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Desert Hot Springs council directs staff to draft ordinance to cut retail cannabis sales tax to 5%
Summary
After a staff report and industry testimony, the Desert Hot Springs City Council voted unanimously to direct staff to return with an ordinance to reduce the city's cannabis retail sales tax from 10% to 5%; staff warned that a cut could cost the city an estimated $600,000'$750,000 annually in the near term.
The Desert Hot Springs City Council on April 1 voted unanimously to direct staff to prepare an ordinance that would reduce the city's cannabis retail sales tax from 10% to 5%.
City staff presented background on the local cannabis market and a fiscal analysis. "Staff recommends that the city council consider lowering the cannabis sales tax rate from 10% to 5%," said Miss Newsom, summarizing a multi-year revenue trend that showed retail cannabis tax receipts falling from about $1.5 million last year to a projected $1.2 million this year. She said halving the local rate would cut annual local revenue by an estimated $600,000 to $750,000.
City Manager Dora Welms and finance staff added that a separate state excise tax — currently 15% — had been the subject of recent legislation that could raise it to 25% effective July 1, which would further increase the combined tax burden on consumers and affect local competitiveness.
Industry speakers urged the reduction. "By reducing the retail tax to 5%, we can help level the playing field for our licensed retailers, keep tax revenue within the city, and encourage compliance with legal regulations," said Scott Russick, president of the Coachella Valley Cannabis Alliance Network. Abraham Robin, co-owner of IVTHC, told the council Desert Hot Springs was among the first California cities to allow cannabis businesses and urged action to preserve local jobs and encourage customers to choose licensed stores.
Council members emphasized that the action taken Tuesday was direction to staff, not an immediate rate change. Council member Voss moved to bring back an ordinance to set the retail rate at 5%; the motion was seconded and passed unanimously.
Votes at a glance - Motion to direct staff to prepare an ordinance reducing cannabis retail sales tax from 10% to 5%: motion moved by Council member Voss; passed unanimously (5-0). - Consent calendar (routine items): passed unanimously (5-0).
Why it matters Council members said the decision reflects concern about a rising state tax burden and pressures from illicit-market competition that have been eroding local retail revenue and threatening licensed operators. Staff cautioned the city would need to absorb an estimated near-term revenue reduction and asked for return analyses on budgetary impacts and implementation details.
What happens next Staff will draft an ordinance and related analysis for a future council meeting that will specify the effective date and fiscal mitigation steps. The council did not set an immediate effective date when it voted to direct staff to return with the ordinance.
