L.A. could impose new rules for pot shops paying city taxes

Even as Los Angeles tries to crack down on marijuana businesses, one arm of city government -- its tax registration office -- has continued to register pot shops that may not be allowed to operate under voter-approved regulations.

The practice has alarmed some city lawmakers, who complain that marijuana shops not complying with the rules have used business tax registration documents to convince customers and landlords that they are operating legally.

Late last year, City Councilwoman Nury Martinez called for the city to stop issuing tax certificates to shops that are not in compliance with the law, arguing that it was hypocritical for the city to reap revenue from illegal businesses.

At a City Council committee meeting Monday, lawmakers stopped short of endorsing Martinez’s proposal, after finance department officials said they had no authority to investigate the legitimacy of businesses registering for tax certificates.

Instead, members of the Budget and Finance Committee asked city officials to report back on other possible actions, including requiring pot shops to declare in writing under penalty of perjury that they comply with the voter-imposed requirements before registering to pay taxes.


Under Proposition D, which voters passed two years ago, medical marijuana businesses and the landlords who lease to them can be prosecuted if the shops don’t meet several requirements, including being registered with the city in the past and operating a mandated distance from parks and schools.

When voters passed the law two years ago, city officials estimated that fewer than 140 of the businesses would qualify to continue operating.

But far more have continued to register to pay business taxes to the city: City officials said nearly 450 marijuana shops filed renewal paperwork this year.

Hundreds more -- a total of more than 1,100 marijuana businesses -- remain registered with the city, though they may have closed without telling the finance office. And others may be operating but have never registered to pay taxes.

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More than $4 million in business taxes has been collected from marijuana shops this year so far, according to finance officials.

Last year, Martinez said she wanted the city to help finance officials verify which shops comply with city rules and stop the rest from obtaining certificates.

But at the Monday hearing, assistant finance office director Ed Cabrera said his department is not authorized to investigate whether a business is legal. When a business registers, he said, “they’re simply taking the taxpayer … at face value.”

Council members said that if a marijuana shop had to attest it complied with Prop. D before registering, fewer of the shops that are operating illegally might try to register.

In addition to asking such shops to certify they meet city requirements, Councilman Paul Krekorian asked finance officials to come up with ways to alter the tax certificates to make it clear that they do not mean a marijuana business complies with city rules.

He and other lawmakers also said finance officials should regularly send city prosecutors and police up-to-date information about which pot shops have tried to register, to help them track down any businesses that violate the city rules.

City lawyers and finance officials are supposed to report back to the council budget committee on possible rewording of the tax certificates and other suggested changes in two weeks. They face some deadline pressure: Cabrera said the city will soon start printing the tax certificate renewal paperwork that businesses will file next year.

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