BILL ANALYSIS
AB 1617
Page 1
GOVERNOR'S VETO
AB 1617 (DeSaulnier)
As Amended September 5, 2007
2/3 vote
-----------------------------------------------------------------
|ASSEMBLY: |47-31|(May 29, 2007) |SENATE: |22-14|(September 10, |
| | | | | |2007) |
-----------------------------------------------------------------
ASSEMBLY: 48-29 (September 12, 2007)
Original Committee Reference: G.O.
SUMMARY : Prohibits transportation of cigarettes to persons in
California except when such shipments are made either to an entity
that is licensed by the Board of Equalization (BOE) for tobacco
transactions or to certain other specified entities, and broadens
the definition of bidis, a prohibited tobacco product.
The Senate amendments :
1)Delete the requirement that a violation, as defined, is a
misdemeanor and shall be subject to penalties, as specified.
1)Provide that a district attorney, city attorney, or the Attorney
General (AG) may bring a civil action to assess civil penalties
against any person, firm, corporation, or other entity that
violates this section and may also recover the costs of
investigating and prosecuting the action, including expert fees,
reasonable attorney's fees, and court costs. The civil penalties
shall be assessed according to the following schedule:
a) Not more than $1,000 upon the first violation;
b) Not more than $5,000, upon the second violation; and,
c) Not more than $25,000, upon the third violation, or
subsequent violations.
2)Delete provision that allows the AG, district attorney or city
AB 1617
Page 2
attorney to bring a civil action against violators who will be
subject to a maximum $5,000 per violation, as specified.
3)Provide the civil penalties assessed, as specified, shall be in
addition to any other penalties that may be applicable,
including, but not limited to, civil penalties, as defined.
4)Provide that if this bill and AB 1585 are both enacted and become
effective on or before January 1, 2008, and this bill repeals and
adds Section 22963 of the Business and Professions Code and AB
1585 amends that section, then the provisions of this bill
repealing and adding that section shall become operative and the
provisions of AB 1585 amending that section shall not become
operative, regardless of the order of enactment.
EXISTING LAW :
1)Imposes an excise tax of $0.87 per pack (20) of cigarettes.
2)Imposes a surcharge on tobacco products at a rate to be annually
determined by BOE. The tobacco products tax rate is equivalent
to the combined rate of tax on cigarettes. The surcharge rate
for fiscal year (FY) 2005-06 is 46.76%.
3)Provides, in part, that no person may engage in a retail sale of
cigarettes in California unless the sale is a vendor-assisted,
face-to-face sale.
4)Defines a "face-to-face sale" to mean a sale in which the
purchaser is in the physical presence of the seller or the
seller's employee or agent at the time of the sale. A
face-to-face sale does not include any transaction conducted by
mail order, the Internet, telephone, or any other anonymous
transaction method in which the buyer is not in the seller's
physical presence. This does not prohibit any lawful sale of a
tobacco product that occurs by means of a vending machine.
5)Specifies that persons may engage in a non-face-to-face sale of
cigarettes to a person in California provided that the seller
complies with both of the following conditions:
a) The seller has fully complied with all of the requirements
of Chapter 10A of Title 15 of the United States (U.S.) Code,
AB 1617
Page 3
otherwise known as the Jenkins Act;
b) The seller has fully complied with either of the following
requirements:
i) All applicable California taxes on the cigarettes have
been paid; or,
ii) The seller includes on the outside of the
shipping container for any cigarettes shipped to a resident
in California from any source in the U.S. an externally
visible and easily legible notice located on the same side
of the shipping container as the address to which the
package is delivered stating the following:
IF THESE CIGARETTES HAVE BEEN SHIPPED TO YOU FROM A SELLER
LOCATED OUTSIDE OF THE STATE IN WHICH YOU RESIDE, THE SELLER
HAS REPORTED PURSUANT TO FEDERAL LAW THE SALE OF THESE
CIGARETTES TO YOUR STATE TAX COLLECTION AGENCY, INCLUDING
YOUR NAME AND ADDRESS. YOU ARE LEGALLY RESPONSIBLE FOR ALL
APPLICABLE UNPAID STATE TAXES ON THESE CIGARETTES.
6)Requires BOE to provide information relative to a seller's
failure or attempt to comply with the Jenkins Act to the AG. The
AG is required to provide an annual report to the Legislature
regarding all actions taken to comply with, and enforce, the
Jenkins Act.
7)Allows the AG or a city attorney, county counsel, or district
attorney to bring a civil action to enforce the provisions of
Revenue and Taxation Code Section 30101.7 against any person that
violates that section. In addition to any other remedies
provided by law, the court is required to assess a civil penalty
in accordance with the following schedule:
a) A civil penalty of not less than $1,000 and not more than
$2,000 for the first violation;
b) A civil penalty of not less than $2,500 and not more than
$3,500 for the second violation within a five-year period;
c) A civil penalty of not less than $4,000 and not more than
$5,000 for the third violation within a five-year period;
AB 1617
Page 4
d) A civil penalty of not less than $5,500 and not more than
$6,500 for a fourth violation within a five-year period; and,
e) A civil penalty of $10,000 for a fifth or subsequent
violation within a five-year period.
