BILL ANALYSIS
AB 2496
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Date of Hearing: April 12, 2010
ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION
Joe Coto, Chair
AB 2496 (Nava) - As Introduced: February 19, 2010
SUBJECT : Cigarette and tobacco products
SUMMARY : Amends the California Cigarette and Tobacco Products
Licensing Act of 2003 (Act) in governing the financial and other
obligations of non-participating tobacco manufacturers (NPMs) as
part of its diligence obligation. Specifically, this bill :
1)Requires a manufacturer or importer to additionally consent to
jurisdiction of the California courts for the purpose of
enforcement of the Master Settlement Agreement (MSA) and a
specified provision of the Cigarette and Tobacco Products Tax
Law (Tax Law).
a) Requires the manufacturer or importer to additionally
identify the registered agent to the Attorney General.
b) Authorizes a peace officer or board employee granted
limited peace officer status to inspect any site with
respect to violations of a specified provision of the Law.
c) Prohibits those persons from acquiring a package of
cigarettes unless the brand family or product manufacturer
of the cigarettes is included on a directory posted by the
Attorney General, as specified.
2)Authorizes a tobacco product manufacturer that elects to place
funds into a qualified escrow fund to make an irrevocable
assignment of its interest in the funds to the benefit of the
State of California.
a) Requires any funds assigned to the state that are
withdrawn to be deposited into the General Fund as a credit
against any judgment or settlement which may be obtained
against the tobacco product manufacturer who has assigned
the funds.
3)Requires a stamp or meter impression to be made on rolls of
tobacco, as specified, and makes conforming changes to related
provisions.
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a) Requires certification of additional information, as
specified.
b) Establishes circumstances under which a manufacturer and
brand families are to be excluded from the directory of
tobacco product manufacturers that are participating
manufacturers and brand families under the MSA, and would
require those distributors, after receiving notice from the
Attorney General, to provide notice to its customers of any
manufacturer or brand family removed or excluded from the
Attorney General's directory of tobacco product
manufacturers that are participating manufacturers (PMs)
under the MSA.
c) Requires a newly qualified NPM or a NPM who poses an
elevated risk of noncompliance with the Tax Law or the MSA,
to post a surety bond, as specified before inclusion onto
the Attorney General's directory of tobacco product
manufacturers that are PMs under the MSA.
d) Specifies that a person is prohibited from shipping or
distributing into or within this state for personal
consumption in California cigarettes of a tobacco
manufacturer or brand family not included in the directory,
and would provide that this specification is declaratory of
existing law.
e) Requires any NPM not located in the United States, as an
additional condition precedent to having its brand families
listed or retained in the directory, to cause its importers
to appoint an agent, as specified, and would impose
additional specified responsibilities upon such
manufacturer.
f) Gives the Attorney General additional specified
authority regarding the administration of that law.
g) Requires, as a condition of selling cigarettes in
California, a tobacco product manufacturer, as specified,
to submit, or authorize to disclose, a copy of its
applicable return.
i) Provides that a failure to comply with that
provision would subject the manufacturer and its brand
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companies to removal from the directory.
ii) Imposes a civil penalty on any manufacturer that
intentionally provides an applicable return with
materially false information.
4)Adds to the forfeiture list cigarette and tobacco products of
a tobacco product manufacturer or its brand families that do
not appear on the directory maintained by the Attorney
General, as required under the Tax Law.
5)Amends the definition of "bidis" or "beedies," as defined, to
include any product that is marked as sold as "bidis" or
"beedies", and clarifies that persons who violate the
prohibition prescribed under existing law are subject to both
criminal and civil liability.
6)Provides that the provisions of this bill are severable.
EXISTING LAW :
1)Prohibits the sale, offer for sale, distribution, or import of
"bidis" or "beedies," defined as a product containing tobacco
that is wrapped in temburni leaf or tendu leaf, unless it is
sold or intended for sale in business establishments that
exclude minors .
2)Requires, under federal law, states' attorneys general and
various tobacco product manufacturers to enter into a Master
Settlement Agreement (MSA) as a settlement of various
lawsuits, that provides for the allocation of money to the
states and certain territories.
a) Enters this state into a memorandum of understanding
(MOU) providing for the allocation of the state's share of
funds to be received under the MSA between the state and
counties and certain cities within the state.
b) Requires any tobacco product manufacturer selling
cigarettes to consumers in this state to place specified
amounts into a qualified escrow fund by April 15 of each
year.
