Perris council hears business pleas to cut cannabis retail tax; city attorney asked to review state law

The Perris City Council on Feb. 25 took up a staff report and public comment about whether to reduce the city's 10 percent cannabis retail tax rate. Staff presented revenue history, projections under alternative tax rates, and an updated survey of freeway billboards advertising cannabis.

Rafael Garcia, principal planner, summarized staff work since the Ways and Means Committee review: an updated billboard survey (29 freeway billboards identified, 18 within Perris city limits; four in the county and four in the city were advertising cannabis at the time of the survey), a survey of surrounding cities' tax rates, and an analysis of potential revenue impacts from lower rates.

Staff noted Perris's 10 percent tax translates to an effective rate of about 7.75 percent after the state excise tax and related deductions used in the staff calculation; staff projected 2025 cannabis retail tax revenue of about $2,580,000 under current assumptions and showed estimated revenue reductions for hypothetical lower rates (for example, a 1 percentage point cut to 9% was projected to reduce revenue by about $243,549, according to staff's model).

Three public speakers representing the cannabis business community and the Perris Valley Chamber of Commerce urged relief. One speaker (Joshua Nagar) asserted that the city's tax structure results in double taxation of inventory (taxing cost of goods sold) and distributed a copy of the relevant California law for council consideration; he urged the council to cease taxing the cost of goods sold. Stan Jakubowitz, consultant for Higher Point Cannabis, described the industry's narrow margins and the prospect of rising state excise taxes. Jerry Sapovada, president of the Perris Valley Chamber of Commerce, supported reducing the tax to 5 percent to help licensed businesses compete with illicit markets and preserve jobs.

Councilmembers asked clarifying questions about how other cities tax cannabis and whether Perris's approach is unique. Staff said most nearby cities tax based on gross receipts; Perris adopted a resolution some years ago to apply deductions for state excise and state/local sales taxes before computing the city retail tax, and staff noted new state law language was brought to the council's attention during public comment and may be effective Jan. 1 of this year.

Councilmembers directed the city attorney to review the legal materials that were distributed and return with a written analysis. Several members said they wanted the matter returned to council in writing and discussed timing; council agreed to bring the item back at a subsequent meeting (staff indicated the first March meeting is canceled and the next regular meeting is the second March meeting, giving additional time for review).

Why it matters: city tax policy affects the finances of licensed cannabis retailers, city revenue projections and the competitive balance with illicit sellers. Public speakers argued Perris's tax treatment uniquely burdens licensed retailers by taxing cost of goods sold; staff cautioned that the revenue figures presented are projections and that any change in rate will reduce projected city revenue.

Next steps: the city attorney will review the cited state law and related materials and provide a written analysis for council consideration at a future meeting. No rate change ordinance or resolution was adopted on Feb. 25.