Medical Marijuana
Property Tax

Medical Marijuana Tax Could Be Millions for Maricopa County Schools

(Source: PhoenixNewTimes): Ray Stern – Medical marijuana businesses in Maricopa County haven’t been paying as much in property tax as they could. County Assessor Paul Petersen wants to change that.

Over the next few years, his plan to start enforcing business personal property tax on dispensaries and cultivation facilities is expected to yield millions of dollars in new revenue for county schools and community colleges.

Various county tax districts, cities, and towns will also get a chunk of change.

It’s another example of how legalization helps the community in ways that black-market sales never did.

Not that marijuana businesses are thrilled. They’ll have to pay more in taxes — and they’ll undoubtedly pass along that extra cost to patients.

The consolation is that those taxes will go directly to benefit education in local school districts, adding to the government’s overall net profit from legal weed in Arizona.

More than 100 dispensaries and cultivation centers have opened since voters approved the state’s Medical Marijuana Act in 2010. Last year alone, the businesses collected about $30 million in sales tax after patients legally bought 29 tons of cannabis products.

The new boost in Maricopa County school revenue will be driven by a type of tax that most metro Phoenix dispensaries and indoor growing facilities have been blowing off.

Petersen, an adoption lawyer from Mesa, began his second term in office this year. His job as assessor is not to collect taxes, but to have his office staff figure out the valuation — the worth — of residential and commercial properties. After that, the County Treasurer’s Office sends out the property tax bills.

Businesses, like homeowners, pay property tax on their land and the buildings on it. Businesses also have to pay tax on their personal property. That means nearly everything that’s not part of a building structure. In the case of marijuana retail and cultivation operations, it includes things like computers, grow lights, watering systems, sinks, refrigerators, and ovens for making edibles.

On Thursday, Petersen held a press conference to announce that cannabis operations were, for the most part, failing to report their business personal property or pay tax on it.Typically, the assessor’s office never holds press conferences to urge a specific industry to pay its taxes. But marijuana is an attention-getting subject. Petersen said he thought that inviting the news media to his office, located on the third floor of the county headquarters at 301 West Jefferson Street in Phoenix, would help spread the word to the businesses that they need to pay this tax.

His office has identified 109 medical-marijuana businesses in the county, he said. That includes 55 dispensaries, 33 cultivation facilities, nine dual-use facilities (dispensaries with internal cultivation facilities), and 12 certification businesses.

In spite of forms he sent recently to the businesses alerting them to the tax, only 11 of the 109 businesses responded.

“That’s a pretty dismal rate of return,” he said.

The assessor’s office sends out the tax forms to all businesses, which are supposed to respond by self-reporting an estimated valuation of their business personal property. So far for 2017, the office has mailed forms to 45,839 and gotten a return rate of 95 percent.

Most of the marijuana businesses have sort of screwed themselves for this year by failing to self-report.

Only cultivation centers and dual-use businesses are likely to have enough business personal property to incur a tax, according to information provided by the assessor’s office. Cultivation operations typically have $675,000 in property, while a dual-use facility might have nearly $1 million in property.

The  businesses don’t have to pay anything if their personal property totals less than $159,498. That exemption would apply to the average dispensary, which average about $75,000 in property, and to certification centers, which average about $50,000 in property.

However, businesses that don’t self-report can’t take advantage of the exemption for a year. And they get hit with a penalty — an extra 10 percent of the property’s valuation.

Today, Petersen’s office will be mailing out estimated valuations to all of the medical-marijuana businesses that didn’t pay. The businesses can appeal the estimated valuations if they believe it’s too high.

This year, once the valuations are finished and tax bills go out, the county stands to net $1 million for schools and community colleges, and another $500,000 for other tax districts and municipalities.

But Petersen said it’s likely all medical-marijuana businesses in the county will be audited for the tax years 2014-2016. That means next year could be a pot-tax bonanza for the county, with millions in back taxes collected.

The taxes will benefit the school district where the property is located, Petersen said.

He said he got the idea to go after the marijuana businesses after touring a cultivation facility last year — he declined to name it — and saw that it contained a lot of equipment and other personal property. His staff checked the tax records and saw the business had never self-reported a valuation for its property, nor paid a tax on it. He checked other marijuana businesses and saw that most had never self-reported.

The businesses don’t qualify for an exemption on the tax that some, including religious and charitable organizations, can obtain, according to a legal opinion by lawyers at the assessor’s office, he said.

Some counties have already been collecting the tax on personal property.

Pima County Assessor Bill Staples told New Times that his office has received “pretty good” compliance for business personal property valuations from Tucson-area marijuana businesses.

Petersen said he’s not sure why the Maricopa County businesses haven’t been complying with the tax law, which their accountants should have recognized was mandatory.

“New industry, maybe not totally pro-government,” he speculated. “Suspicious of any government questions … I think it’s a mixture of those things.”

Petersen’s office could have done a better job letting the industry know about the tax before holding a press conference, said Christa Severns, executive director of the Arizona Dispensary Association. Operators of the 17 dispensaries in the association were unaware of the requirement, she said.

“They pay their sales tax — they know they’re under a microscope,” she said. “If we owe taxes, we’re going to pay them.”

Ironically, in October, Petersen argued against Arizona’s adult-use marijuana ballot measure, Prop 205, by claiming that if the bill passed, marijuana businesses would not benefit schools because they already have not been paying their full share of taxes based on personal property valuations — which he is now making them pay.

“Nearly 70 percent of taxes collected from the assessment of business personal property taxes goes to fund local education,” he wrote in an Arizona Capitol Times op-ed. “This means that non-compliance by the marijuana industry in Arizona in listing their business personal property and their subsequent failure to pay any taxes whatsoever is impacting the education of our children.”

Under Petersen’s new enforcement plan, those concerns will dry up, and the education of children will be affected positively.

If voters had passed Prop 205, the benefit to schools would have been much greater.