HomeMy WebLinkAbout75F - PH CANNABIS BUSINESS INTEGRATIONREQUEST FOR
COUNCIL ACTION
CITY COUNCIL MEETING DATE:
JUNE 4, 2019
CLERK OF COUNCIL USE ONLY:
TITLE:
APPROVED
❑ As Recommended
PUBLIC HEARING — APPROVE ORDINANCE
❑ As Amended
AMENDMENT NO. 2019-01 TO ADD TO AND
❑ Ordinance on 151 Reading
El Ordinance Reading
El
on
AMEND CERTAIN SECTIONS OF CHAPTER 21
El Implementing Resolution
OF THE SANTA ANA MUNICIPAL CODE TO
❑ Set Public Hearing For
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INTEGRATION OF CANNABIS BUSINESSES;
UPDATING PROCEDURAL STANDARDS AND
REQUIREMENTS RELATING TO OWNERSHIP
TRANSFERS, SECURITY DEPOSITS, AND
VARIOUS ADMINISTRATIVE PROCESSES; AND
REDUCING CANNABIS TESTING TAXES TO
TWO PERCENT OF GROSS RECEIPTS
{STRATEGIC PLAN NOS. 3, 2; 3, 3; 3, 5; 4,31
CONTINUED TO
FILE NUMBER
— CITY MANAGER
RECOMMENDED ACTION
Approve Ordinance Amendment No. 2019-01 allowing vertical integration of certain commercial
cannabis businesses; updating operational and procedural standards for implementing the
City's medicinal and commercial cannabis ordinances, decrease security deposit amount
requirements, compute square footage cannabis taxes based on allocation of gross square
footage usage; and reducing the commercial cannabis testing laboratory tax from five (5) to two
(2) percent.
2. Adopt a resolution reducing the gross receipts tax on commercial cannabis testing laboratories
from five (5) to two (2) percent.
3. Adopt a resolution implementing a canopy measurement service fee and an allocated square
footage measurement service fee to cover the City's cost in independently verifying the
allocation of square footage usage by commercial cannabis businesses.
BACKGROUND
The City of Santa Ana permits a variety of types of cannabis business activity, which include retail
sales of medicinal and adult -use cannabis, and cannabis cultivation, distribution, manufacturing,
and testing. These cannabis business activities were permitted through adoption of multiple
ordinances beginning with Measure BB (Ordinance NS-2684) in November 2014 through
Ordinance NS-2944 in May 2018. In November 2018, Santa Ana voters approved Measure Y
(Ordinance NS-2962), which established commercial cannabis business license taxes for adult-
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Ordinance Amendment No. 2019-01 — Commercial Cannabis Vertical and Horizontal Integration
and Ordinance Updates
June 4, 2019
Page 2
use cannabis retail sales, cannabis cultivation, distribution, manufacturing, and testing. Medicinal
cannabis retail sales continue to be subject to taxes pursuant to Measure BB.
Multiple changes to State cannabis laws and changes in market demands require the City to revisit
its ordinances and tax collection to ensure that Santa Ana maintain its competitive position in the
region, remain compliant with applicable laws, and streamline its implementation of cannabis
taxation. When added to Santa Ana's local cannabis taxes, the State's assessments on cannabis
goods, which include sales tax, excise cannabis tax, and cultivation tax, result in legally -operating
and permitted commercial cannabis businesses having to confront a combined state and local tax
rate exceeding 50 percent of the retail sale value of their cannabis goods. This 50-percent rate
discourages businesses from seeking the required permits to operate legally and can foster a
continued illicit cannabis market, which is to the detriment of Santa Ana's permitted operators.
DESCRIPTION
The table below (Proposed Amendments to Chapter 21) describes the ordinance amendments.
Additional details are provided in the subsections that follow.
Proposed Amendments to Chapters 21
Item
Proposed Amendment
Impact
Vertical and
Amends Ordinances NS-2864 and NS-
Incentivizes cannabis business to expand
Horizontal
2962 to allow vertical and horizontal
operations within the City and encourages new
Integration
integration of business structures for
businesses to enter the Santa Ana marketplace
businesses engaging in multiple types of
by providing full vertical/horizontal integration of
commercial cannabis business activity.
commercial cannabis business activities in Santa
Includes allowance for vertical and
Ana, including medicinal and nonmedicinal retail
horizontal integration of commercial
cannabis businesses. Allows for the deduction of
cannabis business activities involving both
interparty sales and/or transfers of cannabis and
medicinal and nonmedicinal cannabis retail
cannabis products occurring within a single
businesses.
integrated cannabis business from the reportable
gross receipts of cannabis businesses, thereby
reducing the net negative effect of multi -level
taxation. Incentivizes existing cannabis
businesses to expand operations within the City
and encourages new businesses to enter the
Santa Ana marketplace by providing full
vertical/horizontal integration of commercial
cannabis business activities in Santa Ana, Allows
for the deduction of intraparty sales and/or
transfers of cannabis and cannabis products
occurring within a single integrated cannabis
business from reportable gross receipts of
cannabis businesses thereby reducing the net
negative effect of multi -level taxation.
Security Deposits
Amends Ordinance NS-2962 to allow a
Reduces overall security deposit requirement to a
single security deposit to cover multiple
maximum amount of $10,000. Allowstwoormore
types of vertically/horizontally integrated
vertically/horizontally integrated cannabis
commercial cannabis business activities
businesses to be covered by a single deposit. In
conducted by the same ownership
lieu of higher deposit amounts, implements well
regardless of form of business structure.
defined proceeds for handling deposits, their
application, replenishment, and release as well as
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Ordinance Amendment No. 2019-01 — Commercial Cannabis Vertical and Horizontal Integration
and Ordinance Updates
June 4, 2019
Page 3
Proposed Amendments to Chapters 21
Item
Proposed Amendment
Impact
requirements for close-out audits and other
guards against loss of taxes due to transfer of
ownership or termination of business.
Alternate Square
Amends Ordinance NS-2962 to allow
Allows distribution and manufacturing cannabis
Footage Tax
certain vertically and/or horizontally
businesses that are vertically or horizontally
integrated commercial cannabis
integrated to report actual allocated square
businesses to base their alternate square
footage utilized upon verification by the City in
footage tax calculations on measured
place total square footage of premises.
allocated gross square feet rather than total
gross square feet.
Testing
In parallel with an enabling resolution
Allows the City to maintain its competitive
Laboratories
amends Ordinance NS-2962 to reduce the
position with regards to cannabis testing which is
Reduce Tax Rate
gross receipts tax rate on testing
the most mobile and easily re -locatable class of
From 5% to Two
laboratories and testing facilities.
commercial cannabis business
2%
Vertical and Horizontal Cannabis Business Integration
Santa Ana voters approved Measure Y in November 2018, which established various tax rates for
legally -operating and permitted commercial cannabis businesses in the City. In tandem with
preparation of the measure, City officials met with cannabis industry representatives to discuss
vertical and horizontal integration, security deposits and substitution of allocated gross square
footage vs. total square footage for certain types of commercial cannabis businesses.
Subsequently, City staff met with cannabis industry representatives and reviewed proposed
changes to Measure Y in order to address the new tax confronting cannabis businesses and to
incentivize legal operators throughout Santa Ana. The City's current regulatory ordinances permit
co -location of multiple commercial cannabis business activities on the same site along with
medicinal cannabis retail activity; the proposed revisions to Chapter 21 will ensure that these co -
located business activities are vertically and/or horizontally integrated under the business license
code as well. Additionally, concerns related to reducing the amount of security deposits and
accommodating use of allocated gross square footage in the computation of the alternate gross
square footage tax payable by commercial cannabis businesses engaged in distribution and
manufacturing are likewise addressed below.
An understanding was reached with industry representatives that the City would be open, via a
subsequent ordinance as provided under the terms of Measure Y, to the adoption of
vertical/horizontal integration, and reducing and capping the amount of security deposits and
applying in cases of vertically/horizontally integrated cannabis businesses, a single security
deposit.
With regard to the concept of vertical/horizontal integration which relates to the City's recognition
that state law, by requiring separate licensure for certain separate aspects of commercial cannabis
business (cultivation, distribution, manufacturing, and retail sales), consciously adopts a
horizontally integrated regulatory scheme as opposed to a vertically integrated scheme adopted in
other states. Other states that utilize horizontal integration for regulatory purposes and prohibit
vertical integration at the regulatory level include Illinois and Washington. While horizontal
integration carries with it certain benefits in terms of maintaining a more open, participatory, and
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Ordinance Amendment No. 2019-01 — Commercial Cannabis Vertical and Horizontal Integration
and Ordinance Updates
June 4, 2019
Page 4
business -friendly marketplace at the state level, it also results in a single integrated cannabis
business being subject to multiple state and local tax assessments. The state assessments - sales
tax, excise cannabis tax, and cultivation tax - when added to local taxes, such as Santa Ana's,
mean that a single integrated cannabis business could face a combined state and local tax rate
exceeding 50 percent of the retail sale value of their cannabis goods.