3)Requires, under the Cigarette and Tobacco Products Tax Law, a
tax with respect to distributions of cigarettes paid by
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distributors through the use of stamps or meter impressions.
a) Requires that these stamps or impressions be affixed to
each package of cigarettes sold.
b) Requires certification of additional information, as
specified.
c) Requires the Attorney General to post on the Attorney
General's Internet Web site a directory of tobacco product
manufacturers that are participating manufacturers that are
participating manufacturers under the MSA, and that have
made the required escrow payments and provided
certification of related information to the Attorney
General.
i) Requires the Attorney General's Internet Web site to
include specified brand families, as defined, that have
been identified by the by the tobacco product
manufacturers.
ii) Requires that a manufacturer and brand families be
excluded from the directory, under certain circumstances.
iii) Requires certain cigarette and tobacco products be
forfeited to the state, under certain circumstances, upon
seizure by the State Board of Equalization.
4)Enacts the Cigarette and Tobacco Products Licensing Act, which
imposes licensing requirements on tobacco manufacturers,
wholesalers, retailers and importers; requires manufacturers
to pay a one-time fee; and, imposes additional civil and
criminal penalties on individuals and businesses that violate
tobacco-related, anti-contraband laws and laws prohibiting
tobacco-related sales to minors.
5)Establishes the Stop Tobacco Access to Kids Enforcement Act
(STAKE Act) to reduce or eliminate the illegal purchase and
consumption of tobacco products by minors.
a) Requires retailers from selling cigarettes and tobacco
products to minors under the age of 18 and requires that
retailers check identification of individuals trying to buy
cigarettes and tobacco products who appear under the age of
18.
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b) Increases civil penalties and expands the number of
agencies that are permitted to carry out investigations of
illegal tobacco sales to minors from the State Department
of Public Health (DPH) to include the Attorney General and
other state and local agencies.
FISCAL EFFECT : Unknown
COMMENTS : This bill amends the Act with regard to governing
the financial and other MSA-related obligations of NPMs as part
of its diligence obligation. Author states, "This bill would
bring California law into conformity with Virginia's law and
those of the other states to prevent Participating Manufacturers
from arguing in future litigation that California has failed to
"diligently enforce" against NPMs." This bill modeled on NPM
escrow statute enhancements made in the following states:
Virginia, Kentucky, Kansas, and Idaho.
Background . In 1998, Attorneys General in 46 states (including
California), the District of Columbia, Puerto Rico, and four
U.S. Territories agreed to settle more than 40 pending lawsuits
with the nation's four major tobacco companies. The lawsuits
were brought to recover the public costs of treating
smoking-related illnesses. Under the MSA, California is
projected to receive more than $25 billion through the year
2025, where the funds being shared evenly by the state and local
government entities.
All 52 jurisdictions that signed the MSA did enact the NPM
Escrow Statute (which was exhibit T to the MSA) and
subsequently, the Tobacco Directory Law which complements the
NPM Escrow Statute. The California NPM Escrow Statute is Health
& Safety Code sections 104555-104557. The California Tobacco
Directory Law is Rev. & Tax Code section 30165.1.
Through the end of 2009, the tobacco companies connected to the
MSA have paid more than $66 billion to California and the other
51 jurisdictions. California shares its $8.5 billion from the
MSA with all 58 of its counties and its four largest cities. As
a condition of the MSA, tobacco companies are restricted from
advertising and product placement and sponsorship.
The tobacco company signatories to the MSA are known as
"Participating Manufacturers" or "PMs." The other tobacco
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companies who have not settled lawsuit claims with the state nor
have they agreed to the terms of the MSA are known as
"Non-Participating Manufacturers" or "NPMs." The NPMs are not
bound by the MSA to pay the state to offset the costs of future
illnesses caused by their products.
Non-Participating Manufacturers and their relationship to the
Master Settlement Agreement . NPMs have neither settled claims
with California, nor have they agreed to the terms established
in the MSA. NPMs are not bound by the MSA to pay the state to
offset the costs of future illnesses caused by their products.
To ensure that the NPMs would not be given a competitive
advantage, the MSA included a "Model Reserve Fund Statute" that
would require NPMs to make annual payments based upon the number
of cigarettes sold in the state, in amounts similar to the MSA
payments, but to an escrow account.
The escrow accounts serve as a reserve fund, a source of
recovery for the state, because the state bears the financial
burden for the smoking-related illnesses that indigent
California consumers will inevitably suffer from smoking.
According to the author maintains that the Legislature intended
to prevent the unfair competition that would occur if some
tobacco product manufacturers were able to avoid the costs of
making settlement payments under the MSA to the disadvantage of
tobacco product manufacturers that signed the MSA.
All 50 states have enacted an NPM escrow statute, and by doing
so have ensured there would be a fund against which to recover
future claims for medical care.
