In November 2012, Colorado voters approved a constitutional amendment making Colorado the first state in the nation to legalize the use of recreational marijuana. Amendment 64 to the Colorado constitution became effective January 1, 2014 and since then, Colorado has been at the forefront of cannabis law and policy. During 2013, the state had to implement laws and policies to make the new amendment work. Governor John Hickenlooper and the legislature had to figure everything out from what the state’s role would be in regulating the sale and use of cannabis versus local government, to tax policy. Local governments were given the option to opt out and to prohibit dispensaries within their boundaries and nearly half of Colorado cities did so.

Tax policy became a huge challenge. How much could the state charge for this new “sin tax”? Ultimately, the state determined that the taxes on cannabis related products would be significantly higher than alcohol and tobacco. Currently, the state assesses a 15% excise tax on cannabis and products and a 15% sales tax on non-medical marijuana and products (on top of the state’s 2.9% sales tax). Local governments also levy their own sales tax and may assess an excise tax as well. Denver, for example has a 3.62% sales tax and a marijuana tax of 3.5%.

Recently, Denver Mayor Michael Hancock proposed increasing the marijuana tax to 5.5%. The extra 2% would be earmarked for the city’s affordable housing program. Mayor Hancock estimates that the new tax would generate $8,000,000 for affordable housing. His proposal also provides that the city set aside an additional $7,000,000 from its general fund for affordable housing. The $15,000,000 in new dollars into the affordable housing fund would mean 6,400 new affordable housing units over 5 years. Colorado’s marijuana industry strongly supports the mayor’s plan.

6,400 new units can go a long way to helping Denver with its affordable housing crunch. But, it is ironic that taxes on marijuana and related products would be used to fund affordable housing when the federal government still considers marijuana a banned substance. Consequently, if HUD or other federal dollars are used in the construction of these units, or if a tenant receives federal assistance for rental through HUD, FHA or other programs, potential tenants with marijuana related convictions could be denied housing in these new units. Similarly, the use of marijuana is banned in subsidized housing under federal law. If the new Denver units are constructed without federal subsidies, this won’t be a problem. However, a developer could, presumably, receive the Denver marijuana tax money through the Denver Housing Authority and also obtain a low interest HUD loan. In such an event, marijuana use or possession in the units would be prohibited despite being legal in Colorado, subjecting a tenant to arrest or eviction. It is ironic that the marijuana dollars would be good enough to build the building, but use of the product itself, though perfectly legal in the state, would subject a tenant to eviction.

Colorado has used direct marijuana tax revenue for many good projects since making recreational marijuana legal. By law, the 1st $40 million of the excise tax each year goes to schools and school construction. The state marijuana sales tax is used for enforcement, education and awareness programs. Denver’s proposal makes great sense. But, it is time for the federal government to align with the states. Housing programs are administered by the states because the program is too big for HUD to do. And, marijuana is a states’ right issue. If marijuana is legal in a state and state tax dollars can be used to solve a problem, the federal government should bend over backwards to allow it to happen without penalty.

Usually, at the end of every year or at the beginning of the new year, landlords send out their “CAM Notices” or “Rent Notices” in which they inform commercial  tenants of their monthly rent for the upcoming year. Depending upon what type of commercial lease a tenant might have, one or more factors  may cause the rent to increase in the new year. Tenants should spend time examining these notices to ensure that the information contained in them is correct and consistent with the lease they entered into and perhaps modified afterward.

Some leases do not directly pass on any of the operating costs of the property. This type of lease is called a “gross lease”.  Notices received under gross leases may only detail an increase in the rent because of a stated increase or fixed percentage increase in the rent provided for in the lease at the outset when it was signed, or alternatively refer to an index, such as the Consumer Price Index as a basis for any rent adjustments in the coming year.

Under a “modified gross lease”, the landlord passes on some but not all of the operating costs of the property to the tenant, such as real estate taxes and insurance. In addition to containing the information noted above, when there is a modified gross lease, the landlord’s notice will probably state the anticipated cost of the passed through expense for  the coming year, and  the tenant’s monthly (i.e., 1/12th)  share of the these passed through expenses based upon the tenant’s pro-rata percentage occupancy of the building.

When all of the operating expenses for the property are passed on to the tenant by the landlord under a lease, the lease is typically referred to as a “net lease” or “triple net” lease. In this instance the rent increase or CAM notice is more elaborate. As before, a portion of the notice details the basis for any increase in the monthly rent due to a  preset rent increase in the lease or an external  formula  for adjusting the rent,  but now the portion of the notice dealing with the operating expenses of the property passed through to the tenant might expectedly contain more information than if the notice related to a modified gross lease.

No matter what the lease type, the tenant should carefully compare the information contained in the landlord’s notice to the lease (e.g., pro-rata percentage of building, basis for base rent increases in the lease independent of any pass through, specifics of the passed through expense, if any). If the rent increase was based upon a CPI increase, the back up for the CPI based increase should be provided.  In the case of both a modified gross lease and a net lease the tenant may want to ask the landlord for copies of the 2017 real estate tax bill and the 2017 insurance premium bill so that the tenant can compare those actual costs to the projected 2018 cost. If the landlord’s notice pertains to a net lease, the tenant may also want to ask for a copy of the property’s operating expense statement for 2017 to compare it to the projected operating expenses for 2018.

This coming year, tenants should also carefully review the monthly sales tax amount that they are being charged. Beginning on January 1, 2018 the state level sales tax will be reduced from 6% to 5.8 % for rental payments attributable to a tenant’s occupancy of a premises during January, 2018 and after.

Certain counties, such as Miami-Dade County, Florida impose a local option surtax on commercial or short term rents. . The recent change in the state level sales tax has no effect on local surtaxes. Thus, in Miami-Dade County, FL. the sales tax rate on monthly commercial rents will be 6.8% instead of the 7% that was previously charged.

The year is young and there is still time to save money by critically reviewing the landlord’s recent rent or CAM notice

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