BILL NUMBER: AB 2491 CHAPTERED 06/30/04 CHAPTER 82 FILED WITH SECRETARY OF STATE JUNE 30, 2004 APPROVED BY GOVERNOR JUNE 29, 2004 PASSED THE SENATE JUNE 28, 2004 PASSED THE ASSEMBLY JUNE 28, 2004 AMENDED IN SENATE JUNE 24, 2004 AMENDED IN SENATE JUNE 3, 2004 AMENDED IN ASSEMBLY APRIL 14, 2004 INTRODUCED BY Assembly Member Jerome Horton FEBRUARY 19, 2004 An act to amend Sections 22971, 22974.7, 22979, 22979.4, and 22980.2 of, and to add Sections 22972.1, 22978.8, and 22983 to, the Business and Professions Code, and to amend Sections 30211 and 30437 of the Revenue and Taxation Code, relating to tobacco products, and declaring the urgency thereof, to take effect immediately. LEGISLATIVE COUNSEL'S DIGEST AB 2491, Jerome Horton. Cigarettes and tobacco products: Cigarette and Tobacco Products Licensing Act. (1) The Cigarette and Tobacco Products Tax Law requires distributors and wholesalers of cigarette and tobacco products to be licensed by the State Board of Equalization. The California Cigarette and Tobacco Products Licensing Act of 2003 provides for the licensure by the State Board of Equalization of manufacturers, distributors, wholesalers, importers, and retailers of cigarette or tobacco products that are engaged in business in California. The act prohibits retailers, manufacturers, distributors, and wholesalers from distributing or selling cigarette and tobacco products unless they are licensed. Manufacturers and importers of cigarettes are required to comply with specified reporting requirements under that act, including a report of ingredients added to cigarettes. That act also requires the board to suspend or revoke the license of any manufacturer, distributor, wholesaler, importer, or retailer of tobacco products that is in violation of certain provisions. This bill would exclude cigars, weighing 3 pounds or less per 1,000, from the definition of cigarettes subject to the provision of the act that requires the reporting of ingredients added to cigarettes. This bill would authorize the State Board of Equalization to issue a temporary license to a retailer of tobacco products. This bill would require the State Board of Equalization to post on its Web site the name of any wholesaler or distributor whose cigarette and tobacco products license has been suspended or revoked. This bill would specify that a license issued to a manufacturer or importer is not transferable, and would also require any manufacturer or importer that is issued a license that does not commence business in the manner specified or designated in the license, ceases to do business in the manner specified or designated in the license, or is notified that the license is suspended or revoked, to immediately surrender that license to the board. This bill would also make technical, nonsubstantive changes to specified provisions of the California Cigarette and Tobacco Products Licensing Act of 2003. (2) The Cigarette and Tobacco Products Tax Law requires a tax imposed by that law with respect to distributions of cigarettes to be paid by distributors through the use of stamps or meter register settings, and requires that these stamps or meter register settings be affixed to each package of cigarettes sold. The board is authorized to seize, for forfeiture to the state, cigarettes and tobacco products (a) offered for sale that do not have the proper stamps or meter register settings affixed to the package, (b) for which the taxes have not been paid, or (c) offered for sale in violation of specified provisions of law. The board is required to give notice of seizure and forfeiture by registered mail and, except as prescribed, by publication in a newspaper of general circulation. This bill would, instead, require the board to give notice by certified mail and, except as prescribed, by posting the information on the board's Web site. This bill would make a technical, nonsubstantive amendment to the Cigarette and Tobacco Products Tax Law. (3) This bill would declare that it is to take effect as an urgency statute. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 22971 of the Business and Professions Code is amended to read: 22971. For purposes of this division, the following terms shall have the following meanings: (a) "Board" means the State Board of Equalization. (b) "Importer" means an importer as defined in Section 30019 of the Revenue and Taxation Code. (c) "Distributor" means a distributor as defined in Section 30011 of the Revenue and Taxation Code. (d) "Manufacturer" means a manufacturer of cigarettes sold in this state. (e) "Retailer" means a person who engages in this state in the sale of cigarettes or tobacco products directly to the public from a retail location. Retailer includes a person who operates vending machines from which cigarettes or tobacco products are sold in this state. (f) "Retail location" means both of the following: (1) Any building from which cigarettes or tobacco products are sold at retail. (2) A vending machine. (g) "Wholesaler" means a wholesaler as defined in Section 30016 of