Vertical/horizontal integration of these separately licensed business activities at the local tax level
allows a single integrated business to effectively pay their gross receipts tax assessment once, at
the final point of retail sale (which is still at the highest rate of 8 percent for adult -use and 6 percent
for medicinal cannabis). In this model, interparty sales and transfers of goods between component
parts of a vertically/horizontally integrated cannabis business supply chain, sharing 80% underlying
ownership, without reference to form of business structure, are allowed to be deducted from each
individual integrated cannabis business' gross receipts tax assessment at each point in the supply
chain. This would leave only their third -party sales and/or their minimum square footage tax,
whichever is greater, to be reported and paid.
Security Deposits
Concerning security deposits, it was determined that nominal security deposit language setting a
minimum security deposit amount of $10,000 or the average of one month's remittable commercial
cannabis tax, whichever was greater, would be included in the final text of Measure Y. This was
done with an understanding that the City would be open via a subsequent ordinance, as provided
under the terms of Measure Y to reducing and capping the amount of security deposits for
commercial cannabis businesses to $10,000 or one month's average remittable commercial
cannabis tax whichever is least. Also, it would permit two or more vertically/horizontally integrated
cannabis businesses to be covered by a single deposit, provided that: clear detailed procedural
language be added surrounding security deposits, their maintenance, application, replenishment
and refunding and that similarly detailed language be added concerning sales, assignments,
transfers and terminations of cannabis businesses to ensure the City is secure in its continued
receipt of cannabis business license tax revenues.
Allocated Gross Souare Footage
In the case of integrated distribution and/or manufacturing cannabis businesses, the minimum
gross square footage tax reported would reflect the allocated square footage actually utilized by
the business as verified by the City, rather than the maximum square footage of the premises. The
gross square footage tax on cultivation would continue to be based on canopy size as reported to
the state and as verified by the City. The gross square footage tax for adult -use retail businesses
would continue to be based on the maximum size of the premises.
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and Ordinance Updates
June 4, 2019
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Gross Receipts Tax Rate Reduction for Cannabis Testing Laboratories
Local jurisdiction tax rates on commercial cannabis testing laboratories vary across the state. When
the City's commercial cannabis testing laboratory ordinance was adopted in March 2018, testing
laboratory tax rates ranged from 2 to 10 percent in various jurisdictions statewide. The City
currently collects a tax of 5 percent of gross receipts or $1.50 per gross square foot, whichever is
the greater of the two calculations. Nearby, the City of Costa Mesa collects 6 percent; Long Beach
collects 6 percent, with the option to increase to 8 percent; Bellflower collects 5 percent, (with
multiple 2.5 percent annual increases scheduled beginning July 1, 2020 until a 10 percent cap is
reached) and Irvine collects no taxes. It is important to note that beginning in 2015 the City of
Irvine ceased collecting a business license tax for any type of business in the City.
Cannabis testing laboratories play a crucial role in ensuring product safety for medicinal and adult -
use consumers. Testing laboratories examine products for pesticides, minerals, potency, and
toxicity. These facilities employ highly -skilled and educated individuals and require purchasing and
installation of costly equipment. Although the City's current 5 percent tax rate is consistent with
other local jurisdictions with the exception of Irvine, the City has a continuing interest in promoting
safe medicinal and nonmedicinal cannabis and cannabis products for all users and to ensure the
sustained growth of the regulated medicinal and commercial cannabis business hub in Santa Ana.
Reducing the cannabis testing laboratory gross receipts rate from 5 to 2 percent will maintain Santa
Ana's overall competitive edge in the medicinal and commercial cannabis industries by promoting
a healthy mix of business types, employment opportunities, and equipment investment in Santa
Ana's industrial areas.
Recommendation
There are currently 127 applications for commercial cannabis business start-ups pending with the
Planning & Building Agency, each of which paid $1,690 to apply. For these businesses to move
forward with their permitting and licensing processes they need assurance that the City will move
forward in providing local tax treatment based on principles of vertical and horizontal integration
and that issues related to security deposits and gross square footage assessment will be
addressed.
The medicinal and commercial cannabis ordinance updates recommended by staff provide this
assurance and will serve to "jump-start" commercial cannabis business activity in the City, while at
the same time accomplishing all other objectives of the City in securing reliable and continuing
receipt of resulting cannabis revenues.
ENVIRONMENTAL IMPACT
There is no environmental impact associated with this action. In accordance with the California
Environmental Quality Act (CEQA), the subject actions are exempt from further review pursuant to
Section 15061(b)(3) of the CEQA Guidelines.
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Ordinance Amendment No. 2019-01 — Commercial Cannabis Vertical and Horizontal Integration
and Ordinance Updates
June 4, 2019
Page 6
FISCAL IMPACT
There is no fiscal impact associated with approval of this action as projected revenues are
incorporated within the City's 2019-20 budget. Failure to adopt the above recommended action
items, however, would have a negative impact as a significant portion of the 127 pending
commercial cannabis applicants awaiting adoption of those recommended items before committing
to entering the approval, permitting, and licensing process will defer or cancel their decision to
enter the Santa Ana market and anticipated revenues will not be realized.
STRATEGIC PLAN ALIGNMENT
Approval of this item supports the City's efforts to meet Goal #3 - Economic Development,
Objective #2 (create new opportunities for business/job growth and encourage private
development through new General Plan and Zoning Ordinance policies), Objective #3 (promote a
solutions -based customer focus in all efforts to facilitate development and investment in the
community), and Objective #5 (leverage private investment that results in tax base expansion and
job creation citywide). Approval of this item also supports the City's efforts to meet Goal #4 - City
Financial Stability; Objective #3 (achieve a structurally balanced budget with appropriate reserve
levels).
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Kathryn Dowrfs, CPA
Executive Director
Finance and Management Services Agency
Exhibits: 1. Ordinance
r
Minh Thai
Executive Director
Planning and Building Agency
2. Resolution- Reducing The Commercial Cannabis Gross
Receipts Tax for Testing Laboratories from 5% to 2%
3. Resolution - Establishing a Canopy Measurement Service Fee
and an Allocated Square Footage Measurement Service Fee
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EXHIBIT 7
LS 6.4.19
ORDINANCE NO. NS-XXXX
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY
OF SANTA ANA AMENDING AND ADDING CERTAIN
SECTIONS TO ARTICLES XIII, XII, AND VII OF CHAPTER
21 OF THE SANTA ANA MUNICIPAL CODE PERTAINING
TO OWNERSHIP TRANSFERS, CLOSE OUT AUDIT
PROCEDURES (SECTIONS 21-131.1 AND 21-141);
VERTICAL INTEGRATION (SECTIONS 21-131.2 AND 21-
142); REDUCTION IN THE GROSS RECEIPTS TAX RATE
FOR CANNABIS TESTING FACILITIES, DEDUCTIBILITY
OF INTERPARTY SALES AND TRANSFERS OF GOODS,
CLARIFICATION OF SQUARE FOOTAGE TAX
MEASUREMENT REQUIREMENTS (SECTION 21-133);
AND REDUCTION OF SECURITY DEPOSIT AMOUNTS
AND ESTABLISHMENT OF RELATED PROCEDURAL
REQUIREMENTS (SECTIONS 21-80, 21-80.1, 21-86 AND
21-136)
THE CITY COUNCIL OF THE CITY OF SANTA ANA HEREBY ORDAINS AS
FOLLOWS:
Section 1. The City Council of the City of Santa Ana hereby finds, determines
and declares as follows:
A. On November 4, 2014, Santa Ana voters approved Santa Ana's Medical
Marijuana Regulatory Program ordinance ("Measure BB") which was codified in
Chapters 18 and 21 of the Santa Ana Municipal Code. Such regulations govern
medicinal marijuana and the retail sale thereof.
B. In 2015, the Governor signed into law Senate Bill 643, Assembly Bill 266,
and Assembly Bill 243, collectively referred to as the Medical Marijuana Regulation
and Safety Act further amended in 2016 as the Medical Cannabis Regulation and
Safety Act which established regulations and a state licensing system for medical
cannabis cultivation, manufacturing, delivery, and dispensing.
1
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C. In November 2016, the voters of the State of California approved
Proposition 64, the California Marijuana Legalization Initiative, also known as the
Adult Use of Marijuana Act.
D. In 2017, the Governor signed into law Senate Bill 94 also known as
Medicinal and Adult -Use Cannabis Regulation and Safety Act.
E. On November 9, 2017, the City Council created Chapter 40 of the Santa
Ana Municipal Code, allowing adult -use commercial cannabis retail businesses in
the city, and amended certain sections of Chapters 18 and 21 of the Santa Ana
Municipal Code to ensure consistency with State law and Chapter 40.
F. Since November 2014, the City of Santa Ana has permitted the retail sale
of cannabis for medicinal purposes and since January 2018 for adult -use purposes.
On March 20, 2018, the City Council adopted Ordinance NS-2941 and NS-2942,
allowing and regulating commercial cannabis testing laboratories.
G. On April 17, 2018, the City Council adopted Ordinance NS-2944 allowing
and regulating commercial cannabis cultivation, distribution, and manufacturing
activities.
H. On November 6, 2018, the voters of the City of Santa Ana approved
Measure Y (Ordinance NS-2962), establishing a tax on commercial cannabis
business activities except medicinal cannabis retail sales, which continue to be
subject to taxes under Measure BB.
I. The State of California continues to update its regulations on commercial
cannabis business licensing, resulting in the need for local jurisdictions to update
and amend local commercial cannabis ordinances from time to time.
