Two local attorneys demanded Humboldt County refund up to millions of dollars in marijuana grow tax revenues as part of a lawsuit filed Monday.
“At this point, my researcher tells me that there’s been about $4 million collected from 2017 taxes, most of which are probably illegal,” Alderpoint-based marijuana defense attorney Eugene Denson said. “So it’ll be a big deal to get this money back to the community and out from the county’s hands.”
Standing outside the Humboldt County Superior Courthouse on Monday afternoon as a Netflix documentary film crew and local media looked on, Denson and his co-counsel Eureka-based attorney Frederic Fletcher claimed the county Board of Supervisors made illegal changes to the tax in June 2017.
The marijuana grow tax was passed by voters in November 2016 through Measure S in to provide funding for a multitude of services including public safety, job creation, crime investigation and prosecution, environmental cleanup and restoration; children and family mental health, drug rehabilitation among other services. The two attorneys allege in the lawsuit that the changes made by the board in June 2017 were significant enough that they required voters’ approval.
While on the phone with the Times-Standard, Humboldt County Jeffrey Blanck said he was literally being served a signed copy of the lawsuit. He said he cannot comment on the litigation until he has had time to review the court petition.
“My previous position was we didn’t violate any laws,” Blanck said. “We’ll read through it and move forward.”
Blanck said the county will have 30 days to respond to the litigation.
Denson and Fletcher are filing the lawsuit on behalf of the Humboldt-Mendocino Marijuana Advocacy Project, the Humboldt Cannabis Taxpayer’s Association, the Humboldt Voters’ Association and two Bridgeville property owners, Karen and Dennis Silva.
Denson said the suit could have significant economic impacts, particularly in Southern Humboldt County communities.
“At that point, I expect the businesses on Main Street in Garberville will start to flourish again, the nonprofits beginning to get donations again, the Mateel [Community Center] to stay open, KMUD to stay on the air, the volunteer fire companies to keep running,” Denson said. “That’s what I’m hoping for.”
Fletcher said he is part of the lawsuit because his clients are the people who “put Humboldt on the map.”
“I’m a medical user and the medicine these people provide is second to none,” Fletcher said. “They will always have my heart.”
The lawsuit is calling for the court to order Humboldt County to revert its tax measure back to its original version.
Under the current version of the tax, property owners who have marijuana cultivation permits for their land are taxed between $1 to $3 for every square foot of cannabis that they are licensed to grow. The rate varies depending on whether the grow is outdoor, indoor or mixed-light.
The original version of the tax passed by voters taxed the farmers and not the property owners. The original version also only taxed the farmer based on the square footage of cannabis that was actually grown, not on the maximum amount that could be grown under the farmer’s cultivation license, according to the litigation. Denson also claims the original tax used to be pro-rated based on the when the farmer began cultivating, but was changed by the board to paying the tax regardless of whether the cannabis was grown or not.
Karen and Dennis Silva said they have owned a piece of property in Bridgeville for the past decade and decided to get a cultivation permit to enhance their property value. They were able to get an interim permit in December, Karen Silva said, and received a tax bill from the county shortly after for about $40,000 even though they didn’t have any cultivation.
“It was for last year when we were not even in business,” she said. “We were not doing anything on the property. … And we’re due to pay another bill of $27,000 on the 30th of May, so it’s a lot of money to come up with.
“Until something’s been, I guess, processed and sold, I would think that it’s not going to be taxed,” Karen Silva continued. “I do a flower business myself and until I buy the goods and sell the goods, I don’t pay tax.”
Responding to farmers’ concerns, the Board of Supervisors made several changes to the cannabis tax earlier this year. One of the more significant changes was to allow for tax refunds if a farmer can prove that they did not cultivate cannabis that year or could not farm because of regulatory reasons. One of the reasons could be that a person was unable to cultivate without illegally diverting water.
The board also directed county staff to allow cultivation permit holders to declare early in the year whether they plan to grow a smaller amount of marijuana than the maximum their permit allows for. This way, farmers will not have to pay taxes for crop they are not growing. The board also reduced fees and penalties to growers who don’t pay their tax on time from an additional 25 percent of the total amount due to 10 percent, which mirrors the county’s penalty for delinquent property taxes.
Denson said this does not address issues such as crop failures and said that this change has not been adopted into county code, meaning the county could reverse its stance on this practice at any time.
Another major change that would occur should the tax revert back to its original language is that the tax would be collected “biennially,” meaning every two years, rather than biannually meaning twice per year as is the current practice. The lawsuit claims this change is “an improper tax on the time value of money” because it deprives the taxpayer of the financial gains they would receive through inflation.
Denson said that he and his clients would want to see the tax completely appealed and instead replaced by a tax that is based on the amount of product.
“[My clients] would want to see a tax on the harvest, not on the dream at the beginning, but on the productive results,” Denson said. “If they make money, they give some of it to the county. They’re fine with that. But the way it’s set up now, the county takes their money and if the crop fails, they’re stuck. There are a lot of things that could happen.”
The statewide cannabis tax does this by taxing based on the weight of cannabis flower and leaves produced. Denson he would support a similar tax model locally.
A copy of the court filing can be found online at https://www.scribd.com/document/379242334/Measure-S-lawsuit-filed-on-May-14-2018
Will Houston can be reached at 707-441-0504.