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TO: Mayor Richard C. Irvin
FROM: Christopher Minick, Chief Financial Officer
DATE: February 6, 2023
SUBJECT:
An Ordinance Amending Article 44-XVI of the Municipal Code of the City of Aurora: Municipal Cannabis Retailer's Occupation Tax; Section 44-420 Tax Imposed; Rate
PURPOSE:
The State of Illinois has approved the retail sale of Adult Recreational Cannabis in Illinois, setting a limit of a 3.0% excise tax for Illinois municipalities. In 2019 the City of Aurora chose to allow the sale of Adult Recreational Cannabis and imposed a Municipal Cannabis Retailer's Occupation Tax at the rate of 2% of sales. We now wish to increase the Municipal Cannabis Retailer's Occupation tax to three percent (3%) to allow for increased funding for social programs and special events within the City.
BACKGROUND:
The current Cannabis Retailer's Occupation Tax Rate is set at 2%. The ordinance attached would change the rate to 3% of recreational cannabis retail sales. The deadline to complete this step is April 1, 2023 in order to collect taxes for sales occurring after July 1, 2023. The State allows rate changes for local taxes twice per year, January 1 and July 1. Staff investigated the prevailing Cannabis Retailer's Occupation Tax rates in effect at area municipalities which allow recreational cannabis sales. Of the communities surveyed as attached, only two had tax rates that were 2% or less. The remainder communities all had municipal tax rates at 3%.
DISCUSSION:
Currently there are 2 dispensaries operating within the City limits in Aurora which sell recreational cannabis. In addition to the Municipal Cannabis Retailer's Occupation Tax, this product is also subject to the state sales tax, of which the City receives 1.0% and the Home Rule Sales Tax of 1.25%. If the ordinance is approved as proposed, the total local tax rate for recreational cannabis sales would increase from 4.25% of sales to 5.25%. Note that the municipal Cannabis Retailer's Occupation Tax does not apply to sales of Medical Cannabis.
Revenue projections for this tax can vary greatly based on the size of the dispensary and the total number of dispensaries. For example, at 5.25% the City would collect $52,500, less administration fees from the state, for every $1.0 million in sales on an annual basis. Annual sales tax revenues per dispensary can vary greatly, and are impacted by the number of licenses in a given geographic area. Other states with a far greater number of licenses have seen sales per store between $ 5.0 and 10.0 million annually. A very general projection estimated tax revenues varying between $250,000 and $750,000 per dispensary annually, which represents an increase of $50,000 to $150,000 over current revenue levels per dispensary.
Dispensaries are estimated to employ between 15 and 30 employees, and in most cases these businesses are paying above minimum wage for entry level positions.
IMPACT STATEMENT:
The adoption of this ordinance allows the City to collect revenues from the Adult Recreational Cannabis dispensaries should they be approved. Revenues would be utilized to provide funding for special events and social programs throughout the City.
RECOMMENDATIONS:
We recommend the adoption of this ordinance.
Cc: Finance Committee
CITY OF AURORA, ILLINOIS
ORDINANCE NO. _________
DATE OF PASSAGE ________________
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An Ordinance Amending Article 44-XVI of the Municipal Code of the City of Aurora: Municipal Cannabis Retailer's Occupation Tax; Section 44-420 (a) Tax Imposed; Rate
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WHEREAS, the City of Aurora has a population of more than 25,000 persons and is, therefore, a home rule unit under subsection (a) of Section 6 of Article VII of the Illinois Constitution of 1970; and
WHEREAS, subject to said Section, a home rule unit may exercise any power and perform any function pertaining to its government and affairs for the protection of the public health, safety, morals, and welfare; and
WHEREAS, the City has the authority to adopt ordinances and to promulgate rules and regulations that pertain to its government and affairs and that protect the public health, safety and welfare of its citizens; and
WHEREAS, this Ordinance is adopted pursuant to the provisions of the Illinois Municipal Cannabis Retailers' Occupation Tax Law, 65 ILCS 65 ILCS 5/11-8-22 et seq. (Act); and
WHEREAS, In 2019 The City adopted a Municipal Cannabis Retailer's Occupation Tax in the amount of two percent (2%) of gross receipts from sales of recreational cannabis products in accordance with the Illinois Municipal Cannabis Retailers' Occupation Tax Law, 65 ILCS 65 ILCS 5/11-8-22 et seq. (Act); and
WHEREAS, the City wishes to amend the rate of the Municipal Cannabis Retailer's Occupation Tax to three percent (3%) of gross receipts from sales of recreational cannabis products
WHEREAS, this Ordinance is intended to impose the tax authorized by the Act providing for a municipal cannabis retailers' occupation tax which will be collected by the Illinois Department of Revenue.
NOW, THEREFORE, BE IT ORDAINED by the City Council of the City of Aurora, Illinois, as follows:
SECTION 1. Recitals. The facts and statements contained in the preamble to this Ordinance are found to be true and correct and are hereby adopted as part of this Ordinance.
SECTION 2. Adoption of Tax. Chapter 44 Section 44-420 (a) Tax Imposed; Rate of the Municipal Code of the City of Aurora shall be amended by deleting section 44-420 (a) in its entirety and replacing with the text as follows:
Tax imposed; Rate.
(a) A tax is hereby imposed upon all persons engaged in the business of selling cannabis, other than cannabis purchased under the Compassionate Use of Medical Cannabis Pilot Program Act, at retail in the City at the rate of three percent (3%) of the gross receipts from these sales made in the course of that business.
3. Severability. If any provision of this Ordinance, or the application of any provision of this Ordinance, is held unconstitutional or otherwise invalid, such occurrence shall not affect other provisions of this Ordinance, or their application, that can be given effect without the unconstitutional or invalid provision or its application. Each unconstitutional or invalid provision, or application of such provision, is severable, unless otherwise provided by this Ordinance.
4. Effective Date. This Ordinance shall be in full force and effect from and after its passage and approval and publication as required by law, provided, however, that the tax provided for herein shall take effect for all sales on or after the first day of July, 2023. Copies of this Ordinance shall be certified and sent to the Illinois Department of Revenue prior to April 1, 2023.