In what appears to be a win-win for the city and cannabis businesses, the City of Northampton announced it is dropping the 3% community impact fee it collects from marijuana establishments and medical marijuana treatment centers. Instead, the City will collect an impact fee only after identifying a specific cost incurred by the community. The change applies to both existing and prospective licensees.
Massachusetts law allows communities to collect a fee—limited to 3% of gross sales and for the first 5 years—in order to pay for costs associated with hosting a cannabis business. Reaching agreement on the community impact fee is one part of finalizing a host community agreement, which is an essential step along the way for any cannabis business seeking a license.
According to Northampton, the decision to drop mandatory impact fees made sense for both the City and businesses. Mayor Narkewicz of Northampton explained, “I really view this as another barrier that we’re lowering because it does ultimately lower the cost for all operators and so I think it’s the right move for Northampton. I can’t really speak for other cities and towns.”
Why would a municipality willingly pass up this revenue source?
One reason might be how Massachusetts law requires any impact fee to be “reasonably related to the costs imposed upon the municipality by the operation of” the licensed establishment. The law also requires municipalities to document the impact costs they incur.
Narkewicz reportedly noted that Northampton’s experience has been that cannabis retailers have not caused “any major impacts” as was predicted before legalization and was a reason the impact fees were authorized.
In addition to collecting up to 3% on gross sales for an impact fee, communities can also add a 3% optional municipal excise tax to cannabis sales. The state adds a 6.25% sales tax and 10.75% excise tax.
Northampton indicates it will continue collecting the local excise tax, and that revenue is not restricted to paying direct impact expenses. If dropping the 3% impact fee can help attract more business to the community, the move could bring in more tax revenue to fund non-cannabis related programs in the community.
Time will tell whether other cities and towns will follow the approach in Northampton and announce a broad policy on impact fees, or make these decisions on an applicant-by-applicant basis. We have blogged about other issues related to the host community agreement process, including a case before the Supreme Judicial Court about host community agreements.
As more communities potentially begin to look at adjusting their impact fees, the change is sure to add even more variety to the unique process each operator faces in negotiating an agreement with its host community.