8)Imposes a sales or use tax on the sale or purchase of tangible
personal property in California. If an out-of-state seller has
nexus within California, the seller is required to collect the
use tax from the purchaser at the time of sale. If the seller
does not have nexus, or does not collect the use tax, the
purchaser is required to pay the use tax directly to BOE.
9)Prohibits the distribution or sale of tobacco products directly
or indirectly to any person under age 18 through the U.S. Postal
Service (USPS) or through any other public or private postal or
package delivery service.
AS PASSED BY THE ASSEMBLY , this bill prohibited transportation of
cigarettes to persons in California except when such
shipments are made either to an entity that is licensed by the BOE
for tobacco transactions or to certain other specified entities,
and broadened the definition of bidis, a prohibited tobacco
product.
FISCAL EFFECT : Unknown
COMMENTS : Purpose of this bill: According to the author, this
bill "is intended to facilitate the collection of taxes on
cigarettes and tobacco products sold to residents of California
over the Internet or by mail order. It is also intended to protect
public health of California residents and to prevent sales of
cigarettes and tobacco products to minors." This bill will benefit
the state, and specifically public health, in three ways. First,
it will help curb the use of tobacco by minors by helping to reduce
the purchase of tobacco over the internet by minors. Currently
there is no reliable way to verify the age of a purchaser who buys
tobacco over the internet. California has an obligation to
eliminate minor's access to tobacco products to guard against
addiction and a lifetime of poor health. Second, this bill will
improve public health by recouping tobacco taxes that are currently
evaded through Internet tobacco purchasers. Current law is hard to
AB 1617
Page 5
enforce on tobacco retailers who fail to pay their share of taxes.
Third, this bill will close the loopholes on the definition of
"bidis" whose sale is banned in California. Bidis are hand-rolled,
unfiltered cigarettes with a higher tar and nicotine content than
regular cigarettes. They are often flavored and marketed to
minors. By closing the loopholes, this bill will keep these
dangerous products away from minors.
Background: This bill is patterned after a New York statute
(Public Health Law Section 1399-ll), which prohibits direct
shipment and transportation of cigarettes to consumers. New York
banned Internet cigarette sales in 2000, saying that such
transactions posed a serious threat to public health and the
economy. According to legislative analyses, the law was intended
to make it more difficult for children to get cigarettes and to
allow fewer smokers to avoid a state excise tax on cigarettes.
The law was challenged by Brown & Williamson Tobacco, a unit of
British American Tobacco PLC, and Santa Fe Natural Tobacco Co., now
a unit of R.J. Reynolds Tobacco Holdings. In February 2003, the
2nd U.S. Circuit Court of Appeals reversed a federal court ruling
that had thrown out the state law. The lower court based its
decision on a finding that the statute favored local tobacco
retailers over out-of-state competitors.
New York State AG Eliot Spitzer was quoted as saying that although
state laws ensure that the sale of cigarettes to individuals
remains legal, the ruling "reaffirms the power of the state to
prevent the circumvention of those laws by Internet, mail order and
telephone sellers."
In April 2003, California AG Bill Lockyer filed six lawsuits
against Internet tobacco retailers, alleging violations of the
Jenkins Act, RTC Section 30101.7, and other unlawful and unfair
business practices. The AG cannot directly enforce the Jenkins
Act, but the unfair business practices claim included the
defendants' failure to comply with the Jenkins Act as the unlawful
activity.
Five of these Internet tobacco retailers stipulated to entry of
judgment against them. Each retailer and its principals agreed not
to do business in California and to pay penalties, costs and
attorneys' fees totaling more than $1 million. A default judgment
AB 1617
Page 6
was entered against another retailer for $4.3 million.
Additionally, the two biggest of these retailers agreed to file
Jenkins Act reports with BOE dating back to January 1, 2000. The
two companies reported about 400,000 shipments to California
residents. BOE is attempting to collect use and excise taxes from
the California purchasers.
Last year, a number of credit card companies announced that they
will refuse to handle payments to online tobacconists. The
companies made this announcement after being shown evidence that
many Internet retailers were not complying with applicable laws,
including the Jenkins Act.
GOVERNOR'S VETO MESSAGE :
This bill would prohibit cigarette sales via the Internet
to individual California consumers and only permit
shipping of cigarettes via the Internet to certain
licensed businesses.
This bill is intended to help curb smoking by minors and
also help the state collect all applicable taxes on
tobacco. In vetoing nearly identical legislation last
year, I noted that the federal Jenkins
Act, which requires the sale of tobacco across state
lines to be reported to [BOE], is already in place to
help identify taxable sales of tobacco. Further,
existing law reduces youth access to cigarettes over the
Internet by requiring Internet sellers and shippers to
verify the age of the purchaser. Proponents should
address any perceived deficiencies in these laws rather
than seeking an outright prohibition that will be
difficult to enforce.
Analysis Prepared by: Eric Johnson / G. O. / (916) 319-2531
FN: 0003713