the Revenue and Taxation Code. (h) "Cigarette" means a cigarette as defined in Section 30003 of the Revenue and Taxation Code. (i) "License" means a license issued by the board pursuant to this division. (j) "Licensee" means any person holding a license issued by the board pursuant to this division. (k) "Sale" or "sold" means a sale as defined in Section 30006 of the Revenue and Taxation Code. (l) "Tobacco products" means tobacco products as defined in subdivision (b) of Section 30121 and subdivision (b) of Section 30131.1 of the Revenue and Taxation Code. (m) "Unstamped package of cigarettes" means a package of cigarettes that does not bear a tax stamp as required under Part 13 (commencing with Section 30001) of Division 2 of the Revenue and Taxation Code, including a package of cigarettes that bears a tax stamp of another state or taxing jurisdiction, a package of cigarettes that bears a counterfeit tax stamp, or a stamped or unstamped package of cigarettes that is marked "Not for sale in the United States." (n) "Person" means a person as defined in Section 30010 of the Revenue and Taxation Code. (o) "Package of cigarettes" means a package as defined in Section 30015 of the Revenue and Taxation Code. (p) (1) "Control" or "controlling" means possession, direct or indirect, of the power: (A) To vote 25 percent or more of any class of the voting securities issued by a person. (B) To direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract (other than a commercial contract for goods or nonmanagement services), or otherwise provided; however, no individual shall be deemed to control a person solely on account of being a director, officer, or employee of such person. (2) For purposes of subparagraph (B) of this subdivision, a person who, directly or indirectly, owns, controls, holds, with the power to vote, or holds proxies representing 10 percent or more of the then outstanding voting securities issued by another person, is presumed to control such other person. (3) For purposes of this division, the board may determine whether a person in fact controls another person. (q) "Law enforcement agency" means a sheriff, a police department, or a city, county, or city and county agency or department designated by the governing body of that agency to enforce this chapter or to enforce local smoking and tobacco ordinances and regulations. (r) "Brand family" has the same meaning as that term is defined in paragraph (2) of subdivision (a) of Section 30165.1 of the Revenue and Taxation Code. SEC. 2. Section 22972.1 is added to the Business and Professions Code, to read: 22972.1. (a) Notwithstanding Section 22972 or Section 22973, the board may issue to a retailer a temporary license with a scheduled expiration date, as determined by the board, that occurs on or before September 30, 2004. (b) A temporary license issued pursuant to this section shall be automatically terminated upon the board's issuance of a license pursuant to Section 22973.1. (c) A temporary license issued pursuant to this section is subject to the same suspension, revocation, and forfeiture provisions that apply to licenses issued by the board pursuant to Section 22973.1. SEC. 3. Section 22974.7 of the Business and Professions Code is amended to read: 22974.7. In addition to any other civil or criminal penalty provided by law, upon a finding that a retailer has violated any provision of this division, the board may take the following actions: (a) In the case of the first offense, the board may revoke or suspend the license or licenses of the retailer pursuant to the procedures applicable to the revocation of a license set forth in Section 30148 of the Revenue and Taxation Code. (b) In the case of a second or any subsequent offense, in addition to the action authorized under subdivision (a), the board may impose a civil penalty in an amount not to exceed the greater of either of the following: (1) Five times the retail value of the seized cigarettes or tobacco products. (2) Five thousand dollars ($5,000). SEC. 4. Section 22978.8 is added to the Business and Professions Code, to read: 22978.8. The board shall include on its Web site the name of any wholesaler or distributor whose license has been suspended or revoked. SEC. 5. Section 22979 of the Business and Professions Code is amended to read: 22979. (a) Commencing on January 1, 2004, every manufacturer and every importer, as defined in subdivision (b) of Section 22971, shall obtain and maintain a license to engage in the sale of cigarettes. In order to be eligible for obtaining and maintaining a license under this division, a manufacturer or importer shall do all of the following in the manner specified by the board: (1) Submit to the board a list of all brand families that they manufacture or import. (2) Update the list of all brand families that they manufacture or import whenever a new or additional brand is manufactured or imported, or a listed brand is no longer manufactured or imported. (3) Consent to jurisdiction of the California courts for the purpose of