BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: SB 602
S
AUTHOR: Padilla
B
AMENDED: April 13, 2009
HEARING DATE: April 15, 2009
6
REFERRAL: Revenue and Taxation
0
CONSULTANT:
2
Dunstan/sh
SUBJECT
Retail tobacco sales: licenses
SUMMARY
Prohibits the State Board of Equalization (BOE) from
issuing new retail tobacco licenses in areas of
overconcentration. Repeals the current restrictions that
limits BOE's enforcement actions against retail tobacco
license holders for violations of underage sales laws to
periods when the percentage of underage sales, as measured
by the statewide youth purchase survey, is 13 percent or
more. Requires enforcement agencies to notify BOE of
retailers' violations of underage sales laws.
CHANGES TO EXISTING LAW
Existing 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.
Existing state law:
Existing state law requires the BOE to administer the
Continued---
STAFF ANALYSIS OF SENATE BILL SB 602 (Padilla)Page 2
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 or tobacco products.
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. 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.
Existing local law:
Existing local ordinances in some jurisdictions require
tobacco retailers to obtain a license for the retail sales
STAFF ANALYSIS OF SENATE BILL SB 602 (Padilla)Page 3
of cigarettes and tobacco products in those jurisdictions
that have enacted their own local licensing ordinances.
Existing local ordinances in some jurisdictions require
cigarette and tobacco product retailers to comply with
specific provisions of the jurisdiction's land use and
zoning ordinances, including provisions that regulate the
location of these retailers.
This bill:
This bill would prohibit BOE from issuing a new license to
a retailer in an area of overconcentration, defined as a
census tract in which the ratio of retail licenses to
population exceeds the ratio of retail licenses to
population in the county overall. The bill does provide
that BOE may issue a new license if the local governing
body finds that public convenience or necessity would be
served by the issuance.
This bill gives BOE authority to levy penalties against a
license holder for violations of underage sales at any
time, regardless of the results of the youth purchase
survey. This bill provides that the existing penalties for
any violations either of the STAKE Act or Section 308 of
the Penal Code (within the limited periods when BOE is
allowed to act) will apply all of the time. These
penalties for retailers' convictions of violations are as
follows:
First conviction results in the retailer receiving
a warning letter.
Second conviction results in the retailer being
subject to a $500 fine.
Third conviction results in the retailer being
subject to a $1,000 fine
Fourth through seventh convictions result in the
BOE suspending the license for 90 days.
The eighth conviction result in permanent
revocation of the license.
This bill requires state and local law enforcement agencies
to notify BOE of any convictions of a violation of either
the STAKE Act or Section 308 of the Penal Code in a timely
manner. This bill requires BOE to take appropriate action
pursuant to that notification.
FISCAL IMPACT
STAFF ANALYSIS OF SENATE BILL SB 602 (Padilla)Page 4
Unknown.
BACKGROUND AND DISCUSSION
According to the author, it is critical to focus on
preventing youth from smoking. The author states that
overconcentration of tobacco retail outlets results in easy
access to tobacco, especially for kids. The author also
argues that the enforcement powers of the Tobacco Licensing
Act should not be constrained by the results of a statewide
youth purchase survey, and in order to adequately address
youth smoking in the state, enforcement agents need the
flexibility to levy penalties on those who willfully and
repeatedly sell tobacco to minors. The author notes that,
while California can pride itself with having one of the
nation's lowest adult smoking rates, smoking prevalence
among youth remained in the double digits from 2004 to 2008
compared to the mid 1990s when California saw a sharp
decline in youth smoking. The author states that the
decrease in the smoking rate has slowed significantly,
signaling that more needs to be done to drive down youth
smoking prevalence.
The author quotes studies that indicate that areas dense
with tobacco retail outlets have higher youth smoking
rates. The author argues that, by prohibiting the issuance
of a tobacco license in over-concentrated areas, SB 602
will limit the availability of tobacco products, restrict
the proliferation of tobacco retail outlets in areas
already saturated with tobacco stores, and help the state
to continue to reduce the use of tobacco among youth.
Additionally, the BOE has never suspended or revoked a
license of a retailer caught selling tobacco to minors,
according to the author. The author also argues that the
13 percent youth sales rate trigger, and the disconnect
between the BOE and tobacco enforcement entities are
barriers that currently keep bad retailers from being
penalized by the state for violations of underage sales
laws. The author argues that, by removing the 13 percent
trigger in current law, and providing for a notification
process between the two, SB 602 will allow the state to
address bad actors who sell tobacco to minors.
