BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 601 - Padilla
Amended: April 15, 2009
Hearing: April 22, 2009 Fiscal: Yes
SUMMARY: Prohibits the issuance of new tobacco licenses
within 1,000 feet of a school and prohibits the
issuance of licenses to "non-traditional"
retailers, as defined.
EXISTING LAW
Federal Law
Existing federal law provides that the federal government
may reduce each state's alcohol and substance abuse block
grant funding unless the youth purchase survey conducted by
each state, using underage decoys to purchase cigarettes,
is below 20 percent.
State Law
Existing state law requires the Board of Equalization (BOE)
to administer the Cigarette and Tobacco Products Licensing
Act of 2003, a statewide cigarette and tobacco products
license program for the sale of cigarettes and tobacco
products. Existing law requires BOE to license
manufacturers, distributors, wholesalers, importers and
retailers of cigarette or tobacco products who are engaged
in business in California. Existing law also requires a
retailer to have and maintain a license to sell cigarettes
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or tobacco products.
A retailer that owns or controls more than one retail
location where cigarette and tobacco products are sold is
required to obtain a separate license for each retail
location. Each retailer is required to submit a one-time
license fee of one hundred dollars ($100) with each
application and may submit a single application for those
licenses with a license fee of one hundred dollars ($100)
per location. A "retail location" is defined to mean any
building from which cigarettes or tobacco products are sold
at retail or a vending machine.
Existing law requires that all persons engaging in the
retail sale of cigarettes and tobacco products shall check
the identification of tobacco purchasers, to establish the
age of the purchaser if the purchaser reasonably appears to
be under 18 years of age. Existing law also prohibits any
person, firm or corporation from selling, giving, or in any
way furnishing cigarettes or tobacco products to any person
who is under the age of 18 years. Existing law requires DPH
to take primary responsibility for enforcement of the Stop
Tobacco Access to Kids Enforcement Act (STAKE Act).
Existing law also requires DPH to enlist the assistance of
persons who are 15 or 16 years of age as decoys for the
purpose of attempting to purchase cigarettes. Existing
law, Penal Code Section 308, makes it a violation to sell
or furnish cigarettes or tobacco products to minors.
Existing law provides BOE the authority to take enforcement
action if a retailer is convicted of either a Penal Code
violation of selling cigarettes or tobacco products to any
person who is under the age of 18 years or if a retailer is
convicted of violating the provisions of the STAKE Act.
Existing law limits this authority of BOE to take
enforcement action during periods when the statewide
underage sales rate in California, as measured in an annual
survey conducted by the Department of Public Health (DPH),
is 13 percent or more.
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Existing law provides for a range of penalties, from
issuing a warning letter on the first violation to revoking
the license on the eighth violation within a 24-month
period, that can be levied against a licensee during the
period when BOE has the authority to act on licenses for
violations of underage sales laws. Specifically, the
existing penalty structure is as follows:
Upon the first conviction of a violation, the
retailer receives a warning letter from BOE that
delineates the circumstances under which a retailer's
license may by suspended or revoked and the amount of
time the license may be suspended or revoked. The
retailer and its employees are required to receive
training on tobacco control laws from the Department
of Health Services upon a first conviction.
Upon the second conviction of a violation within 12
months the retailer is subject to a fine of five
hundred dollars ($500).
Upon the third conviction of a violation within 12
months the retailer is subject to a fine of one
thousand dollars ($1,000).
Upon the fourth to the seventh conviction of a
violation within 12 months BOE is required to suspend
the retailer's license to sell cigarette and tobacco
products for 90 days.
Upon the eighth conviction of a violation within 24
months BOE is required to revoke the retailer's
license to sell cigarette and tobacco products.
Existing Local Law:
Existing local ordinances in some jurisdictions require
tobacco retailers to obtain a license for the retail sales
of cigarettes and tobacco products in those jurisdictions.
Existing local ordinances in some jurisdictions require
cigarette and tobacco product retailers to comply with
specific provisions of the jurisdiction's land use and
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zoning ordinances, including provisions that regulate the
location of these retailers.
THIS BILL
Prohibits the BOE from issuing a new cigarette and tobacco
products retail license (retail license) for a location
within 1,000 feet of a school and restricts the issuance of
a retail license to "traditional retail locations" defined
as a grocery store, convenience store, pharmacy, liquor
store, or a tobacco or cigar store.