J. The City Council of the City of Santa Ana intends that nothing in this
Article shall be deemed to conflict with federal law as contained in the Controlled
Substances Act, nor to otherwise permit any activity that is prohibited under that Act
or other applicable law.
K. The City of Santa Ana has a compelling interest in ensuring that cannabis
is not cultivated, manufactured or distributed in an illicit manner, in protecting the
public health, safety and welfare of its residents and businesses, in preserving the
peace and quiet of the neighborhoods in which these uses may operate, and in
providing access of cannabis to residents.
L. The City Council has held a duly noticed public hearing in connection with
consideration and adoption of this ordinance.
2
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Section 2. This ordinance is adopted pursuant to the authority granted by the
California Constitution and State law, including but not limited to: Article IX, Section 7 of
the California Constitution, the Compassionate Use Act of 1996 (California Health and
Safety Code Section 11362.5), the Medical Marijuana Program (California Health and
Safety Code Section 11362.7 et seq.), the Medical Marijuana Regulation and Safety Act
(AB 266, AB 243, and SB 643), the Adult Use of Marijuana Act (Proposition 64), and the
Medical and Adult Use Cannabis Regulation and Safety Act (SB 94).
Section 3. Pursuant to the California Environmental Quality Act ("CEQA') and
the State CEQA Guidelines, the adoption of this ordinance is exempt from CEQA review
pursuant to California Code of Regulations section 15061(b)(3), which is applicable if it
can be seen with certainty that there is no possibility that the project may have a
significant effect on the environment. As a result, a Notice of Exemption will be filed
upon the adoption of this ordinance.
Section 4. All provisions of the Santa Ana Municipal Code which are repeated
herein are repeated solely in order to comply with the provisions of Section 418 of the
City Charter. Any such restatement of existing provisions of the Code is not intended,
nor shall it be interpreted, as constituting a new action or decision of the City Council,
but rather such provisions are repeated for tracking purposes only in conformance with
the Charter.
Section 5. Section 21-131.1, Article XII of Chapter 21 of the Santa Ana
Municipal Code is hereby added to read in full as follows:
Sec. 21-131.1. Sale, assignment, transfer, or termination of business; marijuana
collective/cooperative (medicinal cannabis retail business) owner/operator's duty
to notify; remitting and reporting requirements; closeout audit; successor's duty
to notify; successor's and transferor's joint and several liability; certificate of
nonliability.
(a) OwnerlOperator's duty to notify,
who is terminating their business shall notify the collector in writing of such
termination at least ninety (90) days in advance of the date of termination of
shall then immediately notify the collector of said decision and the date of
termination of business.
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Sale, assignment. or transfer of business. A medicinal cannabis retail
assignee, transferee, or other successor in interest (hereinafter collectively
referred to as successor) unless the decision to sell, assign, or otherwise
transfer their business was made within less than a ninety (90) day period
prior to the sale, assignment, or transfer, in which case the transferor shall
then immediately notify the successor of the successor's responsibility for
unpaid business license taxes, including penalties, interest, charges, fees, or
successor was notified of the requirements of this Article regarding their
responsibility for unpaid business license tax liabilities.
(b) Remitting and reporting requirements. Each medicinal cannabis retail business
sale, assignment, transfer, or termination of business, file a final return to the
if any, shall be remitted to the collector.
(c) Closeout audit. After filing the final return and remitting the balance due, the
medicinal cannabis retail business owner/operator shall make its records of
closeout audit shall be made solely at the discretion of the collector. If, upon
closeout audit, or by means of other information available to them, the collector
determines that the owner/operator selling, assigning, or otherwise transferring, or
terminating their business is found to have satisfied all business license tax
liabilities, the collector shall issue to such business owner/operator a certificate of
nonliability.
If, upon closeout audit, or by means of other information available to them, the
collector determines that the owner/operator selling, assigning, or otherwise
or costs. Upon such owner's/operator's remittance of all business license tax
liabilities owing, the collector shall issue a certificate of nonliability.
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(d) Successor's duty to notify. If a medicinal cannabis retail business owner/operator
decides to sell, assign, or otherwise transfer their business, their successor shall
notify the collector of the date of the sale, assignment, or other transfer at least
the transferor does not have or is not liable for any outstanding business license
the transferor produces a certificate of nonliability stating the nonliability of the
assignment, or other transfer, the successor shall deposit the withheld amount with
the collector pending settlement of the account of the transferor.
If the decision to sell, assign, or otherwise transfer was made within less than a
ninety (90) day period prior to the date of the sale, assignment, or other transfer,
three (3) months' of reported and remitted business license taxes until the
present a certificate of nonliability within ninety (90) days after such sale,
assignment, or other transfer, the successor shall deposit the withheld amount with
the collector pending settlement of the account of the transferor.
(e) Joint and several liability. If the successor fails to withhold the applicable amount
license tax liabilities and shall likewise become jointly and severally liable along
with the transferor for future penalties and/or interest charges as may be applicable
as set forth in sections 21-83, 21-84, and 21-85 until all business license tax
liabilities are satisfied.
(f) Certificate of nonliability. Upon application of a medicinal cannabis retail business
operator/owner who is terminating their business, or a transferor, or a successor,
transferor's, or successor's business license tax liabilities have been satisfied. If
any business license tax liabilities remain outstanding, or if additional business
license tax liabilities have accrued subsequent to the date of application, the
collector shall give notice to the operator/owner, transferor, or successor of the
applicable amount which must be fully paid as a condition of issuing their
respective certificate of nonliability. Where a transferor's business license tax
liabilities have been partially or wholly paid by their successor to the collector
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pursuant to subsection (e) or partially or wholly satisfied by their successor's action
of withholding and depositing amounts with the collector pursuant to subsection
(d), no certificate of nonliability shall be issued to the transferor without the prior
written consent of their successor.
Section 6. Section 21-131.2 of Article XII of Chapter 21 of the Santa Ana
Municipal Code is hereby added to read in full as follows:
Sec. 21-131.2 Vertical and horizontal integration of marijuana
collective/cooperative licensees (medicinal cannabis retail businesses) —Defined.
The terms vertical integration and horizontal integration as used in this Article shall have
the following meanings: Vertical integration shall refer to cannabis businesses operating
at different points in the same supply chain from cultivation to retail sales, as long as
they share at least 80% underlying common ownership, regardless of form of business
structure, and are engaged in interparty sales and/or transfers of goods. Horizontal
integration shall refer to cannabis businesses operating at the same point in the same
supply chain, as long as they share at least 80% underlying common ownership,
regardless of form of business structure, and are engaged in interparty sales and/or
transfers of goods. For purposes of this Article the term "cannabis businesses" shall
include marijuana collectives/cooperatives as defined in section 18-611 and commercial
cannabis businesses as defined in section 40-2, but shall not include commercial
cannabis businesses engaged in testing facilities or testing laboratory businesses.
Section 7. Section 21-133 of Article XIII of Chapter 21 of the Santa Ana
Municipal Code is hereby amended to read in full as follows:
Sec. 21-133. Commercial cannabis businesses —Annual business license tax
assessment.
Every person engaged in a "commercial cannabis business" or "commercial
cannabis activity" shall pay an annual business license tax as outlined below. This
Article shall not apply, except with respect to medical marijuana cooperatives/collectives
(also referred to as medicinal cannabis retail businesses) WhOGI are subie^* to
which are vertically and/or
horizontally integrated with commercial cannabis businesses, to medical marijuana
cooperatives/collectives which are governed by Article XII of this Chapter, or to personal
cultivation as defined in section 18-611(n) of this Code.
(a) For each branch establishment or separate property location of a commercial
cannabis business transacted and carried on in the city, and for each separate
type of commercial cannabis business conducted at the same location, the higher
of the two (2) following tax rates shall be due to the City for each monthly reporting
period:
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(1) Up to ten percent (10%) of each dollar of gross receipts received or
generated for each monthly reporting period.
(2) Up to $35.00 per square foot (annual tax rate) prorated monthly to one -
twelfth (1/12th) of the annual tax rate amount.
(b) These tax rates shall not be adjusted for inflation pursuant to section 21-121 of this
Chapter.
(c) Notwithstanding the tax rates imposed herein under subsection (a), the City
Council may, in its discretion, at any time by resolution, implement any lower tax
rate it deems appropriate, and may by resolution increase such tax rate from time
to time, not to exceed the maximum rates established by subsection (a).
(d) As of the operative date of this Article, the business license gross receipts tax
rates and square footage tax rates application to specific commercial cannabis
business activities shall be established as follows:
Commercial Cannabis Business
Gross Receipts
Gross Square
Activity
Tax Rate
Footage Tax Rate
Adult -use Cannabis Retail
8%
$ 25.00
Business (including Delivery)
Cultivation
6%
$ 10.00
Distribution
6%
$ 4.00
Manufacturing
6%
$ 10.00
Testing Facility or Testing
Laboratory (effective December
5%
$ 1.50
21, 2018 through June 30, 2019)
Testing Facility or Testing
Laboratory (effective beginning
20/6
$ 1.50
July 1, 2019)
Commercial cannabis businesses not having a fixed place of business within the
city but conducting regular, non -incidental commercial cannabis business activities
within the city shall be subject to the gross receipts tax rate(s) as set out in the
table above based on the category/categories of commercial cannabis activity
conducted. However, such out-of-town commercial cannabis businesses shall not
be subject to any gross square footage tax rate(s).
