# Canopy tax in Humboldt

Humboldt County, California, Board of Supervisors unanimously approved a cannabis cultivation canopy excise tax Tuesday. “Outdoor, mixed light, and indoor farms would all be taxed differently. An example is smaller outdoor grows would be taxed \$1 per square foot while the large outdoor grows would be taxed \$6 per square foot.”  So small growers get a tax break.

The details have not been drafted. The press report, from KRCR, does not say whether outdoor grows would be taxed more than indoor.

In particular, one thing to watch for is whether the tax contains absurd marginal rates, or cliffs, at break points between categories.

A 2015 draft did create cliffs:

“The tax imposed by this section shall be at the following rate:  less than 600 square feet of canopy: \$0;
601 square feet to 6000 square feet of canopy at fifty cents (\$.50) per square foot;
6001 square feet or more of canopy at one dollar (\$1.00) per square foot. . . .
By way of example, a canopy of 7060 feet at any time during the year will have a tax of \$7060, not a tax calculated at 600 square feet + 6000 square feet + 1000 square feet.”

To start with, that language doesn’t cover the case of exactly 600 square feet.  Or 6,000.5 square feet.  Literally.  And taxpayers love little errors like that to mess with. But that’s a nit, easily corrected.

A bigger technical problem is that the draft’s tax is not smooth. It’s spiky.  Inadvertently, it contains absurdly high marginal rates.  These examples show the problem:

If you grow on 598 square feet, your tax is zero.

If you grow on 602 square feet, your tax is \$301.

If you grow on 5,998 square feet, your tax is \$2,999.

If you grow on 6,002 square feet, your tax is \$6,002.

In those examples, growing on four more square feet creates a spike, a cliff, a huge extra tax – a marginal tax rate well over 100 percent. In math, that’s a discontinuity.

That painful spike could be removed — and the word from Humboldt is that a fix is in the works. A smooth tax could work this way:

“The tax imposed by this section shall be at the following rate:
the first 600 square feet of canopy: \$0;
over 600 square feet to 6000 square feet of canopy:  fifty cents (\$.50) per square foot;
over 6000 square feet or more of canopy at one dollar (\$1.00) per square foot. …
By way of example, a canopy of 7060 feet at any time during the year will have a tax of \$3,760, the first 600 square feet bearing zero tax, the next 5,400 square feet bearing \$2,700 tax (at a rate of 50 cents per foot), and the last 1,060 square feet bearing tax of \$1,060.”

Under the smoothed-out fix:

If you grow on 598 square feet, your tax is zero.

If you grow on 602 square feet, your tax is \$1.

If you grow on 5,998 square feet, your tax is \$2,699.

If you grow on 6,002 square feet, your tax is \$2,702.

That brings in less revenue, so if you wanted to hit the same dollar revenue target, you would have to increase the rates.

People dislike taxes naturally enough. When taxes are absurd, as with those crazy marginal rates, people get really worked up.  Now licenses might be issued just to match the exact numer of square feet cultivated, so any individual grower might not face these absurd marginal rates.

Anyway, enough quibbling. These rough edges are to be expected with new proposals. Taxing canopy, as proposed by some Humboldt County farmers themselves, is a good faith start.