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November 6, 2018 — California General Election
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County

City and County of San Francisco
Proposition D - Majority Approval Required

To learn more about measures, follow the links for each tab in this section. For most screenreaders, you can hit Return or Enter to enter a tab and read the content within.

Election Results

Passing

227,250 votes yes (65.67%)

118,815 votes no (34.33%)

Shall the City impose new cannabis business taxes beginning in 2021, at rates ranging from 1% to 5% on gross receipts of cannabis businesses in San Francisco, where the Board of Supervisors could decrease those rates, or increase them up to 7%; and shall the City apply many of its business taxes to businesses with over $500,000 in gross receipts in San Francisco that do not have a physical presence here; raising an estimated $2-4 million annually in combined tax revenues in 2019 and 2020, and an estimated $7-16 million annually beginning in 2021, and with no expiration date on these newly imposed and applied taxes?

What is this proposal?

Pros & Cons — Unbiased explanation with arguments for and against

Information provided by League of Women Voters of San Francisco

The Question

Shall the City’s Business Tax and Regulations Code be amended to impose the following taxes on cannabis businesses:

  • 2.5% on gross revenue up to $1 million and 5% on gross revenue over $1 million from the retail sale of cannabis;
  • 1% on gross revenue up to $1 million and 1.5% on gross revenue over $1 million from business activities other than retail sales of cannabis;
  • Apply this and other business taxes to some businesses that do not have a physical presence in the City but who generate more than $500,000 in gross revenue in the City

Note: This Pro/Con information is also available in Spanish.

The Situation

California voters passed Prop 64, legalizing the sale of recreational cannabis, in 2016. The state imposes a 15% excise tax on all cannabis sales, both medical and recreational. Recreational cannabis is also subject to state and local sales tax.

Cities have been able to implement recreational cannabis sales and taxes at their own discretion. San Francisco began recreational cannabis sales in January 2018. Those sales are already subject to an 8.5% sales tax and a gross revenue tax of between .075% and .65% for businesses with over $1 million in revenue annually, in addition to the state excise tax. As with other taxes, gross revenue and excise taxes are passed on to buyers.

Other states have approved the sale of medicinal and recreational cannabis, applying similar taxes on recreational cannabis. Some have seen recreational cannabis sales fall off in the months following implementation.  In response, taxes resulting from sales of cannabis have also diminished.

The Proposal

The Board of Supervisors would be able increase the tax on cannabis businesses by up to 1% per year, to a maximum rate of 7% in each category. The Board could vote by a simple majority to decrease the tax as well.  Some businesses would be exempt from some or all of the new tax for the first $500,000 of revenue from:

  • sales of medicinal cannabis
  • certain other activities indirectly related to retail sales of cannabis

Business activities include cultivation, possession, manufacturing, processing, storing, labeling, and distribution services. Transportation and testing are exempt under this measure, though delivery services are not.

Revenue from these changes would go into the General Fund, which can be used for any purpose.

A “YES” Vote Means: You want to authorize these new taxes on cannabis businesses and on some businesses generating revenue in the City without having a presence here.

A “NO” Vote Means:. You do not want to make these changes.

Supporters say

  • Prop D could generate approximately $10 million in tax revenue each year that will be put toward education, equity programs, training and education of the cannabis workforce, and enforcement of city cannabis permitting.
  • San Francisco is the last major city in California to pass a tax on cannabis.

Opponents say

  • Prop D will result in higher costs that will put cannabis retailers out of business, driving buyers back to the black market where cannabis is not subject to testing and is of lower quality.
  • The increased taxes are just a way for the city to get more money to spend on matters unrelated to drug safety, education, or rehabilitation.

Measure Details — Official information about this measure

YES vote means

A "YES" Vote Means: If you vote "yes," you want to:

• Impose new cannabis business taxes; and

• Apply many of The City’s business taxes to some businesses that do not have a physical presence in The City. 

NO vote means

A "NO" Vote Means: If you vote "no," you do not approve these taxes and modifications.

Summary

Ballot Simplification Committee

The Way It Is Now: The City collects a tax on gross receipts from many businesses operating in San Francisco. The current tax rates on gross receipts range from 0.075 percent to 0.65 percent. Cannabis businesses are subject to the tax on gross receipts.

Businesses with $1 million or less in total gross revenue within San Francisco are generally exempt from the gross receipts tax. Some other businesses, including certain nonprofit organizations, banks and insurance companies, are also exempt.

The City collects gross receipts and other taxes on businesses that meet specified conditions relating to activities within San Francisco.

Increasing tax revenue spending limits requires San Francisco voter approval.

The Proposal: Beginning January 1, 2021, Proposition D would impose a new gross receipts cannabis business tax of:

• 2.5 percent on the first $1 million of gross revenues from the retail sale of cannabis products;

• 5 percent on gross revenues over $1 million from the retail sale of cannabis products;

• 1 percent on the first $1 million of gross revenues from cannabis business activities other than the retail sale of cannabis products; and

• 1.5 percent on gross revenues over $1 million from cannabis business activities other than the retail sale of cannabis products.

These additional taxes would not apply to:

• Revenues from the retail sale of medicinal cannabis;

• The first $500,000 of gross revenues;

• Revenues from certain activities indirectly related to cannabis businesses; or

• Some businesses exempt from The City’s gross receipts tax, such as certain nonprofit organizations.

The Board of Supervisors could decrease or increase the tax rate, up to a maximum rate of 7 percent in each category. By a two-thirds vote of the Board, the tax in any category may be increased up to 1 percent each year.

Revenues from this additional tax would go into the General Fund, which The City may use for any public purpose.

Proposition D would increase The City’s annual tax revenue spending limit for four years.

In addition, beginning January 1, 2019, Proposition D would modify The City’s tax code to apply many of The City’s business taxes to some businesses that receive more than $500,000 in gross revenue in San Francisco and do not have a physical presence in The City.

Financial effect

City Controller Ben Rosenfield

City Controller Ben Rosenfield has issued the following statement on the fiscal impact of Proposition D:

Should this ordinance be approved, in my opinion, it would result in a tax revenue increase to the City of an estimated $2–4 million in 2019, growing to $7–16 million annually beginning in 2021. The tax is a general tax and proceeds would be deposited into the General Fund.

The measure would amend the City’s Business Tax and Regulations Code to impose a cannabis business tax rate of between one percent and five percent depending on the type of cannabis business activity and amount of a business’s gross receipts, beginning on January 1, 2021. In addition, the measure would exempt the first $500,000 of gross receipts and exempt retail sales of medicinal cannabis. The tax rate may be adjusted between zero percent and seven percent at any time by a two-thirds vote of the Board of Supervisors, but the rate cannot be increased by more than 1 percent annually. This portion of the ordinance is estimated to generate $5–12 million annually beginning in 2021.

Additionally, the ordinance would permit the City to tax businesses that do not have a physical presence here, provided those businesses’ sales exceed $500,000 annually. The revenue implications of this provision depend on the extent to which local wholesalers, retailers, and consumers directly receive shipments from these non-local businesses, as opposed to shipping through other distributors already subject to business tax. Currently, this is largely unknown to the City. We estimate shorter-term revenues of $2 to 4 million annually as a result of this change, with the potential for significant additional tax revenue depending on the total sales from new required business tax payers. For each additional $1 billion from such sales, City revenues would increase by approximately $1.5 million. 

Published Arguments — Arguments for and against the ballot measure

Who supports or opposes this measure?

Yes on Proposition D

Organizations (1)

Elected & Appointed Officials (0)
No on Proposition D

Organizations (2)

Elected & Appointed Officials (0)

More information

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