(e) As part of the annual gross receipts/square footage tax(es) imposed by this Article,
each commercial cannabis business located within the city shall pay a minimum
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basic rate of two thousand dollars ($2,000.00) annually for each branch
establishment or separate property location of the commercial cannabis business
transacted and carried on in the city, and for each separate type of commercial
cannabis business conducted at the same location. Commercial cannabis
businesses having no fixed place of business within the city shall be exempted
from this requirement.
(f) In the event the City should in the future permit additional categories of commercial
cannabis business activity, as may from time to time be licensed by the State of
California, such categories of commercial cannabis activates shall be subject to the
same maximum tax rates as imposed herein. The City may by ordinance of the
City Council initially set the required gross receipts/gross square footage tax rates
based on category of cannabis business activity at lesser rates as may be deemed
appropriate by the City Council.
(g) For purposes of this Article, a commercial cannabis business is not considered to
be a business or person having a "specified exemption" or "specified exclusion"
from business license taxation as set forth in sections 21-48 and 21-49 of this
Chapter.
(h) For purposes of this Article any person claiming an exemption from the gross
receipts tax rate component of the combined gross receipts/square footage tax
imposed under this Article on the basis of a claim of being a qualified "nonprofit
organization" shall have the burden of substantiating their claim to the same extent
and in the same manner as a marijuana collective/cooperative in accordance with
section 21-127(a)(6) of this Chapter.
(i) Cannabis businesses shall not pass the taxes imposed by this Article through to an
adult -use cannabis retail business customer or commercial cannabis business
customer in any fashion except as part of the basic product sales and/or service
price.
Q) Definitions. For purposes of this Article, the following terms have the following
meanings:
(1) "Adult -Use cannabis retail business" as defined in section 40-2(4) of this
Code.
(2) "Commercial Cannabis Activity' as defined in section 40-2(9) of this
Code.
(3) "Commercial cannabis business" as defined in section 40-2(10) of this
Code excluding medical marijuana collectives/cooperatives also referred
to as medicinal cannabis retail sales.
(4) "Cultivation" as defined in section 40-2(11) of this Code.
(5) "Delivery" as defined in section 40-2(13) of this Code.
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75F-14
(6) "Distribution" as defined in section 40-2(16) of this Code.
(7) "Gross receipts" — section 21-3 of this Chapter notwithstanding, "gross
receipts" for the purposes of this Article shall mean:
(A) Transfer of title or possession, exchange or barter, conditional or
otherwise, in any manner or by any means whatsoever, of tangible
personal property for a consideration including any monetary
consideration for cannabis, including, but not limited to,
membership dues, reimbursements provided by members,
regardless of form, or the total amount of cash or in -kind
contributions, including all operating costs related to the growth,
cultivation, manufacturing, distribution, testing, or provision of
cannabis or any transaction related thereto.
(B) Anything else of value obtained by an a cannabis business;
(C) The total amount of the sale price of all sales and services;
(D) The total amount charged or received for the performance of any
act, service or employment of whatever nature it may be, whether
or not such service, act or employment is done as a part of or in
connection with the sale of goods, wares, or merchandise (whether
at wholesale or retail), for which a charge is made or credit allowed,
including all refunds, cash credits and properties of any amount or
nature;
(E) Any amount for which credit is allowed by the seller to the
purchaser without any deduction therefrom, on account of the cost
of the property sold, the cost of materials used, the labor or service
cost, interest paid or payable, losses, or any other expense
whatsoever; provided that cash discounts allowed or payment on
sales shall not be included;
(F) The amount of any federal manufacturer's or importer's excise tax
included in the price of property sold, even though the manufacturer
or importer is also the retailer thereof and- vihether or Ret the
(G) The amount of any California state cannabis excise tax or state
cannabis cultivation tax regardless of whether Pr not the arneuRt ^s
eh. pxnmqp tRx n.r ^,d"dy^ti^^ tax 4aincluded in the price of the
product ^ ^tat^a te ^ ,^t^mem as a sepaFate ^tie.^^.
(H) "Gross receipts" shall not include the following:
i. The amount of any federal tax imposed on or with respect to
retail or wholesale sales or the sale of services whether
0
75F-15
imposed upon the cannabis business or the consumer
whenever the amount of federal tax is authorized by law to be
stated and passed through to customers as a separate charge.
ii. Any California state, county, or city sales or use tax, including
any add -on, district, or transaction and use tax, required by law
to be included in or added to the purchase price and collected
from the consumer or purchaser, or such part of the sales price
of any property previously sold and returned by the purchaser to
the seller which is refunded by the seller by way of cash or
credit allowances given or taken as part payment on any
property so accepted for resale; or
iii. The amount of the sale price of business personal property (all
property owned or leased by a cannabis business operator used
in the operation cannabis business activities, including but not
limited to: furniture, fixtures, and business equipment); real
property, including land, buildings and other improvements.
iv. The amount of equity contributions, investments, and/or loan
proceeds to cannabis business' operation, and/or proceeds from
the sale or transfer of cannabis business' retail or commercial
cannabis business.
v. The amount of interparty sales and/or transfers of goods within
a_ single vertically and/or horizontally integrated cannabis
business, where the sales or transfers goods are between two
or more commercial cannabis business licensees (excluding
testing facilities or testing laboratories), or one or more said
commercial cannabis business licensee(s) and one or more
medicinal cannabis retail business licensee(s), as set forth in
accordance with section 21-131.2 and/or section 21-142.
(1) "Gross receipts" shall be calculated without any deduction on
account of any of the following:
i. The cost of tangible or intangible property sold or bartered;
ii. The cost of materials or products used, labor or service cost,
interest paid, losses, or other expense;
iii. The cost of transportation of cannabis, or other property or
product;
iv. The amount of any federal or state income or franchise taxes;
and
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75F-16
v. Any other business costs or expenses, unless otherwise
specifically exempted.
—"Retail businesses" as .ref ^ea iR seGtiOR nn oinm of this r_.fe °Gross
Square foot' or "gross square footage" for the purposes of this Article
shall mean:
(A) In the case of commercial cannabis businesses licensed by the
state to engage in an adult -use cannabis retail business, the gross
number of square feet comprising the adult -use cannabis retail
property location as confirmed by the corresponding "approved
building set' or "approved certificate of occupancy" on file with the
City of Santa Ana Planning and Building Agency, whichever is the
greater of any square footage indicated, whether such adult -use
cannabis retail business is part of an on -site vertically or
horizontally integrated cannabis business or not.
(B) In the case of commercial cannabis businesses licensed by the
state to engage in cultivation, the aggregate number of square feet
comprising all areas of the premises under "canopy", whether such
sum is greater or lesser than the gross square footage as stated in
the "approved building set' or "approved certificate of occupancy',
and whether such commercial cannabis cultivation business is part
of an on -site vertically integrated cannabis business or not.
"Canopy" shall mean the designated area(s) of a premise that will
contain mature plants at any point in time. Canopy shall be
calculated in square feet and measured using clearly identifiable
boundaries of all area(s) that will contain mature plants at any point
in time, including all of the space(s) within the boundaries. Canopy
may be noncontiguous, but each unique area included in the total
canopy calculation shall be separated by an identifiable boundary
which includes interior walls, shelves, greenhouse walls, hoop
house walls, garden benches, hedgerows, fencing, garden beds, or
garden plots; and if mature plants are being cultivated using a
shelving system, the surface area of each level shall be included in
the total canopy calculation.
Canopy shall be subject to independent measurement and
calculation by duly authorized employees or agents of the City at
the time of application for a Santa Ana Business License and
annually thereafter at the time of the renewal of such license, or
more often as may be deemed necessary in the discretion of the
collector. Whenever an independent canopy measurement and
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75F-17
calculation is required under the terms of this Article or whenever
the collector in his or her discretion determines that the
independent measurement and calculation of a licensee's canopy is
desirable to effectuate the proper assessment or collection of the
business license taxes required to be paid under the terms of this
Chapter, or for any other purposes related to the express aims of
this Article then a canopy measurement shall be performed and a
corresponding service fee shall be applicable in the amount as
specified by resolution of the City Council.
(C) In the case of commercial cannabis businesses licensed by the
state to engage in distribution or manufacturing and that are not
vertically or horizontally integrated with another cannabis business
occupying the same premises, the gross number of square feet as
confirmed by the corresponding "approved building set" or
"approved certificate of occupancy" on file with the City of Santa
Ana Planning and Building Agency, whichever is the greater of any
square footage indicated.
(S)--(D) In the case of commercial cannabis businesses licensed by the
state to engage in distribution or manufacturing and occupying the
same premises with another cannabis business with which they are
vertically or horizontally integrated, the gross number of square feet
allocated by the commercial cannabis business owner/operator
respectively for either distribution use or for manufacturing use,
whether the combined sum of all vertically or horizontally integrated
uses is less than, equal to, or greater than the gross square footage
as stated in the "approved building set" or "approved certificate of
occupancy".
The number of square feet allocated ("Allocated Square Footage")
shall be subject to independent measurement and calculation by
duly authorized employees or agents of the City at the time of
application for a Santa Ana Business License and annually
thereafter at the time of the renewal of such license, or more often
as may be deemed necessary in the discretion of the collector.