Background
STAFF ANALYSIS OF SENATE BILL SB 602 (Padilla)Page 5
According to the General Accounting Office, every day in
this country about 6,000 youths experiment with cigarettes
and 3,000 young people become regular smokers. The U.S.
Department of Health and Human Services estimates that 90
percent of smokers begin smoking prior to their 20th
birthday. Conversely, if children and adolescents can be
prevented from using tobacco products, they are unlikely to
become users later in life.
Of these underage smokers, estimates are that one-third
will eventually die from smoking-related diseases. Besides
the long-term health consequences, youths are also at risk
for numerous early health consequences, including a general
decrease in physical fitness, early development of artery
disease, and a slower rate of lung growth.
Because of consumers' growing awareness of the significant
health risks, there has been a substantial decline in youth
smoking. California now has one of the lowest rates in the
nation. Despite the reduced smoking levels, the 2008
smoking rate among high school students is 14.6. percent,
based on a survey that asks the number who have smoked
within the last 30 days. This rate represents a decline
from the 2006 figure of 15.4 percent. The comparable rate
for the nation as a whole is almost 20 percent
California licensing requirements
AB 71 (Jerome Horton, Chapter 890, Statutes of 2003) was
signed into law to establish the Licensing Act, a statewide
program to license manufacturers and importers of
cigarettes, and distributors, wholesalers, and retailer of
cigarettes and tobacco products. AB 71 was intended to
provide an additional enforcement tool to address the
unlawful distribution and sales of untaxed cigarettes and
tobacco products. AB 71 also provided BOE's Investigation
Division with the statutory authority to more effectively
and efficiently conduct their investigative duties,
including new limited peace officer status and strengthened
penalties and avenues for the collection of cigarette and
tobacco products excise taxes. Prior to the enactment of
AB 71, BOE estimated cigarette excise tax evasion of $238
million annually for retailers, associated with 274 million
packs of cigarettes. This estimate did not include tobacco
products excise tax evasion or related sales tax losses.
The state is not the only entity that licenses tobacco
STAFF ANALYSIS OF SENATE BILL SB 602 (Padilla)Page 6
retailers. An unknown number of local governments have
instituted their own license programs. These programs can
enforce their provisions by revoking or suspending a
retailer's license for underage sales.
Despite California's relatively low smoking prevalence, the
federal Centers for Disease Control and Prevention (CDC)
estimated that smoking caused the deaths of over 37,000
Californians age 35 years and older. Smokers incur $17,500
more in lifetime health care costs than non-smokers. A
2004 UC study estimated the annual societal cost of
smoking, without considering the cost of tobacco, is $3,331
per smoker, including $1,810 in medical costs and $1,521 in
lost productivity costs.
Synar amendment
To address the concerns about youth tobacco use, in 1992
Congress enacted Section 1926 of Title XIX of the federal
Public Health Service Act, commonly called the Synar
amendment. The Synar amendment requires states to enact
and enforce laws that prohibit the sale of tobacco to
individuals less than 18 years of age. It requires the
U.S. Substance Abuse and Mental Health Services
Administration (SAMHSA) to withhold up to 40 percent of a
state's alcohol and substance abuse block grant funding
unless the illegal sales rate of cigarette and tobacco
products to minors is controlled. SAMHSA required that
each state reduce its retailer illegal sales rate to 20
percent or less by fiscal year 2003. This rate is
calculated by sending underage decoys to attempt to buy
cigarettes from a random survey of retailers.
Stop Tobacco Access to Kids Enforcement (STAKE) Act
In response to the federal law, in 1994, the state began to
track minors' access to cigarettes and tobacco products.
The state conducted a survey, using over 400 youths, 13-17
years of age, who attempted to buy cigarettes at more than
1,800 retail stores. Fifty-two percent of the retailers
sold to minors. The poor compliance with the law was a
factor in the September 1994 enactment of the STAKE Act,
which sought to more effectively police tobacco sales to
minors and fulfilled the federal mandate.
