By Peter Hecht
Published: Friday, Oct. 22, 2010 – 12:00 am | Page 1A

For months, proponents of California’s Proposition 19 marijuana initiative hyped the local tax benefits of legalizing pot for recreational use.

Now, as voters in Sacramento and other cities consider companion ballot measures to impose taxes on the retail pot businesses that could open if Proposition 19 passes, the promised revenues may be in jeopardy.

As Californians vote Nov. 2 on Proposition 19, voters in at least 11 cities will decide 14 local marijuana measures. Suddenly the most controversial of those measures involve attempts by cities to levy a tax on recreational marijuana sales.

While Proposition 19 permits local governments to tax and regulate retail pot sales, U.S. Attorney General Eric Holder last week signaled that the Justice Department is unlikely to stand by and let that happen.

In a letter to former drug enforcement administrators, Holder raised the specter that recreational pot businesses that paid taxes on sales would be admitting to a federal crime.

Holder vowed to “vigorously enforce” federal drug laws and target “those individuals and organizations that possess, manufacture or distribute marijuana for recreational use, even if such activities are permitted under state law.”

The ballot measures in Sacramento and several other cities also seek to impose or increase taxes on the nonprofit medical marijuana operations that are now legal in California.

In Sacramento, ballot Measure C would allow taxes of up to 4 percent on existing medical marijuana dispensaries. It would permit a 10 percent tax on retail pot shops if Proposition 19 passes and the city allows the businesses.

City Council member Sandy Sheedy, who has championed efforts to regulate the Sacramento pot industry, said the city still hopes to collect taxes on medical dispensaries. But in light of the federal stance, she said, it is now unlikely Sacramento would allow businesses catering to recreational users even if voters approve Proposition 19.

“If it does pass and the federal government says it will vigorously enforce the law, then that part (of Measure C) is moot,” Sheedy said. “We are not going to do anything that the federal government is going to come in and oppose.”

No opposing ballot statement was submitted for the Sacramento measure. City Treasurer Russell Fehr and representatives for police and firefighters unions called for a “yes” vote.

“The city of Sacramento needs this new revenue to keep providing the services you depend on,” the ballot argument reads.

California already collects an estimated $100 million in local sales taxes on medical pot shops.

But when it comes to recreational marijuana, legal observers say, years of litigation – and a political evolution – may be necessary before anything flows into local coffers.

“Proposition 19 will not be a revenue raiser at the state and local levels in the short run,” said UC Davis law professor Vikram Amar.

“I just would not count on this as a meaningful revenue stream because of the specter of the Drug Enforcement Administration.”

In Oakland, construction executive Jeff Wilcox’s AgraMed firm has invested more than $20 million in hopes of opening a city-licensed industrial warehouse for medical marijuana cultivation and related businesses.

Oakland’s Measure V would raise the city’s existing tax on medical pot outlets from 1.8 percent to 5 percent – and would set a 10 percent tax on recreational marijuana.

Despite threats of federal raids, Wilcox said he isn’t giving up on expanding into retail operations for recreational pot.

“I believe voters make laws to suit the voters of California,” Wilcox said. “It is the state of California. Not the federation of California.”

Dale Gieringer, California director for the National Organization for Reform of Marijuana Laws, said some cities and entrepreneurs may be willing to test the federal government. He said the legal skirmishes – and federal raids – could mirror the aftermath of Proposition 215, the medical marijuana law California voters passed in 1996.

“I guarantee you people are willing and interested in filing to open Amsterdam-style pot clubs,” he said. “And anybody who makes a big fanfare and opens up for sale will probably get busted by the feds.”

Across California, the local pot measures vary widely.

Rancho Cordova’s Measure O seeks a “personal cultivation tax” of $600 to $900 per square foot for anyone growing pot. Albany’s Measure Q would impose a 2.5 percent tax on retail marijuana sales. Long Beach’s Measure B would set taxes on recreational pot at 15 percent.

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