Whenever an independent allocated square footage measurement
and calculation is required under the terms of this Article or
whenever the collector in his or her discretion determines that the
independent measurement and calculation of a licensee's allocated
square footage is desirable to effectuate the proper assessment or
collection of the business license taxes required to be paid under
the terms of this Chapter, or for any other purposes related to the
express aims of this Article then an Allocated Square Footage
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75F-18
measurement shall be performed and a corresponding service fee
shall be applicable in the amount as specified by resolution of the
City Council.
(E) In the case of commercial cannabis businesses licensed by the
state to engage in testing facilities or testing laboratory businesses,
the gross number of square feet comprising such commercial
cannabis business' property location as confirmed by the
corresponding "approved building set" or "approved certificate of
occupancy" on file with the City of Santa Ana Planning and Building
Agency, whichever is the greater.
Wn "Manufacturing" as defined in section 40-2(22) of this Code.
R(10) "Retail businesses" as defined in section 40-2(40) of this Code.
(11) "Testing Facility" or "Testing Laboratory" as defined in section 40-2(44)
of this Code.
(12) 'Wholesale" as defined in section 40-(46) of this Code.
(k) Modification, repeal or amendment. The City Council may repeal the ordinance
codified in this Article, or amend it in a manner which does not result in an increase
in the tax or taxes imposed herein, without further voter approval. The City Council
may likewise by ordinance adopt and add additional provisions to any other Article
of this Chapter and relate them to this Article, or amend any existing provisions of
any Article of this Chapter as they may already relate to this Article in any manner
which does not result in an increase in the tax or taxes imposed herein, without
further voter approval. If the City Council repeals said ordinance or any provision of
this Article, it may subsequently reenact it without voter approval, as long as the
reenacted ordinance or section does not result in an increase in the tax or taxes
imposed herein.
(1) Administration —Rules, regulations and guidelines. In order to aid in the city's
collection of taxes due under this Article and to ensure that all commercial
cannabis businesses are taxed consistently to the best of the city's ability, the
collector, with the concurrence of the city attorney, may promulgate rules,
regulations, and guidelines, to implement and administer this Article including, but
not limited to rules, regulations, and guidelines harmonizing other provisions of this
Chapter with the provisions of this Article in any manner not inconsistent with the
intent of this Article and which does not result in an increase in the tax or taxes
imposed herein. The collector may also, with the concurrence of the city attorney,
interpret or clarify the methodology of the tax, or any definition applicable to the
tax, so long as such interpretation or clarification (even if contrary to some prior
interpretation or clarification) is not inconsistent with the language of this Article.
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75F-19
(m) Occasional transactions —Exemptions.
(1) The provisions of this Article shall not apply to persons having no fixed
place of business within the city who come into the city for the purpose
of transacting a specific item of commercial cannabis business at the
request of a specific client or customer, incidental to a commercial
cannabis business principally established elsewhere, provided that
such person does not come into the city for the purpose of transacting
such business on more than three (3) days during any calendar year.
(2) For any person not having a fixed place of business within the city who
comes into the city for the purpose of transacting commercial cannabis
business activities, the business license tax(es) payable by such
person may be apportioned by the collector in accordance with this
Chapter.
(n) Reporting and remittance.
(1) Beginning as set forth in subsection (r) below, and monthly thereafter,
each commercial cannabis business required to pay a tax or taxes
based on gross receipts under this Article (except qualified nonprofit
organizations exempt from taxes measured by income or gross
receipts), shall report to the city any gross receipts received during the
preceding monthly reporting period. In addition, each cannabis business
(including qualified nonprofit organizations) required to pay a tax or taxes
based on square footage shall report to the city the gross square footage
of the cannabis business' property location. Every cannabis business
shall then compute the business license taxes at both the gross receipts
rate and the gross square footage rate - prorated monthly to one -twelfth
(1/12th) of the annual tax rate amount - and shall then remit to the city
the amount of the higher of the two tax calculations due and owing
during said period in accordance with section 21-133, subsection (d). In
the case of a qualified nonprofit organization only the gross square
footage computation shall be made and the amount of such calculation
shall represent the amount due and owing during said period. All
reporting and remitting made shall be done in accordance with
instructions from the collector and shall be made using forms provided or
approved by the collector.
(2) For purposes of this section, month shall mean calendar month and shall
include any fraction of a month. Taxes shall begin to accrue on the date
that a person or entity first receives a business license or other city
permit to operate as a commercial cannabis business or upon the
operative date of this Article should a person or entity already possess a
14
75F-20
commercial cannabis business license or other city permit to operate as
a commercial cannabis business.
(3) The payment of the two thousand dollars ($2,000.00) minimum basic
rate gross receipts tax required annually for each separate branch
location or separate property location of the business in accordance with
this section, shall be made annually prior to the beginning of the fiscal
year beginning April first of the current year and expiring on the 31st day
of March of the following year. In the case of a new commercial cannabis
business the minimum basic rate gross receipts tax shall be paid in
advance prior to any new business activity being undertaken. Every new
licensee shall pay in advance an amount equal to one -quarter (%) of the
annual minimum basic rate gross receipts tax, for each quarter and
fraction of a quarter remaining during the period for which the new
license is issued.
(o) Delinquent date —Penalty. Any individual or entity who fails to pay the taxes
required by this Article when due shall be subject to penalties and interest as set
forth in accordance with this Chapter. The collector is not required to send a
delinquency or other notice or bill to any person subject to the provisions of this
Article and failure to send such notice or bill shall not affect the validity of any tax
or penalty due under the provisions of this Article.
(p) Business license tax certificate —Required. There are imposed upon all persons
engaged in transacting and carrying on any commercial cannabis business activity
in the city taxes in the amounts prescribed in this Article. It shall be unlawful for any
person, either for him or herself or for any other person, to commence, transact or
carry on any business in the city without first having procured a business license
from the city under this Chapter and having paid the taxes set forth in this Article,
and without complying with any and all applicable provisions contained in this
Chapter. The carrying on of any commercial cannabis business activity without
complying with all the provisions of this Article shall constitute a separate violation
of this Chapter for each and every day that such commercial cannabis activity is so
carried on.
(q) Classification of business license assessment type —Term and renewal. The
business license issued to commercial cannabis businesses shall be classed as a
gross receipts assessment type, issued for the same term of license as set forth in
subsection 21-71(c) of this Chapter and shall be subject to renewal in accordance
with sections 21-72(c), 21-73(c), and 21-77.
(r) Operative date. Upon the approval by the majority of the voters of the city at the
November 6, 2018 general election, the taxes imposed by this Article shall become
operative and shall be applied by the collector upon all commercial cannabis
businesses.
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75F-21
(s) Operative date of decreased gross receipts tax rate. The gross receipts tax set
initially at a rate of five (5%) percent for testing facilities or testing laboratories
pursuant to subsection (d) above shall be decreased to a rate of two (2%) percent
by resolution of the City Council (Santa Ana City Council Resolution No. XX-XXXI
as hereinabove provided for in accordance with subsection (c) which reduced rate
under the terms of said City Council resolution, shall become retroactively effective
July 1, 2019.
Section 8. Section 21-136 of Article XIII of Chapter 21 of the Santa Ana
Municipal Code is hereby amended to read in full as follows:
Sec. 21-136. Security for collection of commercial cannabis business' business
license tax; requirement; extension of time; application; failure to post or
restore —effect; ieopardv determination; refund or release; deposit adiustment—
effect.
(a) Requirement for Security Deposit. To ensure compliance with business license tax
payment requirements established pursuant to this Article, the collector shall
require, beginning on the operative date of this Article, that each commercial
cannabis business owner/operator, (including but not limited to each purchaser,
assignee, transferee, or other successor in interest (hereinafter collectively referred
to as successor) of a commercial cannabis business subject to the business
licensing requirements of this Article,) deposit within thirty (30) G Gh GeG ty (peF
nd'vid, al b ,S: 8G''^eRse) one hundred and twenty (120) days following the last
day of the month in which business was first commenced such security (per
individual business license) in a form acceptable to the collector in an amount not
larger than the commercial cannabis business owner's/operator's estimated
average monthly business license tax liability as determined by the collector or the
sum of ten thousand dollars ($10,000.00), whichever is the g eatef least. Provided,
however, in the event that two or more commercial cannabis business licensees
sharing at least 80% underlying common ownership, regardless of form of
business structure, are engaged in an integrated cannabis business (whether
vertically or horizontally integrated) as defined in section 21-142, then a single
consolidated deposit shall be made equal to the deposit amount owing for the
integrated commercial cannabis activity having the highest individual business
license tax liability. Each new city commercial cannabis business licensee shall
upon obtaining their City business license(s) deposit a similar security as
applicable per business license within thirty (30) days after commencing business.
(b) Extension of Time. If, upon request and in the judgment of the collector, a
determination of any commercial cannabis business' estimated average monthly
tax liability for purposes of setting the amount of their required security deposit
requires an extension of time beyond one hundred and twenty (120) days following
R:
75F-22
the last day of the month in which business was first commenced, then the
collector may issue a written notification to such commercial cannabis business
-granting such extension.
