Tax collections lagging from city’s marijuana dispensaries

Collections from the city of Springfield’s 3% sales tax on adult-use marijuana are lagging, with multiple dispensaries failing to remit the tax in the first three months of collections.

The tax, which was approved by voters in August 2023 and went into effect Jan. 1, had originally been estimated to bring in $1.6 million-$2.2 million annually, but the first three months of collections yielded only $317,000, David Holtmann, director of finance for the city, reported at Springfield City Council’s May 7 luncheon. Holtmann briefed council in two separate budget presentations at back-to-back Tuesday luncheon meetings.

If that level of collections were to stand, the tax would bring in less than $1.3 million for the year. The city’s revised projection is $1.8 million, Holtmann previously reported to council at its April 30 luncheon meeting.

Holtmann said collections are not being submitted by some of the city’s dispensaries. Three vendors failed to remit payments in January, four in February and five in March.

The city should be receiving collections from 10 vendors, Holtmann said, and that is a change from the 12 vendors he previously reported because of name changes and acquisitions.

“One of the things that we’ve discovered from the Department of Revenue is some of the vendors are unfamiliar with the reporting for the 3%,” he said, noting some vendors had been reporting all of their sales under the city’s 1% sales tax rather than breaking out the additional adult-use tax.

The Missouri Department of Revenue is returning remittances that were filed in error and requiring vendors to resubmit their reports properly.

He added that the DOR did not have updated information on a change of registered name for one vendor. Now that they do, they are contacting the business under its new name, he said.

Holtmann said the DOR is responsible for all reporting and compliance for all sales taxes, including the 3% adult-use sales tax. The department has indicated nonreporting vendors will be contacted.

Councilmember Craig Hosmer asked if penalties would be assessed for nonreporting vendors. Holtmann replied that he was not sure.

“If they reported under the 1% and they’re trying to correct how that was reported, I would have to think they would view that differently than not reporting at all,” he said.

As with any sales tax, there is a penalty provision for not reporting and not remitting, he added.

Springfield Business Journal also contacted DOR on May 1 to inquire about the lag in collections, and a spokesperson replied by email that the department is unable to share specific tax information about the dispensaries.

The spokesperson did provide the portion of Missouri Revised Statutes – 144.250 – that applies to failure to file a return or pay tax. In general, a 5% penalty applies for each month a return or payment is late, the code states.

Flora Farms LLC, the area’s largest operator of dispensaries, according to SBJ list data, is collecting and paying adult-use sales tax, according to President Mark Hendren. Asked if he had heard any industry talk about why some other dispensaries aren’t paying, he said he had not.

Hendren did note that elsewhere in Missouri, some operators are concerned about city and county taxes being stacked, with cities and counties both charging up to a 3% tax on adult-use weed; however, Greene County has not levied a tax on cannabis.

The city’s original tax revenue estimates were based on the level of medical marijuana sales in the city, but adult-use sales have far outpaced medical marijuana sales. In 2023, the Missouri Department of Health and Senior Services reported $1.04 billion in adult-use sales. This is out of a combined adult-use and medical sales total of $1.3 billion, according to DHSS.

Voters approved four uses for the tax revenue: public safety, substance abuse services, housing and mental health services. 

Budgeted from the tax is $363,000 to reinstate a jail diversion program of the Springfield-Greene County Health Department and the Springfield Municipal Court, approved by council at its May 6 meeting.

Also budgeted are $150,000 in supplies and services for a virtual real-time crime center and $94,050 for a gun violence reduction/prevention action plan through the Springfield Police Department.

That leaves $1.2 million budgeted in reserves to be allocated by council at a later date, according to Holtmann’s presentation.

Also at the May 6 meeting, council referred consideration of the allocation of adult-use marijuana tax funds to its Finance and Administration Committee.

This followed an April 30 proposal by Councilmember Monica Horton that an equal percentage of proceeds be split among the four areas that are to be funded through tax, with each category receiving 25% under this proposal.

At the time the tax was proposed, council rejected the idea of an equal split; that way, council would have the flexibility to respond to needs that arise, according to past SBJ reporting.