall not constitute the County's approval or consent to such illegal operations.
(b) The County Board of Supervisors may, by resolution or ordinance, increase or decrease the rate of the cannabis business tax, including the initial rate of cannabis business tax. The County Board of Supervisors may, by resolution or ordinance, increase or decrease the rate of the medicinal cannabis business tax, including the initial rate of the medicinal cannabis business tax, independent of other cannabis business tax activities. The County Board of Supervisors may set varied rates using classifications, sub-classifications, a tiered rate structure, graduated rates, or any other means not prohibited by law. Notwithstanding the foregoing, in no event shall the County Board of Supervisors repeal this tax or set any adjusted rate that exceeds the maximum rates calculated pursuant to this chapter.
(c) The maximum rate of the cannabis business tax shall be calculated as follows:
(1) For every person engaged in commercial cannabis cultivation in the unincorporated area of the County, the person shall be subject to an annual commercial cannabis business tax at the rates specified below in Section 22.405(c)(1)(A) or shall be subject to the annual maximum tax rate not to exceed three percent (3%) of gross receipts.
(A) Through January 1, 2024, the annual maximum rate shall be:
(i) Ten dollars ($10.00) per square foot of canopy space in a facility that uses exclusively artificial lighting.
(ii) Seven dollars ($7.00) per square foot of canopy space in a facility that uses a combination of natural and supplemental lighting as defined in Section 22.404(q) of this chapter.
(iii) Four dollars ($4.00) per square foot of canopy space in a facility that uses no artificial lighting.
(iv) Two dollars ($2.00) per square foot of canopy space for any nursery.
(B) On January 1, 2024 and on each January 1, thereafter, the maximum annual tax rates specified in Section 22.405(c)(1)(A), shall increase by the percentage increase in the Consumer Price Index ("CPI") for consumers in the San Diego Metropolitan Area as published by the United States Government Bureau of Labor Statistics. However, no CPI adjustment resulting in a decrease of any tax imposed shall be made.
(2) For every person engaged in the operation of a testing laboratory for cannabis, cannabis products, the person shall be subject to the maximum tax rate not to exceed two percent (2%) of gross receipts.
(3) For every person engaged in retail sales of cannabis, cannabis products, including as a retailer (dispensary) or non-storefront retailer (retail delivery business), or microbusiness, the person shall be subject to the maximum tax rate not to exceed six percent (6%) of gross receipts.
(4) For every person engaged in distribution of cannabis, cannabis products, the person shall be subject to the maximum tax rate not to exceed three percent (3%) of gross receipts.
(5) For every person engaged in manufacturing or processing of cannabis, cannabis products, or any other type of cannabis business not described in Section 22.405 (c)(1), (2), (3), or (4), the person shall be subject to the maximum tax rate not to exceed four percent (4%) of gross receipts.
(d) Persons subject to the cannabis business tax shall register with the County and if applicable pay the registration fee adopted by resolution or ordinance by the County Board of Supervisors pursuant to Section 22.406.
Pursuant to this Chapter, the following tax rates shall be in effect as of July 1, 2023:
Section 22.405 Reference | Tax Rate |
Section 22.405 Reference | Tax Rate | |
1. Cultivation | ||
a. Artificial Lighting | C.1.a.i | $7.00/SF |
b. Mixed Lighting | C.1.a.ii | $3.00/SF |
c. No Artificial Lighting | C.1.a.iii | $0.50/SF |
d. Nursery | C.1.a.iv | $1.00/SF |
2. Testing Laboratory | C.2 | 1.00% of gross receipts |
3. Retail | ||
a. Dispensary / Storefront | C.3 | 2.00% of gross receipts |
b. Non-Storefront | C.3 | 2.00% of gross receipts |
c. Microbusiness | C.3 | 2.00% of gross receipts |
4. Distribution | C.4 | 2.00% of gross receipts |
5. Manufacturing / Processing | C.5 | 2.50% of gross receipts |
6. Other | C.5 | 4.00% of gross receipts |
(Added by Ord. No. 10838 (N.S.), effective 5-4-23)
(a) Registration of Cannabis Business. All cannabis businesses shall be required to annually register as follows:
(1) All persons engaging in business as a cannabis business, whether an existing, newly established or acquired business shall register with the Tax Administrator within thirty (30) calendar days of commencing operation and shall annually renew such registration within thirty (30) calendar days of the business registration anniversary date of each year thereafter. In registering, such persons shall furnish to the Tax Administrator a sworn statement, upon a form prescribed by the Tax Administrator, setting forth the following information:
(i) The name of the business
(ii) The names and addresses of each owner
(iii) The exact nature or kind of business
(iv) The place where such business is to be carried on; and
(v) Any additional information which the Tax Administrator may require.
(b) An annual registration fee in accordance with the current and approved County fee schedule shall be presented with the sworn statement submitted under this chapter. This fee shall not be considered a tax and may be adjusted annually by resolution or ordinance of the County Board of Supervisors.
(c) The cannabis business tax imposed by this chapter shall be paid, in arrears, on a quarterly basis. Each person owing a cannabis business tax shall on or before the last day of the month following the close of each calendar quarter file with the Tax Administrator a statement ("tax statement") of the tax owed for that calendar quarter and the basis for calculating that tax. The Tax Administrator may require that the tax statement be submitted on a form prescribed by the Tax Administrator. The tax for each calendar quarter shall be due and payable on the same date that the tax statement is due.
(d) Upon cessation of a cannabis business, tax statements and payments shall be immediately due for all calendar quarters up through the calendar quarter during which cessation occurred.
(e) In the event that there is a change in ownership of any cannabis business:
(1) The new owner is required to submit an updated registration form to the Tax Administrator;
(2) The new owner is subject to an audit by the Tax Administrator; and
(3) Unless otherwise provided by law, it is the joint and several liability of both the seller and buyer to remit any taxes, interest, penalties, and fees due up until the date of sale; otherwise, a certificate of lien may be recorded against both the seller and/or buyer in an amount to be determined by the Tax Administrator.
(f) The Tax Administrator may, at his or her discretion, establish alternative reporting and payment periods for any taxpayer as the Tax Administrator deems necessary to ensure effective collection of the cannabis business tax. The Tax Administrator may also require that a deposit, to be applied against the taxes for a calendar quarter, be made by a taxpayer at the beginning of that calendar quarter. In no event shall the deposit required by the Tax Administrator exceed the tax amount he or she projects will be owed by the taxpayer for the calendar quarter. The Tax Administrator may require that a taxpayer make payments via a cashier's check, money order, wire transfer, or similar instrument.
Whenever any payment, statement, report, request, or other communication is due, it must be received by the Tax Administrator on or before the due date. A postmark will not be accepted as timely remittance. If the due date would fall on a Saturday, Sunday or a holiday observed by the County, the due date shall be the next regular business day on which the County is open to the public.
Unless otherwise specifically provided under other provisions of this chapter, the taxes required to be paid pursuant to this chapter shall be deemed delinquent if not received by the Tax Administrator on or before the due date as specified in Sections 22.406 and 22.407.
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