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File Number: 16-364 <br />communities that have permitted the operation of cannabis businesses, the recommended tax <br />in San Leandro would be based on the cannabis dispensaries’ annual gross receipts. Given <br />that the specific rates of such taxes vary by jurisdiction, coupled with the rapidly evolving legal <br />and regulatory landscape surrounding the cannabis industry, the proposed ballot question has <br />been structured such that the tax amount would be “up to” 10% of gross receipts. The <br />proposed language would allow the City flexibility to modify the rate over time up to that <br />maximum 10% threshold. The draft ordinance has also been structured such that it would <br />apply to any business involving the use of any component of the cannabis plant. If the adult <br />use of cannabis becomes legal following this November’s election and/or if the City Council <br />were to decide in the future to allow other ancillary cannabis-related businesses to operate in <br />the community (e.g. laboratory testing, cultivation sites, or extraction facilities, among others), <br />this tax would apply, providing an important new revenue stream to the City. <br />Given that no permitted cannabis dispensaries are yet operating in San Leandro, there is <br />uncertainty as to how much revenue could be derived from such a tax. However, based upon <br />revenue estimates provided by Harborside San Leandro as part of its application materials for <br />the first dispensary permit, staff estimates that this revenue measure could potentially <br />generate approximately $500,000 per year if the tax were initially set at a rate of between 5% <br />and 7% of gross receipts. For comparison purposes, the City of Oakland currently charges a <br />tax of 5% of gross receipts on cannabis businesses and San Jose voters authorized a tax of <br />up to 10% of gross receipts, but the City currently charges 7%. <br />Overview of Potential Modifications to the Business License Tax <br />The proposed modifications to the business license tax have been designed to better align the <br />City’s business license tax rates with City Council priorities to support small businesses <br />located in San Leandro, while also incentivizing the productive use of the City’s industrial <br />areas. <br />Small Business Discount: <br />As currently structured in the attached draft ordinance, the per-employee component of the <br />business license tax for small San Leandro businesses with three or fewer employees would <br />be eliminated. Currently, these businesses pay a flat fee of $128.20, plus a per-employee fee <br />that varies by business type. The per-employee fee would be waived for all small businesses. <br />This modification would result in a tax reduction for approximately 2,300 small businesses <br />located in San Leandro and an estimated decrease in business license tax revenue of <br />$250,000 annually. <br />Warehouse Rate Change: <br />Additionally, the proposed draft ordinance would modify the tax rate applied to warehouse and <br />distribution businesses. They are currently charged a flat fee of $128.20, plus a <br />per-employee fee. The draft ordinance would charge them $100 per 1,000 square feet of <br />building space. The rationale for this proposed change is to better align the business license <br />fee with the impact of such businesses, much of which comes from the physical size of their <br />business rather than the number of employees. Warehouse and distribution businesses <br />cause heavy wear on local streets through truck and delivery traffic, but generate relatively <br />few jobs and limited business license revenue or sales tax. By modifying the business license <br />tax rate to be based on square footage, the tax would better reflect such businesses’ impacts <br />on City infrastructure and services. The estimated additional business license revenue to be <br />Page 3 City of San Leandro Printed on 7/13/2016 <br />536