The bill allows a retailer to locate within 1,000 feet of a
school in cases where the local government determines that
a public convenience or necessity would be met within
90-days of the application. If the local government does
not make the determination the applicant may prove the
necessity to the BOE.
FISCAL EFFECT:
According to the BOE's Excise Taxes Division, there are
approximately 38,200 licensed retail locations selling
cigarettes or tobacco products in California. This figure
has been fairly stable since the inception of the Licensing
Act. On average, there are about 6,000 new licenses issued
annually, with a corresponding amount of licenses
surrendered.
Neither the BOE staff nor committee staff are able to
quantify the revenue impact for this bill; we believe it
would result in a net loss of excise tax and licensing fees
due to less convenience for consumers seeking to purchase
cigarettes in some areas . As this bill progresses and
more details are provided, BOE can develop a revenue
estimate.
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Administrative costs for this program already exceed the
amount collected in fees; costs to administer this bill
would be significant.
COMMENTS:
A. Purpose of the Bill
According to the Author:
Tobacco use is one of the leading causes of preventable
deaths. According to the Centers for Disease Control and
Prevention (CDC), on an annual basis, an estimated 438,000
premature deaths in the U.S., or approximately 1 out of
every 5 deaths, are caused by smoking. Nearly 40,000
Californians die each year from smoking-related diseases.
Men are 23 times more likely to develop lung cancer while
women increase their risk 13 times as compared to
nonsmokers. In addition, despite existing laws that
prohibit the sale of tobacco products to minors and media
efforts aimed at deglamorizing tobacco use, children are
still sold tobacco products by a variety of retailers.
While surveys indicate a decline in youth smoking since the
early 1990's, recent studies still show a significant
prevalence in use. According to CDC studies, in 2007 21% of
high school students were tobacco users, while in 2006 6%
of middle school students used tobacco. In California,
youth smoking rates among 9-12 graders is 14.6%. Not only
does early tobacco use pose significant health problems for
young people, it threatens to establish a lifelong
addiction, with statistics indicating that 3 out of 4 heavy
adult smokers started tobacco use as an adolescent.
The CDC reports that roughly 1,300 additional young people
under the age of 18 become regular smokers each day.
California must take action to make sure that the factors
contributing to the persistent use of tobacco among youth
are addressed. The Centers for Disease Control and
Prevention attributes the alarming trend of tobacco use
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among youth, in part, to access and availability. Despite
the current efforts to curb this trend it is clear that
strengthening these laws aimed at reducing access and
availability is necessary. In California, eligibility for
retail tobacco licenses is open to any retailer interested
in the business of selling tobacco. Nontraditional
retailers may include beauty salons, video stores, donut
shops, and other settings where children are commonly
present with or without adult supervision. According to the
CDC, not only are youth 30% more likely to succeed in
illegally purchasing tobacco at these types of locations,
these nontraditional outlets may also get overlooked in
compliance checks conducted by local enforcement and/or the
Department of Public Health (DPH). According to the Los
Angeles City Attorney's Office, surveys conducted prove
that schools in close proximity to tobacco retailers have
higher youth smoking rates.
SB 601 is a necessary step in strengthening California's
tobacco laws and preventing youth from tobacco use.
B. Alcohol and Schools
The Business and Professions Code regulates alcohol
retailers and states that proximity to schools (600 feet)
is reason to deny an alcohol license except in the case of
renewal and license transfer. For these retailers, there
is not an automatic disallowance as mere proximity is
sufficient to deny a proposed license. This bill states
that proximity is a reason to deny a license without any
other factor. The opposition states that, like alcohol
permits with more significant consequences from driving,
proximity should be only one consideration; proponents
state that the only way to limit access is to limit
retailers' proximity to schools.
The different requirements also affect the BOE's ability to
work with ABC. The Licensing Act provides that the BOE may
issue a retail license without further investigation if the
retail location is also licensed by the ABC. Since this
bill proposes a stricter standard (1,000 ft.) than imposed
on retailers of alcohol, then the BOE would need to conduct
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its own investigation and could not rely on the ABC license
thereby increasing costs.
C. Penalties work: 3 strikes and you're out?
There is evidence to suggest that the best way to change
behavior, such as eliminating tobacco sales to minors, is
to increase the penalty regime associated with the
behavior. This bill does change the penalty regime as well
as the requirement for when licenses can be revoked.
