Santa Barbara County, California introduces the “death penalty” tax rule

Santa Barbara County officials are tightening rules to keep cannabis companies on track with their tax payments. On June 27, the Santa Barbara County Board of Supervisors approved tougher penalties for cannabis companies that fail to pay their taxes on time.

Beginning in August, cannabis businesses in Santa Barbara County, California, that fail to pay their quarterly taxes or file the appropriate documentation within the 30-day grace period could lose their license to operate.

“It’s so serious,” Assistant District Manager Brittany Odermann told the board of directors at the June 27 meeting. “You’re late. … You can’t extend.”

Regulators unanimously voted to pass measures to increase penalties for cannabis license holders to address a growing number of violations through timely payments and filing of reports.

According to Whitney Economics, the county’s back-tax problem has worsened, which isn’t surprising given that less than a quarter of U.S. cannabis companies are turning a profit.

Santa Maria Sun reports that county officials reported during a June 6 cannabis briefing that 12 operators had not filed their third-quarter tax reports by April 30. Three operators submitted an application between April 30 and June 6. At that meeting, supervisors urged employees to reinforce their tax returns with the penalties and consequences associated with timely tax returns and payments, which are due in the last days of January, April, July and October.

Santa Barbara bosses are weighing things up

Some regulators disagreed with the introduction of tougher penalties.

“That’s not how we collect taxes in the county. I think we’ve gone from a kind of slap on the wrist to a death penalty,” said 5th Circuit Supervisor Steve Lavagnino. “That would be like being a day late with your TOT [transient occupancy tax]You have to close your hotel, or if you’re a day behind on your property tax, you have to move out of your house.”

He added that it was not the intention of supervisors to oust companies from the cannabis industry when they urged employees to face tougher penalties.

“Our intention is to get someone to pay the tax,” he said. “I would hope that we could find something that fits the intent of what we’re trying to do.”

The county’s cannabis tax system already had a 30-day grace period, and the new changes would not change that. Odermann said that if taxes are due on Jan. 1, companies must pay them by the Jan. 30 due date, when the report on those taxes must also be filed.

“We say that if you don’t do that by January 30, you face the death penalty,” said Odermann.

Others agreed that the rules were a bit excessive.

“It’s a standard that no one else lives by,” said 1st District Manager Das Williams. “Is there another possibility? … Essentially, can people prepay their cannabis taxes to avoid this quarterly hazard? … If our goal is to remedy the situation and improve tax collection, why not allow people to prepay their taxes?”

In 2020, a grand jury in Santa Barbara, California, issued a report criticizing the county’s cannabis regulations, arguing that board members allowed cannabis companies to dictate their policies and did not serve the interests of county residents in the process. The grand jury, which acts as the oversight body for the county’s agencies, wrote in the report that it had received multiple requests to investigate the panel’s actions related to the creation of the county’s cannabis regulations.