(c) Application of Security Deposit. To recover past -due business license taxes,
including penalties, interest, charges, fees, or costs (hereinafter collectively
referred to as business license tax liabilities) remittable by the depositor, the
collector may apply the security deposited with the collector. At least fifteen (15)
days prior to the application of a security deposit, the collector shall serve upon the
depositing commercial cannabis business owner/operator notice of intent to apply
the security deposit. Service of notice may be made by placing the notice in the
United States mail, postage prepaid, addressed to the depositing commercial
cannabis business owner/operator at their place of business or other mailing
address of record. Any portion of the security remaining after satisfaction of
outstanding business license tax liabilities and any expenses related to third -party
administrative charges or fees relating to the liquidation and application of non -
cash deposits may be retained by the collector for security or in the case of a
closeout audit may be paid over by the collector to the depositing owner/operator.
Except in the case of a closeout audit pursuant to section 21-141, in the event the
collector applies the security deposit, or any portion of said deposit, as an offset
against remittable business license tax liabilities and any expenses related to third -
party administrative charges or fees relating to the liquidation and application of
non -cash deposits, the commercial cannabis business owner/operator shall be
required within thirty (30) days of the collector's written demand therefor, to re -
deposit the full amount of the required security. In such event the amount of the
required security shall be adjusted by the collector based on the average of the
commercial cannabis business' actual monthly gross receipts tax returns and/or
remittances as measured over the last three (3) valid monthly returns and/or
remittances received by the collector or the sum of ten thousand dollars ($10,000).
whichever is least, less any amount remaining on deposit with the collector.
Service of demand shall be in the same manner as stated hereinabove for service
of notice.
(d) Failure to Post or Restore Security Deposit —effect. Failure by a commercial
cannabis business licensee to initially post or restore a security deposit when
required by the collector pursuant to this section shall be cause for suspension
and/or revocation of such commercial cannabis business' existing Santa Ana
Business License as set out in section 21-86 of this Chapter. Similarly, in the case
of a vertically and/or horizontally integrated cannabis business, the business
license(s) of the integrated commercial cannabis business(es) shall be likewise
subiect to suspension and/or revocation.
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75F-23
(e) Jeopardy Determination. If the collector believes that the collection of any
business license tax imposed by this Article will be ieopardized in whole or in part
by delay in the commercial cannabis business owner's/operator's timely remittance
of the business license tax, the collector shall serve notice upon the person
determined to be liable therefor of their determination of ieopardv and of the
business license tax required to be paid to the Citv and demand immediate
Payment thereof, together with any interest and penalty determined to be due. The
collector may consider all facts and circumstances relevant to determining whether
the collection of any business license tax will be ieopardized by delay, including but
not limited to indications that the person liable for the business license tax intends
to take or is taking action to discontinue business activities in the City, dissipate or
otherwise remove assets from the City, or sell, exchange transfer, assign or
otherwise dispose of such person's business, personal or business income, or
business property. The collector also may consider whether the person liable for
the business license tax is or has been uncooperative or unresponsive in
connection with any investigation, examination, audit deficiency determination,
assessment, or collection action or procedure undertaken by the collector. A
ieopardv determination of business license tax, penalty, or interest, is immediately
due and payable upon the service of the notice of ieopardv determination on the
person determined to be liable therefor. Service of notice of a ieopardv
determination shall be made by: (1) sending the notice initially by electronic mail to
the depositing commercial cannabis business owner's/operator's electronic mail
address of record as set out in the depositing commercial cannabis business
owner's/operator's application for business license or most recent business license
renewal affidavit or business license amendment statement: (2) placing the notice
for delivery with an express carrier for next business day delivery, all delivery and
tracking charges prepaid, addressed to the depositing commercial cannabis
business owner/operator at their place of business: and/or (3) conspicuously
posting said notice upon the premises of the commercial cannabis business.
Service of notice of a ieopardv determination shall be deemed completed upon
tracking confirmation of the delivery of said notice to the commercial cannabis
business owner's/operators place of business or on the date of the actual posting
of said notice on the premises of the depositing commercial cannabis business
owner/operator. Upon the business day next following the completion of service of
notice of a ieopardv determination upon a depositing commercial cannabis
business, the collector in his or her discretion may proceed with the application of
the security deposit upon actual or estimated business license taxes due, including
penalties, interest, charges, or service fees.
(f) Refund or release of security deposit. In the case of the sale, assignment, or other
transfer or termination of business by the depositor pursuant to section 21-141, the
collector shall refund or release the security deposit amount required pursuant to
this section, or in the event of prior application of the security deposit pursuant to
18
75F-24
subsection (c), any unapplied amount of such security deposit, upon depositor's
presentation to the collector of a certificate of nonliability stating the nonliability of
the depositor for payment of business license taxes as hereunder provided in
section 21-141(f).
(g) Deposit adjustment —effect. In the case of a determination by the collector that the
amount of a previously posted commercial cannabis business owner's/operator's
posted on a cash basis, then the collector shall refund the excess amount. If the
Prior security deposit was posted on a non -cash basis, then an adjusted cash basis
security deposit or adjusted non -cash basis security deposit in a form acceptable
to the collector may be posted in exchange for the release of the prior security
deposit.
Section 9. Section 21-141 of Article XIII of Chapter 21 of the Santa Ana
Municipal Code is hereby added to read as follows:
Sec. 21-141. Sale, assianment, transfer, or termination of business commercial
cannabis business owner's/operator's duty to notify: remitting and reporting
requirements: closeout audit: successor's duty to notify: successor's and
transferor's joint and several liability: certificate of nonliability.
(a) Owner/Operators duty to notify.
i. Termination of business. A commercial cannabis business owner/operator
business. If the decision to terminate business is made within less than a
termination of business.
H. Sale, assignment, or transfer of business. A commercial cannabis business
owner/operator who is selling, assigning, or otherwise transferring their
days in advance of the date of the sale, assignment, or transfer and shall
notify the collector in writing of the name and address of the purchaser,
prior to the sale, assignment, or transfer, in which case the transferor shall
then immediately notify the successor of the successor's responsibility for
19
75F-25
unpaid business license taxes, including penalties interest, charges fees or
costs (hereinafter collectively referred to as business license tax liabilities) for
(b) Remitting and reporting requirements. Each commercial cannabis business
sale, assignment, transfer, or termination of business, file a final return to the
period, remittances made, if any, and the balance of the business license tax due,
if any, shall be remitted to the collector.
(C) Closeout audit. After filing the final return and remitting the balance due, the
authorized employees or agents of the City. The decision to perform a closeout
shall issue to such business owner/operator a certificate of nonliability,
If, upon closeout audit, or by means of other information available to them. the
remittance, or both, the collector shall immediately notify such owner/operator of
(d) Successor's duty to notify. If a commercial cannabis business owner/operator
the transferor does not have or is not liable for any outstanding business license
any outstanding amount of business license tax liabilities, the successor shall
transferor for payment of business license tax liabilities. If the transferor does not
75F-26
present a certificate of nonliability within ninety (90) days after such sale,
assignment or other transfer, the successor shall deposit the withheld amount with
the collector pending settlement of the account of the transferor.
transferor produces a certificate of nonliability stating the nonliability of the
assignment or other transfer, the successor shall deposit the withheld amount with
the collector pending settlement of the account of the transferor.
(e) Joint and several liability. If the successor fails to withhold the applicable amount
required under subsection (d) they shall become Jointly and severally liable along
with the transferor for the payment of the full amount of the transferor's business
license tax liabilities and shall likewise become jointly and severally liable along
with the transferor for future penalties and/or interest charges as may be applicable
(f) Certificate of nonliability. Upon application of a commercial cannabis business
owner/operator who is terminating their business, or a transferor, or a successor,
for a certificate of nonliability, the collector, after conducting an audit therefore, as
additional business license tax liabilities have accrued subsequent to the date of
successor's action of withholding and depositing amounts with the collector
Section 10. Section 21-142 of Article XIII of Chapter 21 of the Santa Ana
Municipal Code, is hereby added to read as follows:
Sec. 21-142. Vertical and horizontal integration of commercial cannabis business
licensees —Defined.
21
75F-27
The terms vertical integration and horizontal integration as used in this Article shall have
the following meanings: Vertical integration shall refer to cannabis businesses operatinq
at different points in the same supply chain from cultivation to retail sales as long as
they share at least 80% underlying common ownership, regardless of form of business
structure, and are engaged in interparty sales and/or transfers of goods. Horizontal
integration shall refer to cannabis businesses operating at the same point in the same
supply chain as long as they share at least 80% underlying common ownership
regardless of form of business structure, and are engaged in interparty sales and/or
transfers of goods. For purposes of this Article the term "cannabis businesses" shall
include medicinal marijuana collectives/cooperatives as defined in section 18-611 and
commercial cannabis businesses as defined in section 40-2. but shall not include
commercial cannabis businesses engaged in testing facilities or testinq laboratory
businesses.
Section 11. Section 21-80 of Article VII of Chapter 21 of the Santa Ana
Municipal Code is hereby amended to read in full as follows:
Sec. 21-80. - Same —Not conclusive; audit of books.
No statement shall be conclusive as to the matters set forth therein, nor shall the filing
of the same preclude the city from collecting by appropriate action such sum as is
actually due and payable hereunder. Such statement and each of the several items
therein contained shall be subject to audit and verification by the collector, his or her
revenue officers, or duly authorized employees or agents of the City, who are hereby
authorized to examine, audit, and inspect such books and records of any licensee or
applicant for license, as may be necessary in their judgment to verify or ascertain the
amount of license fee due.