enforcement of this division and appoint a registered agent for service of process in this state and identify the registered agent to the board. (b) In order to be eligible for obtaining and maintaining a license under this division, a manufacturer or importer that is a "tobacco product manufacturer" in subdivision (i) of Section 104556 of the Health and Safety Code, shall do all of the following in the manner specified by the board: (1) Certify to the board that it is a "participating manufacturer" as defined in subsection II(jj) of the "Master Settlement Agreement" (MSA), or is in full compliance with paragraph (2) of subdivision (a) of Section 104557 of the Health and Safety Code. Any person who makes a certification pursuant to this subdivision that asserts the truth of any material matter that he or she knows to be false is guilty of a misdemeanor punishable by imprisonment of up to one year in the county jail, or a fine of not more than one thousand dollars ($1,000), or both the imprisonment and the fine. (2) Submit to the board a list of all brand families that fit under the category applicable to the manufacturer or importer, in accordance with the following: (A) Brand families that are to be counted, in the unit volume and market shares determined pursuant to subsections II(z) and II(mm) of the MSA and Exhibit E thereto, in calculating the manufacturer's annual payments under the MSA. (B) Brand families that are to be counted in calculating the manufacturer's escrow deposits under paragraph (2) of subdivision (a) of Section 104557 of the Health and Safety Code. (C) The manufacturer or importer shall update the list whenever a new or additional brand is manufactured or imported or a listed brand is no longer manufactured or imported. (c) The board may not grant or permit the maintenance of a license to any manufacturer or an importer of cigarettes that does not affirmatively certify, both at the time the license is granted and annually thereafter, that all packages of cigarettes manufactured or imported by that person and distributed in this state fully comply with subdivision (b) of Section 30163 of the Revenue and Taxation Code, and that the cigarettes contained in those packages are the subject of filed reports that fully comply with all requirements of the federal Cigarette Labeling and Advertising Act (15 U.S.C. Sec. 1331 et seq.) for the reporting of ingredients added to cigarettes. For purposes of the federal Cigarette Labeling and Advertising Act requirement, cigars weighing three pounds or less per 1,000 are excluded from the definition of cigarette. (d) A license issued to a manufacturer or an importer under this division is only valid with respect to the manufacturer or importer designated on the license and may not be transferred or assigned to another manufacturer or importer. (e) Any manufacturer or importer that is issued a license under this division that does not commence business in the manner specified or designated in the license, ceases to do business in the manner specified or designated in the license, or is notified that the license is suspended or revoked, shall immediately surrender that license to the board. (f) (1) Any manufacturer or any importer who is denied a license may petition for a redetermination of the board's denial of the license within 30 days after service upon that manufacturer or that importer of the notice of the denial of the license. If a petition for redetermination is not filed within the 30-day period, the determination of denial becomes final at the expiration of the 30-day period. (2) Every petition for redetermination shall be in writing and shall state the specific grounds upon which the petition is founded. The petition may be amended to state additional grounds at anytime prior to the date on which the board issues its order or decision upon the petition for redetermination. (3) If the petition for redetermination is filed within the 30-day period, the board shall reconsider the determination of the denial and, if the manufacturer or the importer has so requested in the petition, shall grant an oral hearing and shall give the manufacturer or the importer at least 10 days' notice of the time and place of the hearing. The board may continue the hearing from time to time as may be necessary. (4) The order or decision of the board upon a petition for redetermination becomes final 30 days after mailing of notice thereof. (5) Any notice required by this subdivision shall be served personally or by mail. If by mail, the notice shall be placed in a sealed envelope, with postage paid, addressed to the manufacturer or the importer at the address as it appears in the records of the board. The giving of notice shall be deemed complete at the time of deposit of the notice in the United States Post Office, or a mailbox, subpost office, substation or mail chute or other facility regularly maintained or provided by the United States Postal Service, without extension of time for any reason. In lieu of mailing, a notice may