Desert Hot Springs extends temporary cannabis tax cut. Here's what to know
Desert Hot Springs will extend a temporary tax cut on cannabis cultivation for another six months, but held off making a permanent decision while its new city manager conducts more research.
The city council gave final approval to the temporary tax reduction on Tuesday.
In April, the council approved a 50% cannabis cultivation tax reduction for the first six months of the year and directed city staff to research long-term ways to help the struggling industry. This reduced cultivation taxes from $10.20 per square foot to $5.10 per square foot.
Leaders in the cannabis industry throughout the Coachella Valley have said they are facing a myriad of issues, such as high taxes, competition with a cheaper black market and over-saturation of businesses. Cities including Cathedral City and Palm Desert have lowered their cannabis taxes in an effort to help.
Following the April vote to reduce taxes, Desert Hot Springs councilmembers voted in July to have city staff draft an ordinance that would include a new definition for “cultivation space,” a lower cultivation tax rate and other measures designed to reduce financial burdens on cannabis businesses. They approved the ordinance in October — but without a permanent change to cannabis taxes.
The council’s reasoning at the time was the city should extend its temporary cultivation tax reduction and give newly hired City Manager Frank Luckino a chance to tackle the issue.
On Nov. 7, councilmembers approved temporarily setting the city's cultivation tax rate at $7.50 per square foot with a 3-2 vote. Mayor Pro Tem Roger Nuñez and Councilmembers Jan Pye and Gary Gardner were in favor, and Mayor Scott Matas and Councilmember Russell Betts were the dissenting votes. The second vote Tuesday night made the ordinance's passage official.
What else has the city done?
The city has also taken some other steps to change its rules surrounding the cannabis industry.
They include updating its definition of "cultivation space" to refer to the area where cannabis is actually being grown. Deputy City Manager Doria Wilms has previously said the city’s old definition was broad and meant the city taxed all areas of a building except offices, bathrooms and some hallways.
Cultivation, manufacturing and distribution facilities also have had to follow the city’s security requirements, but now these requirements are being aligned with the state. This means businesses won't have to pay high costs related to following both city and state security regulations.
New businesses also will have a six-month ramp-up period, in which the city phases in how much of their cultivation space is taxable.
What’s next?
The temporary cultivation tax reduction will take effect 30 days after Tuesday, according to a city staff report. Luckino said the council has directed him to give a final recommendation regarding cannabis taxes, and his goal to do so around February.
Ani Gasparyan covers the western Coachella Valley cities of Desert Hot Springs and Cathedral City. Reach her at ani.gasparyan@desertsun.com.
This article originally appeared on Palm Springs Desert Sun: Desert Hot Springs extends temporary cannabis tax cut. Here's why
