San Diego Sues to Collect Unpaid Cannabis Taxes

The city of San Diego just announced a lawsuit against businesses that work with the city and failed to pay their city cannabis taxes, money the city counts on coming in from the cannabis industry in order to keep infrastructure running. 

It’s no surprise the city is upset about missing this tax money, as they can use it to help with budget cuts in the face of more COVID-19-related expenses, which are inevitably coming this winter. Not only will there be expenses, but other industries the city relies on, such as tourism and hotel taxes, have been drastically reduced, so the income is needed more than ever. 

Officials from the city claim that Grizzly Peak Farms, one of the main companies getting sued, owes nearly $10,000 in back taxes. Grizzly Peak is located in Oakland, but they owe taxes for product delivered to San Diego for sale within city limits.

“It really kind of slipped through the cracks,” said Dave Gash, owner of Grizzly Peak, who claims the company did not mean to evade the tax and instead were not aware that it needed to be paid. “It’s legitimate, but it’s a weird city tax. We never heard about it, so it was weird to us. They haven’t been calling us about this or sending us notices.” 

Confusion Over San Diego Tax Law

The tax law in San Diego is a bit odd, because in most places, cannabis businesses would only be taxed if they operated within city limits. In this case, even businesses that provide product to those located in San Diego have to pay a tax. This is the result of several tax codes in other areas combined to make a unique system for the city of San Diego. 

This method of taxation relies on something called “apportionment,” which divides up revenue based on the cities in which product is sold. It applies to out-of-town suppliers as well as the dispensaries and cultivation facilities within San Diego. 

In order to be compliant, dispensaries also have to charge sales tax to recreational customers, and the city gets some of that money as well. However, San Diego does not charge medical customers a sales tax. While the rules may be confusing, they place the heaviest burdon on the businesses and leave medical consumers completely untaxed. 

San Diego cannabis attorney Jessica McElfresh claims that the tax legislation can be hard to follow, so it’s not a total surprise that some people are getting confused. 

So far, this hasn’t deterred Gash from doing business with the city that is suing him for back tax payment. He still plans to open a new business location in Kearny Mesa, San Diego either this year or next. 

In addition to out-of-town suppliers, the city’s cannabis tax applies to more than 20 licensed dispensaries in San Diego and more than a dozen licensed cultivation facilities. 

Despite the lawsuit to collect tax money owed, and the slightly confusing nature of the tax codes within the city, businesses still seem happy to do cannabis business in San Diego.