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TO: Mayor Richard Irvin and City Council
FROM: Alex Alexandrou, Chief Management Officer
Martin Lyons, Chief Financial Officer
DATE: September 4, 2019
SUBJECT:
An Ordinance Amending the Municipal Code of the City of Aurora by the addition of Chapter 44 Imposing a Municipal Adult Recreational Cannabis Retailer's Occupation Tax.
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. If the City of Aurora chooses to allow the sale of Adult Recreational Cannabis, the city must pass an ordinance setting the local tax rate. The deadline to complete this step is October 1, 2019 in order to collect taxes as of January 1, 2020. Completing this step does not obligate the city to opt-in, however, it may take the Illinois Department of Revenue up to 90 days to process ordinances.
BACKGROUND:
The State of Illinois has approved the retail sale of Adult Recreational Cannabis in Illinois, setting a limit of a 3.0% excise tax. The state has advised all municipalities that they should adopt a local ordinance by October 1, 2019 in order to be eligible for the collection of this tax by the state effective September 1, 2020. The attached ordinance proposes that if the City of Aurora opts to allow the sale of Adult Recreational Cannabis it will be locally taxed at 2.0%.
DISCUSSION:
Using information provided by the State of Illinois, the Illinois Municipal League and staff research regarding the establishment of cannabis sales in other states, the attached Ordinance proposes a Cannabis excise tax rate at 2.0%. This tax rate is in concurrence with the State of Illinois suggestion to not set the rate at the maximum of 3.0% initially. As this is a retail sale of products, 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%, making the effective rate for the City 4.25%.
Revenue projections for this tax can vary greatly based on the size of the dispensary and the total number of dispensaries. For example, at 4.25% the City would collect $42,500, 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 is 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 $200,000 and $600,000 per dispensary annually.
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. This adoption does not preclude the City from rescinding this ordinance at a later date, before actual sales become effective in 2020.
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 the Municipal Code of the City of Aurora by the Addition of Chapter 44 Imposing a Municipal Adult Recreational Cannabis Retailer's Occupation Tax.
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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, 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 of the Municipal Code of the City of Aurora shall be amended by the addition of Chapter 44 that will read as follows:
ARTICLE XVI Municipal Cannabis Retailer's Occupation Tax.
1. 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 2% of the gross receipts from these sales made in the course of that business.
(b) The imposition of this tax is in accordance with the provisions of Section 8-11-22, of the Illinois Municipal Code (65 ILCS 5/8-11-22).
2. Collection of tax by retailers.
(a) The tax imposed by this Ordinance shall be remitted by such retailer to the Illinois Department of Revenue (Department). Any tax required to be collected pursuant to or as authorized by this Ordinance and any such tax collected by such retailer and required to be remitted to the Department shall constitute a debt owed by the retailer to the State. Retailers may reimburse themselves for their seller's tax liability hereunder by separately stating that tax as an additional charge, which charge may be stated in combination, in a single amount, with any State tax that sellers are required to collect.
(b) The taxes hereby imposed, and all civil penalties that may be assessed as an incident thereto, shall be collected and enforced by the Department. The Department shall have full power to administer and enforce the provisions of this article.
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 January, 2020. Copies of this Ordinance shall be certified and sent to the Illinois Department of Revenue prior to September 30, 2019.