Maricopa County Assessor Paul Petersen is cracking down on medical-marijuana businesses he says are evading as much as $1.5 million in property taxes each year by failing to report the value of the equipment they use.
Only 11 of 109 medical-marijuana businesses this year submitted itemized lists of their equipment to the Assessor’s Office to be taxed as required by law, he said.
And from 2010, when the industry was legalized by voter mandate, through 2016, no dispensaries, cultivation facilities or certification centers in Maricopa County filed business-personal property reports.
“That’s a pretty dismal rate of return,” Petersen said Thursday. “I want the medical-marijuana business owners to know that they did not follow the law. But we want to work with them moving forward. And it’s my pledge to help them comply with the law just like I would do with any other business.”
Petersen estimated the businesses would likely owe collectively about $1 million to school districts and about $500,000 to the county and other taxing districts this year.
Ryan Hurley, a Scottsdale attorney with expertise in medical-marijuana law, said the industry is so new that many issues are still being worked out and more education is needed on legal requirements.
“The folks I work with want to be good corporate citizens and want to pay what they owe,” he said.
Kevin DeMenna, a lobbyist for the Arizona Dispensaries Association, said members are disappointed the Assessor’s Office didn’t do more to reach out to the industry to clarify the rules. Members are already in talks with the Arizona Department of Revenue about tax issues, he said.
“(Personal property) is the most byzantine aspect of Arizona’s tax system and very difficult to comply with,” DeMenna said. “We’re going to ask for dialogue. … If we were cotton farmers, we probably would have been summoned to a briefing.”
A tour of a medical-marijuana cultivation facility and dispensary with other officials last year prompted Petersen to take a look at the personal property rolls, he said.
“I thought, ‘Man, that’s a lot of personal property in here,’ ” Petersen said. It ranged from display cases and computers at dispensaries to ventilation systems and lighting at cultivation facilities.
In an effort to educate the medical-marijuana industry, Petersen said he sent a staffer to speak at a Marijuana Industry Trade Association meeting in January and sent notification letters to all 109 businesses months before the April 1 reporting deadline.
Whether or not businesses receive a reminder letter from the Assessor’s Office, they have a duty under the law to report, he added.
Even if new business owners don’t know about the requirements, their tax attorneys typically alert them, Petersen said.
“We did the best we can, with the limited resources we have,” Petersen said. “I’m not going to go beating on their door.”
Demitri Downing, executive director of the Marijuana Industry Trade Association, predicted some industry members might resist the effort, arguing their businesses are considered non-profit under the law.
But overall, Downing praised the move as evidence of greater government acceptance of the medical-marijuana industry.
“The real story here is: Oh my god, how the world has changed. Now we’re having an intelligent discussion about fixing these small issues instead of prohibition or no prohibition,” Downing said.
After years of working through medical-marijuana regulation and taxation challenges, “We’re taking the right steps in the right direction,” he said. “Paying taxes is a fantastic thing and something the industry is very proud of. For the Maricopa County Assessor’s Office to create the impression the industry isn’t paying taxes is a discredit to everything the community has achieved.”
For the 98 medical-marijuana businesses that did not report, the Assessor’s Office plans to send an estimate of their personal property value plus a 10 percent penalty. Businesses have 30 days, or until Sept. 25, to appeal the valuation and justify a different amount.
If businesses cooperate, Petersen said he will consider waiving penalties. For businesses that don’t pay or submit artificially low reports, the Assessor’s Office plans to audit and assess additional penalties.
Other Arizona counties are grappling with the issue with little guidance.
Gila County Assessor Deborah Hughes said the county’s one medical-marijuana business did not submit a report this year.
So she made up an intentionally “bogus” valuation, in the millions of dollars, at the advice of the Arizona Department of Revenue, in hopes that the medical-marijuana business would appeal and provide the correct information.
Hughes said the business has not appealed, so she expects the owner to be “shocked” by the tax bill when it arrives.
Hughes said Maricopa County’s efforts will help small, rural counties like hers to develop a protocol.
“Other counties are following my lead,” Petersen agreed.