The MSA also provides if a state fails to "diligently enforce"
against NPMs, its MSA payments may be severely reduced.
California's NPM escrow law was previously amended in 2003.
Under AB 71 (J. Horton, Chapter 890, Statutes of 2003)
California amended its tobacco laws to address known schemes for
avoiding escrow deposits and MSA payments.
Policy consideration . If NPMs are not bound by the MSA to pay
California and other MSA states and U.S. territories, the
Committee may wish to consider whether the Attorneys General
have the authority to require NPMs to contribute funds into the
escrow account. Also, the Committee may wish to consider
looking at the amount of contributions from the PMs and NPMs and
ask if the dynamics surrounding this bill, the escrow account,
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and the MSA could have an effect on the Board of Equalization's
ability to collect taxes.
Related legislation . AB 2733 (Ruskin, 2010 Legislative Session)
prohibits the transfer of title or possession of cigarettes or
tobacco products without consideration, exchange, or barter if
the cigarettes or tobacco products had been purchased for resale
under a license issued pursuant to the California Cigarette and
Tobacco Products Licensing Act (Act) and the transfer occurs
without a license or after receipt of a notice of suspension or
revocation of the license. In the Assembly Governmental
Organization Committee and is scheduled to be heard on April 12,
2010.
Prior legislation . SB 1927 (Hayden, Chapter 1009, Statutes of
1994) enacts the Stop Tobacco Access to Kids Enforcement (STAKE)
Act to address the increase in tobacco sales to minors in
California and fulfill the federal mandate that prohibited the
sale of cigarettes and tobacco products to minors.
AB 71 (Jerome Horton, Chapter 890, Statutes of 2003) enacts the
Cigarette and Tobacco Products Licensing Act of 2003 and imposes
licensing requirements on tobacco manufacturers, wholesalers,
retailers, and importers. Requires manufacturers to pay a
one-time fee. Imposes civil and criminal penalties on
individuals and businesses that violate tobacco-related,
anti-contraband laws, and laws prohibiting tobacco-related sales
to minors.
AB 2344 (Beall, 2008 Legislative Session) would have required
tobacco retailers to pay an annual licensing fee of $185 to
offset the State Board of Equalization's funding shortfall for
the administration and enforcement of the California Cigarette
and Tobacco Products Act. Vetoed by the Governor.
SB 400 (Kuehl, 2005 Legislative Session) would seek to make
changes to the penalties imposed on a retailer convicted of
furnishing cigarettes or tobacco products to a minor under 18
years of age. Held on the Senate Appropriations Committee
Suspense File.
SB 433 (Ortiz, 2004 Legislative Session) would change the
conditions under which the State Board of Equalization levies
penalties against tobacco retailers for sales to minors and
requires local agencies to report convictions for illegal sales
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to the State Board of Equalization. Held on the Senate
Appropriations Committee Suspense File.
SB 1843 (Budget and Fiscal Review Committee, 2002 Legislative
Session) would have enacted the Cigarette and Tobacco Products
Licensing Act of 2002. Also, would have established licensing
requirements for cigarettes and tobacco products retailers,
wholesalers and importers, creates an enhanced cigarette tax
compliance and enforcement program; revises the cigarette
"distributor discount" for applying tax stamps; appropriates
funds to implement the program in 2002-2003; establishes a
long-term funding mechanism for the program. Held in the
Assembly.
AB 2205 (Koretz, Chapter 687, Statutes of 2002) creates an
additional $100 penalty on each knowingly possessed carton of
untaxed cigarettes where the proceeds would be used to fund a
local competitive grant program to reduce availability of
tobacco products on the black market. The program had a sunset
clause that took place on January 1, 2006.
SB 1766 (Ortiz, Chapter 686, Statutes of 2002) requires that all
sales of cigarettes in the State be vendor-assisted,
face-to-face sales unless the seller receives valid
identification, that the purchaser is over 18, the product is
shipped to the address provided on the identification, the sales
is at least for two cartons, and the seller either provides the
State Board of Equalization with all taxes due on the sale or
includes with the shipment a notice that the purchaser is
responsible for state taxes.
AB 1830 (Frommer, Chapter 685, Statutes of 2002) prohibits the
sales of tobacco products to minors through the United States
Postal Service or through any other public or private postal or
package delivery service, and imposes specified age-verification
requirements on tobacco product sellers or distributors.
Double-referral . This bill is double-referred to the Assembly
Judiciary Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
Breathe California
AB 2496
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Opposition
None on file
Analysis Prepared by : Rod Brewer / G. O. / (916) 319-2531