27 Jun Conference Preview: Maricopa marijuana
FAIR + EQUITABLE – a publication of IAAO
According to Governing magazine, 30 states and the District of Columbia have passed laws legalizing marijuana in some form, opening the door to new opportunities and challenges for assessors in valuing an industry that has in the past operated largely in the shadows.
Marijuana is a divisive topic in Arizona.
The state legalized medical marijuana in 2010 with a mere 50.1 percent of the vote but more recently, in 2016, rejected recreational marijuana. After the Arizona Medical Marijuana Act passed in 2010, it still took until April 2011 for lawsuits challenging the act to be dropped and for rules to be established for medical marijuana facilities to begin to operate.
The first medical marijuana dispensary opened Dec. 6, 2012, and by 2015 the number of dispensaries had grown to 95.
Bringing the marijuana industry onto tax rolls
Amid this growth, while touring one of these facilities in 2016, Maricopa County Assessor Paul Petersen realized that many in the industry were not reporting their personal property in compliance with Arizona law.
In Arizona, both real and personal property is taxable, and personal property is reported to the county assessors by individual businesses.
Research by the assessor’s office found that there was not an applicable property tax exemption for medical marijuana businesses, and no reports had been received from the businesses in 2016 and the first half of 2017.
Thus, a concerted effort was undertaken to find, identify, and value the personal property of medical marijuana businesses.
A total of 108 businesses were identified in the jurisdiction, and the assessor’s office worked closely with the Arizona Department of Revenue in compiling a reasonable estimate of the value of their personal property.
Compliance campaign developed
In August 2017, Assessor Paul Petersen hosted a press conference to bring this issue of noncompliance to light and to inform both the media and the industry of the businesses’ legal obligation to report their property.
Recognizing that some businesses may have legitimately not known about their obligations, the office committed to work with businesses that reported their property during the appeal cycle but stressed that it would audit businesses that failed to do so.
In addition, staff members conducted meetings with industry groups such as the Arizona Dispensaries’ Association and the Marijuana Industry Trade Group to help business owners file appeals and also file self-reports in.
This campaign resulted in the addition of about $1.1 million of assessed taxes in Maricopa County.
Vendor contracted for audits
At the same time, the office contracted with a vendor, Tax Management Associates, to audit medical marijuana businesses to ensure the accuracy of the estimates of value for businesses that did not self-report for tax years 2016, 2015, and 2014.
Since the beginning of this contract, the vendor has nearly completed 13 audits for the three prior years, while almost 80 other audits are ongoing.
Despite their initial noncompliance, many medical marijuana businesses are open to working with the vendor to review their books. Some marijuana industry leaders even welcomed the press coverage of these events as an opportunity to showcase their contributions to society as taxpayers.
However, challenges remain, including the difficulty in finding marijuana businesses in the first place. Many businesses rent their spaces, and sometimes the vendor has found up to four address changes for a business in a single year. Multiple entities can run out of a single site, which complicates efforts if the businesses are not compliant with auditors.
To learn more about this growing opportunity as the medical marijuana industry blooms, don’t miss “Auditing Medical Marijuana Facilities” at the 84th Annual Conference on Assessment Administration Sept. 23-26 in Minneapolis.