All persons subject to the provisions of this Chapter shall keep complete and detailed
records of business transactions, including, but not limited to the following: rent
collected, daily sales, sales taxes collected and paid to the state, any and all city, state
and federal taxes collected and remitted from cannabis sales, point of sales (POS)
system detailed daily sales data base and summary monthly sales reports, receipts,
purchases, and other expenditures, detailed general ledger, income statements, cash
flow statements, balance sheets, sales journals, cash disbursement journals and
ledgers including payroll iournals, third -party staffing agency statements, lease
agreements, and other reports regarding the number and types of persons employed
and/or otherwise engaged in the business, and shall retain all such records for
examination by the collector, his or her revenue officers, or duly authorized employees
or agents of the City. Such records shall be maintained for the period of the current
calendar year, and fora rp IOr period of at least three (3) complete calendar years or
from the commencement of business within the city, whichever period is least. In the
event such records of any business are not maintained within the city and are not
22
75F-28
reasonably made available for examination within the city, then such business shall be
responsible for the actual travel and lodging cost in connection with the performance
of said examination.
No person required to keep records under this section shall refuse to allow the collector,
his or her revenue officers, or duly authorized employees or agents of the City to
examine said records at reasonable times and places. Any person who willfully refuses
to allow said examination on demand and at a reasonable time and place as herein
provided shall be deemed guilty of a misdemeanor. In addition, such willful refusal shall
be cause for suspension and/or revocation of such business' existing Santa Ana
Business License as set out in section 21-86 of this Chapter.
Section 12. Section 21-80.1 of Article VII of Chapter 21 of the Santa Ana
Municipal Code is hereby amended to read in full as follows:
Sec. 21-80.1. - Same —Audit deficiency; application of penalty and interest;
voluntary compliance; effect;=Abatement of penalty and interest,
application; Exception for business license taxes assessed on a monthly basis;
audit service fees.
In the event that the collector or his or her designated agents, whether through an
audit or otherwise, determine that any person has misstated their gross receipts
amount, square footage amount, or other criteria upon which their current or prior
years' business license tax has been calculated resulting in an underpayment of the
tax amount owed, the collector shall separately calculate the deficiency for each
distinct license period affected and issue a statement of tax deficiency and add
delinquency penalties as applicable to the amount of the tax deficiency in accordance
with Section 21-25, subsection (a) and Section 21-83, subsection (a), together with
interest as provided under Sections 21-84 and 21-85, as applicable, until such time as
the tax deficiency together with the accrued penalties and interest, are satisfied.
In the case of business license taxes which are assessed and payable on a monthly
basis, an identical procedure shall be applied by the collector. Provided, however, that
the provisions of Section 21-25 shall not apply.
Provided, heweveF, that Except business license taxes which are assessed and
Payable on a monthly basis, where any person voluntarily reports a tax deficiency on
business license taxes which are assessed and payable on an annual basis such
person's penalty and interest assessment on said deficiency shall be abated until the
combined amount of tax, penalty and interest due is equalized to an amount
equivalent to the amount of current and prior years' taxes owing as computed or
determined based upon the business license tax rates and charges in effect for the
most current tax year. In computing the abatement of accrued penalties and interest to
23
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arrive at a combined amount of tax, penalty and interest equivalent to the amount of
the current or prior years' taxes owing as computed or determined based upon the
business license tax rates in effect for the most current tax year the collector in his or
her discretion may retain a sufficient amount of accrued penalty alone, or a sufficient
amount of accrued interest alone, or any sufficient combination of accrued penalty
amount and accrued interest amount necessary.
Whenever the result of any audit performed pursuant to this Chapter, excluding
audits performed in connection with any medicinal cannabis business or commercial
cannabis business, determines that any licensee has, exclusive of penalties and
interest, underpaid the amount of their business license tax by five (5) per cent or
more of the total amount due, but not less than two hundred fifty dollars ($250.00),
then an audit service fee in an amount as specified by resolution of the City Council
shall be applied.
In the case of audits performed pursuant to this Chapter in connection with any
medicinal cannabis business or commercial cannabis business that has exclusive of
penalties and interest, underpaid the amount of their business license tax by five (5)
per cent or more of the total amount due, but not less than five thousand dollars
($5,000.00), then such cannabis business shall be responsible for the City's actual
cost of performing said audit.
Section 13. Section 21-86 of Article VII of Chapter 21 of the Santa Ana
Municipal Code is hereby amended to read in full as follows:
Sec. 21-86. - Same —Suspension and revocation of business license.
The collector shall suspend and/or revoke any business license issued or
granted pursuant to this Chapter only upon those grounds set forth in Sections 21-45,
21-50, 21-55, 21-58, 21-59, 21-60, 21-80, 21-136 or upon conditions set forth in any
written agreement executed pursuant to Section 21-83.
Provided further, that unless revocation is made upon conditions set forth in a
written agreement executed pursuant to Section 21-83 or upon licensee's failure to
comply with the requirements of Section 21-136, no licensee's business license shall be
suspended and/or revoked for failure to pay the any annual business license tax as set
forth in this Chapter, or any monthly business license tax as set forth in Article XII or
Article XIII of this Chapter, or any other amount due pursuant to this Chapter until the
penalties accruing for such failure to pay, exclusive of interest, equal one huRdred (100)
peF eeRt of the b:..,,n,,ss IOG8nse tax d fGF SUGh linense have attained the maximum
applicable amount permissible under the terms of this Chapter. Whereupon, the
collector shall give a notice of suspension, which notice shall specify the grounds for
suspension, and which notice shall be given by personal service or by depositing it in
24
75F-30
the United States post office in the city, postage prepaid, addressed to the licensee at
the address listed on the application of the licensee where he or she consented to
receive mail concerning his or her license, to obtain a license or to pay any license tax
due or the address listed on the most recent business license renewal affidavit or
business license amendment statement; and/or conspicuously posting said notice upon
the premises of the business. Service of notice shall be deemed completed upon the
date of personal service of said notice, or the date of mailing of said notice, or the date
of actual posting of said notice on the premises of the licensee whichever occurs first.
In the event said licensee fails, within a period of thirty (30) days -days, notice, to
pay the business license tax due or any other amount due pursuant to this Chapter, or
to request a hearing the procedure for which shall be as provided in Section 21-41, then
and in that event the collector shall give a notice of revocation. The licensee shall be
given at least ten (10) days -_days notice, which notice shall specify the grounds for
revocation, and which notice shall be given pursuant to the hereinabove set forth
procedure forgiving notice.
In the event said licensee fails within the allotted ten (10) day period to request a
hearing to show cause why his or her business license should not be revoked, then and
in that event the collector shall revoke said person's license and give notice thereof to
said person pursuant to the hereinabove set forth procedure for giving notice.
In the event said licensee fails to file within ten (10) days thereafter, an appeal
pursuant to Chapter 3 of this Code, then the collector's action in revoking said person's
business license shall be conclusive as to all matters involved, and the transacting and
carrying on by any person of any business pursuant to said license shall thereafter be
deemed a misdemeanor.
Section 14. Severability. If any section, subsection, sentence, clause, phrase or
portion of this ordinance is for any reason held to be invalid or unconstitutional by the
decision of any court of competent jurisdiction, such decision shall not affect the validity
of the remaining portions of this ordinance. The City Council of the City of Santa Ana
hereby declares that it would have adopted this ordinance and each section,
subsection, sentence, clause, phrase or portion thereof irrespective of the fact that any
one or more sections, subsections, sentences, clauses, phrases, or portions be
declared invalid or unconstitutional.
Section 15. Effective Date. This Ordinance shall be effective thirty days after its
adoption by the City Council of the City of Santa Ana.
0*1
75F-31
ADOPTED this day of
Miguel A. Pulido
Mayor
APPROVED AS TO FORM
Sonia R. Carvalho, City Attorney
By: Z .
Lisa Storck
Assistant City Attorney
AYES: Councilmembers:
NOES: Councilmembers:
ABSTAIN: Councilmembers:
NOT PRESENT: Councilmembers:
2019.
CERTIFICATE OF ATTESTATION AND ORIGINALITY
I, NORMA MITRE, Acting Clerk of the Council, do hereby attest to and certify that
the attached Ordinance No. NS- to be the original ordinance adopted by
the City Council of the City of Santa Ana on , and that
said ordinance was published in accordance with the Charter of the City of Santa
Ana.
Date:
Acting Clerk of the Council
City of Santa Ana
F
75F-32
EXHIBIT 2
Ls 6A.19
RESOLUTION NO.2019-xx
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
SANTA ANA REDUCING THE COMMERCIAL CANNABIS
GROSS RECEIPTS TAX FOR TESTING LABORATORIES
FROM FIVE (5%) PERCENT TO TWO (2%) PERCENT
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SANTA ANA AS
FOLLOWS:
Section 1. The City Council of the City of Santa Ana hereby finds, determines and
declares as follows:
A. In November 2016, the California Marijuana Legalization Initiative, also
known as the Adult Use of Marijuana Act (AUMA or Proposition 64) was approved by the
voters of the State of California. The AUMA legalized recreational marijuana.