be served personally by delivering to the person to be served and service shall be deemed complete at the time of the delivery. Personal service to a corporation may be made by delivery of a notice to any person designated in the Code of Civil Procedure to be served for the corporation with summons and complaint in a civil action. SEC. 6. Section 22979.4 of the Business and Professions Code is amended to read: 22979.4. All importers shall retain purchase records that meet the requirements set forth in Section 22979.5 for all cigarettes or tobacco products purchased and other records required by the board. The records shall be maintained for a period of one year from the date of purchase on the importer's premises identified in the license, and thereafter, the records shall be made available for inspection by the board or a law enforcement agency for a period of four years. Any importer found in violation of these requirements, or any person who fails, refuses, or neglects to retain or make available invoices for inspection and copying in accordance with this section shall be subject to penalties pursuant to Section 22981. SEC. 7. Section 22980.2 of the Business and Professions Code is amended to read: 22980.2. (a) A person or entity that engages in the business of selling cigarettes or tobacco products in this state without a license or after a license has been suspended or revoked, and each officer of any corporation that so engages in business, is guilty of a misdemeanor punishable as provided in Section 22981. (b) Each day after notification by the board or by a law enforcement agency that a manufacturer, wholesaler, distributor, importer, retailer, or any other person required to be licensed under this act offers cigarette and tobacco products for sale or exchange without a valid license for the location from which they are offered for sale shall constitute a separate violation. (c) Continued sales after a notification of suspension or revocation shall constitute a violation of Section 22981, and shall result in the seizure of all cigarettes and tobacco products in the possession of the person by the board or a law enforcement agency. Any cigarettes and tobacco products seized by the board or by a law enforcement agency shall be deemed forfeited. SEC. 8. Section 22983 is added to the Business and Professions Code, to read: 22983. The provisions of Chapter 4 (commencing with Section 55121) of Part 30 of Division 2 of the Revenue and Taxation Code apply with respect to the collection of the fees, civil fines, and penalties imposed pursuant to this division. SEC. 9. Section 30211 of the Revenue and Taxation Code is amended to read: 30211. The board shall forthwith ascertain as best it may the amount of the cigarettes or tobacco products distributed and shall determine immediately the tax on that amount, adding to the tax a penalty of 25 percent of the amount of tax or five hundred dollars ($500), whichever is greater, and shall give the unlicensed person notice of that determination per Section 30244 of the Cigarette and Tobacco Products Tax Law. However, where the board determines that the failure to secure a license was due to reasonable cause, the penalty may be waived. Sections 30242 and 30243 shall be applicable with respect to the finality of the determination and the right of the unlicensed person to petition for a redetermination. Any person seeking to be relieved of the penalty shall file with the board a signed statement setting forth the facts upon which he or she bases the claim for relief. Any person who signs a statement pursuant to this section that asserts the truth of any material matter that he or she knows to be false is guilty of a misdemeanor punishable by imprisonment of up to one year in the county jail, or a fine of not more than one thousand dollars ($1,000), or both the imprisonment and the fine. SEC. 10. Section 30437 of the Revenue and Taxation Code is amended to read: 30437. Notice of the seizure and forfeiture of the property described in Section 30436 shall be given by the board as follows: (a) Notice shall be given by personal service or by certified mail to all persons known by the board to have any right, title or interest in the property. (b) (1) Except as provided in paragraph (2), the board shall include a notice of seizure and forfeiture on its Web site for a period of six months from the notice of seizure. (2) Web site notification is not required when the amount of cigarettes seized is less than 61 cartons of 200 cigarettes each or an equivalent amount of tobacco products. (c) Notice shall include a description of the property, the reason for the seizure, and the time and place of the seizure. SEC. 11. This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution and shall go into immediate effect. The facts constituting the necessity are: In order to protect commerce and to continue the collection of fees imposed on distributors, wholesalers, and retailers of tobacco products, it is necessary that this act take effect immediately.