However, the bill still allows for eight (8) violations
before revoking a license. The Department of Alcohol and
Beverage Control (ABC) only allows for three violations
before license revocation. Given the similarity between
tobacco and alcohol retailers, it may make more sense for
the penalty regime to closely mirror the ABC "3-strikes"
penalty regime. In order to further improve the efficacy
of the penalty regime, it may also make sense to have
higher penalties for the first and second offenses so as to
stop the behavior (selling cigarettes to minors) from
occurring in the first place. The committee may wish to
consider a similar penalty regime to the alcohol program
with high penalties for the first two offenses.
The opposition to this bill states that "only the smallest
proportion of retailers are true offenders. Overwhelmingly
they are law abiding citizens who faithfully follow the
laws prohibiting sales to minors;" the purpose of the
penalty regime would be to eliminate that small proportion
by changing their behavior.
D. Is the BOE the appropriate agency?
The mission of the BOE is to serve the public through fair,
effective, and efficient tax administration. The
provisions in this bill may represent a departure from
their traditional "tax collection" functions although they
do issue and enforce tobacco licenses currently. In
general, the BOE requires a license, permit, or
registration for the various tax and fee programs in the
state "to ensure collection of vital revenues for the
state."
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The BOE states that although the Licensing Act provided
stricter retailer licensing requirements, compared to
permit requirements for sales and use tax, the stricter
standards were established to support the overall goal of
improving tax collection. The BOE expresses concerns that
the licensing restrictions that this bill proposes appear
to be related to health, public safety, or other non-tax
purposes.
E. Non-traditional retailers
A "traditional" retail location would be defined as a
grocery store, convenience store, pharmacy, liquor store,
or a tobacco or cigar store. Limiting licenses to
traditional retail locations may result in a substantial
number of retail locations being considered
"non-traditional." A "non-traditional" retail location may
include, but not be limited to: a donut shop, video store,
laundromat, deli, beauty salon, auto repair shop,
gift/novelty store, "dollar" store, warehouse club store
(unless licensed as a wholesaler/distributor),
mass-merchandise store (without a pharmacy), furniture
store, eating and drinking place, hardware store, book
store, florist, pet shops, sporting goods store, and auto
supply store.
What is considered non-traditional in one area of the state
may not apply to all areas of the state. How would rural
areas be affected? Is there any consideration for local
governments to determine if a license should be issued for
public convenience or necessity?
This bill states that the BOE would only issue a retail
license for a "traditional retail location." Does that
mean that an existing "non-traditional" retail location
would be denied a license upon renewal or reinstatement of
a license? Is the measure meant to affect only new
applications after the effective date, excluding
reinstatements and renewals for businesses licensed prior
to the enactment of the bill? The author should clarify
the intent of the provisions so that existing retailers
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would know how they will be affected by the provisions.
F. Arguments in Support
Supporters cite the DPH statistics that indicate that
nontraditional tobacco retailers like nail salons and
bakeries are 30% more likely to sell tobacco to minors.
Furthermore, they state that since three out of four heavy
adult smokers started tobacco use as an adolescent, this
bill is necessary to keep tobacco out of our children's
reach.
G. Arguments in Opposition
The opposition states that in every year since the
licensing program was established in 2003, the rate of
illegal sales has been below 14%. The opposition realizes
that no rate but zero is acceptable but cites the progress
that has been made in the past five years. Banning sales
in certain outlets, according to the opposition, is not
going to have a measureable affect on whether a minor
chooses to begin smoking or continue smoking; rather, the
primary factors are peer pressure, cultural influences,
parental involvement and exposure to anti-smoking health
information.
H. Related Legislation
SB 602 (Padilla) adds provisions to the Licensing Act to
prohibit the issuance of a new license to a retailer in an
"area of overconcentration," and makes reporting
requirement changes related to sales to minors.
SB 603 (Padilla) under the Licensing Act, imposes an annual
retailer fee, limits the total number of retailer licenses
issued in a county, and provides for the transfer of a
license under specified conditions.
Both of these bills are set for hearing in this committee
on April 22, 2009.
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Support and Opposition
Support: American Cancer Society
American Heart Association
American Lung Association
California Medical Association
California Dental Association
Magna Systems Incorporated
Oppose: California Distributors Association
California Grocers Association
California Retailers Association
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Consultant: Gayle Miller