B. In 2017, the Governor signed into law Senate Bill 94 also known as
Medicinal and Adult -Use Cannabis Regulation and Safety Act (MAUCRSA) establishing
state regulations and licensing for retail sales, manufacturing, distribution, delivery and
testing of adult -use (also called recreational) marijuana.
C. On November 9, 2017, the City Council created Chapter 40 of the Santa
Ana Municipal Code, allowing adult -use commercial cannabis retail businesses in the
city, and amended certain sections of Chapters 18 and 21 of the Santa Ana Municipal
Code to ensure consistency with State law and Chapter 40. Since 2014, the City has
allowed medicinal marijuana collectives/ cooperatives to operate within the City
pursuant to regulations set forth in Chapter 18 and Chapter 21 of the Santa Ana
Municipal Code.
D. On March 20, 2018, the City Council adopted Ordinance NS-2941 and
NS-2942, allowing and regulating commercial cannabis testing laboratories.
E. A general business license tax based on the gross receipts derived from
commercial cannabis businesses and gross square footage would generate essential
funds for protecting vital City services and facilities and place such businesses on more
equal footing with existing City businesses, including medical marijuana businesses
which already pay a business license tax.
ResolWon No. 2019-roc
Page 1 of 3
75F-33
F. The City Council is authorized to impose general and special taxes in
order to fund municipal services and facilities, subject to requisite voter approval as set
forth in Government Code section 53720.
G. The voters of the City of Santa Ana approved Measure Y (Ordinance NS-
2962) on November 6, 2018, for the purpose of fixing the rate of taxation for commercial
cannabis businesses including delivery, distribution, manufacturing, cultivation, testing
and retail sales of cannabis and related products. The taxes required to be paid under
this article are declared to be required pursuant to the taxing power of the City of Santa
Ana solely for the purpose of obtaining revenue and are not regulatory permit fees.
H. The City of Santa Ana desires to remain at the forefront of commercial
cannabis by allowing and regulating commercial cannabis business activities, routinely
updating and amending its ordinances, and establishing commercial cannabis gross
receipts tax rates that are competitive and provide for the needs of the Santa Ana
community.
I. The City of Santa Ana has a compelling interest in ensuring that cannabis
is not sold in an illicit manner, in protecting the public health, safety and welfare of its
residents and businesses, in preserving the peace and quiet of the neighborhoods in
which these businesses may operate, and in providing access to safe and tested
cannabis to residents. To ensure safe and tested cannabis, the City desires to see the
establishment and successful operation of testing facilities and testing laboratories in
the City.
J. Section 21-133 (d) of Article XIII of Chapter 21 of the Santa Ana Municipal
Code establishes the initial commercial cannabis testing facility of testing laboratory
gross receipts tax rate at five (5%) percent.
K. Section 21-133 (c) of Article XIII of Chapter 21 of the Santa Ana Municipal
Code allows the City Council by resolution to implement any lower tax rate it deems
appropriate.
Section 2. The City Council hereby establishes the commercial cannabis
testing facility/testing laboratory gross receipts tax rate at two (2%) percent, lowering it
from five (5%) percent. The reduced two (2%) percent gross receipts tax rate shall
become effective July 1, 2019.
H
H
Resolution No. 2019-roc
Page 2 of 3
75F-34
ADOPTED this day of 2019.
Miguel A. Pulido
Mayor
APPROVED AS TO FORM:
Sonia R. Carvalho, City Attorney
By;�� c v i
Lisa Storck
Assistant City Attorney
AYES: Councilmembers
NOES: Councilmembers
ABSTAIN: Councilmembers
NOT PRESENT: Councilmembers
CERTIFICATE -OF ATTESTATION AND ORIGINALITY
I, Norma Mitre, Acting Clerk of the Council, do hereby certify the attached Resolution No.
2019- to be the original resolution adopted by the City Council of the City of Santa
Ana on 2019.
Date:
Acting Clerk of the Council
City of Santa Ana
Resolution No. 2019-xx
Page 3 of 3
75F-35
75F-36
EXHIBIT 3
LS 6.4.19
RESOLUTION NO.2019-xx
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
SANTA ANA ESTABLISHING A CANOPY MEASUREMENT
SERVICE FEE AND AN ALLOCATED SQUARE FOOTAGE
MEASUREMENT SERVICE FEE
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SANTA ANA AS
FOLLOWS:
Section 1. The City Council of the City of Santa Ana hereby finds, determines and
declares as follows:
A. In November2016, the California Marijuana Legalization Initiative, also known
as the Adult Use of Marijuana Act (AUMA or Proposition 64) was approved by the voters of
the State of California. The AUMA legalized recreational marijuana.
B. In 2017, the Governor signed into law Senate Bill 94 also known as Medicinal
and Adult -Use Cannabis Regulation and Safety Act (MAUCRSA) establishing state
regulations and licensing for retail sales, manufacturing, distribution, delivery and testing of
adult -use (also called recreational) marijuana.
C. On November 9, 2017, the City Council created Chapter 40 of the Santa
Ana Municipal Code, allowing adult -use commercial cannabis retail businesses in the city,
and amended certain sections of Chapters 18 and 21 of the Santa Ana Municipal Code
to ensure consistency with State law and Chapter 40. Since 2014, the City has allowed
medicinal marijuana collectives/ cooperatives to operate within the City pursuant to
regulations set forth in Chapter 18 and Chapter 21 of the Santa Ana Municipal Code.
D. On March 20, 2018, the City Council adopted Ordinance NS-2941 and NS-
2942, allowing and regulating commercial cannabis testing laboratories.
E. A general business license tax based on the gross receipts derived from
commercial cannabis businesses and gross square footage would generate essential
funds for protecting vital City services and facilities and place such businesses on more
equal footing with existing City businesses, including medical marijuana businesses
which already pay a business license tax.
Resolution No. 2019-m
Page 1 of 3
75F-37
F. The City Council is authorized to impose general and special taxes in order
to fund municipal services and facilities, subject to requisite voter approval as set forth in
Government Code section 53720.
G. The voters of the City of Santa Ana approved Measure Y (Ordinance NS-
2962) on November 6, 2018, for the purpose of fixing the rate of taxation for commercial
cannabis businesses including delivery, distribution, manufacturing, cultivation, testing
and retail sales of cannabis and related products. The taxes required to be paid under
such article are declared to be required pursuant to the taxing power of the City of Santa
Ana solely for the purpose of obtaining revenue and are not regulatory permit fees.
H. The City of Santa Ana desires to remain at the forefront of commercial
cannabis by allowing and regulating commercial cannabis business activities, routinely
updating and amending its ordinances, and establishing commercial cannabis gross
receipts tax rates that are competitive and provide for the needs of the Santa Ana
community.
I. Section 21-133, subsection 0)(8)(B) of Article XI I I of Chapter 21 of the Santa
Ana Municipal Code states that the gross square footage of cultivation canopy shall be
subject to independent measurement and calculation by duly authorized employees or
agents of the City and that a corresponding canopy measurement fee amount be
specified by resolution of the City Council.
J. Section 21-133, subsection 0)(8)(D) of Article XIII of Chapter21 of the Santa
Ana Municipal Code states that the gross square footage of allocated square footage
amounts reported by commercial cannabis business owners/operators respectively for
either distribution use or for manufacturing use, shall be subject to independent
measurement and calculation by duly authorized employees or agents of the City and
that a corresponding allocated square footage measurement fee amount be specified by
resolution of the City Council.
K. The City Council conducted a duly noticed public hearing on June 4, 2019,
to consider the proposed fee modifications.
Section 2. Pursuant to Santa Ana Municipal Code Section 21-133, subsection
0)(8)(B) the City Council hereby establishes a canopy measurement fee in the amount of
$100.67 per hour. Said fee shall be added to the City's Miscellaneous Fee Schedule and
be subject to the Consumer Price Index changes annually. The canopy measurement fee
amount shall become operational upon the effective date of Section 21-133, subsection
(1)(8)(B)•
Section 3. Pursuant to Santa Ana Municipal Code Section 21-133, subsection
(j)(8)(D) the City Council hereby establishes an allocated square footage measurement
fee in the amount of $100.57 per hour. Said fee shall be added to the City's Miscellaneous
Fee Schedule and be subject to the Consumer Price Index changes annually. The
Resolution No. 2010-xx
Page 2 of 3
75F-38
allocated square footage measurement fee amount shall become operational upon the
effective date of Section 21-133, subsection 0)(8)(D).
Section 4. The City Council finds that the fees adopted by this Resolution do
not exceed the reasonable cost of providing the services for which the fees are charged.
ADOPTED this day of 2019.
Miguel A. Pulido
Mayor
APPROVED AS TO FORM:
Sonia R. Carvalho, City Attorney
By:
Lisa Storck
Assistant City Attorney
AYES: Councilmembers
NOES: Councilmembers
ABSTAIN: Councilmembers
NOT PRESENT: Councilmembers
CERTIFICATE OF ATTESTATION AND ORIGINALITY
I, Norma Mitre, Acting Clerk of the Council, do hereby certify the attached Resolution No.
2019- to be the original resolution adopted by the City Council of the City of Santa
Ana on 2019.
Date:
Acting Clerk of the Council
City of Santa Ana
Resol don No. 2019-xx
Page 3 of 3
75F-39
75F-40