The STAKE Act requires DPH to:
Implement an enforcement program to reduce the illegal
sale of tobacco products to minors and to conduct sting
STAFF ANALYSIS OF SENATE BILL SB 602 (Padilla)Page 7
operations using 15 and 16 year olds;
Operate a toll-free number for the public to report
illegal tobacco sales to minors;
Assure that tobacco retailers post warning signs which
include the toll-free number to report violations;
Assure that clerks check the identification of youthful
appearing persons prior to a sale; and,
Assess civil penalties ranging from $200 to $6,000
against the store owner for violations.
STAKE Act compliance checks have been in operation since
late 1995. The most recent program results, compiled in
2008 have shown:
Almost 30,000 compliance checks have been conducted
statewide.
Almost 8,000 compliance checks have resulted in illegal
sales of tobacco to minors, or about 26 percent.
Over 7,000 cases have resulted in penalties with over
$2.4 million collected.
The toll-free public complaint line has generated over
31,000 calls.
Site visits have determined if tobacco billboards existed
within 1,000 feet of schools and playgrounds, which is a
violation of state law.
The California illegal sales rate plummeted from its high
of 52 percent high in 1994 to a low of 12.8 percent in
2000. Despite this success of the program's early years,
by 2002, California was very close to exceeding the illegal
sales rate set in federal law. Exceeding the rate would
put the state at risk of losing up to $100 million in
federal funds. The illegal sales rate had jumped up from
its low of 12.8 percent in 2000 to 19.3 percent in 2002.
Redoubled enforcement efforts led to a significant decline
in 2003, to 12.2 percent.
The 2004 survey showed a 14 percent underage sales rate.
Since the rate exceeded the trigger in statute, BOE gained
the authority to take actions against license holders who
had violated underage sales laws. BOE reports that they
did not receive notice of any violations. The rate has
since dropped and the 2008 survey showed a rate of 12.6
percent.
Related bills
SB 603 (Padilla) would, among its other provisions, limit
STAFF ANALYSIS OF SENATE BILL SB 602 (Padilla)Page 8
the number of retail tobacco licenses in a county so that
there is no more than one license for every 2,500 residents
over the age of 18 within the county. This bill is in the
Senate Revenue and Taxation Committee.
Prior legislation
SB 400 (Kuehl, 2005) amended the underage sales penalties
that the State Board of Equalization can levy against
tobacco retailers for the purposes of the retail
tobacco-licensing program. This bill was held in the
Senate Appropriations Committee.
SB 433 (Ortiz, 2004) amended the underage sales penalties
that the State Board of Equalization can levy against
tobacco retailers for the purposes of the retail
tobacco-licensing program. This bill was held in the
Senate Appropriations Committee.
AB 71 (Horton, Chapter 890, Statutes of 2003) imposes
licensing requirements on tobacco manufacturers,
wholesalers, retailers and importers, and imposes
additional civil and criminal penalties on individuals and
businesses who violate tobacco-related tax, anti-contraband
and underage sales laws.
Arguments in support
Supporters state that California youth cigarette smoking
rates remain high and almost 20 percent of high school
students smoke, meaning that more needs to be done to curb
youth use of tobacco. They argue that tougher penalties
for violations are needed and should not be constrained by
the results of the youth tobacco purchase survey. The
American Cancer Society argues that overconcentration of
retail outlets is equated with easy access to tobacco.
Arguments in opposition
The California Grocers Association opposes SB 602 and
argues that the state's tobacco licensing law has been a
success in reducing cigarette tax evasion and reducing
sales to minors. They argue that the overconcentration
provisions will reduce the number of licensees in any
downtown area. They are also concerned that this bill
would lead to increased tax avoidance, and that there is no
research to document the effectiveness of
overconcentration. The California Independent Grocers
Association argues that the bill will make it difficult to
STAFF ANALYSIS OF SENATE BILL SB 602 (Padilla)Page 9
open a retail store in an underserved area, depriving local
residents of a convenient location to obtain health and
nutritious food.
COMMENTS
1. Limiting concentration of tobacco retailers is a new
method of tobacco control. Some research has shown that
underage use of cigarettes is related to the retail tobacco
outlet density. Other research has yielded contradictory
results and has not found that retail density has affected
adolescent cigarette use. Local governments have used
their land use power to restrict the placement and siting
of tobacco outlets, but it does not appear that any, at
least in California, have attempted to address the
concentration of tobacco retailers.
2. Technical amendment.
Suggested amendments
Page 4, beginning line 22
(d) For any conviction of a violation of either the STAKE
Act (Division 8.5 (commencing with Section 22950) or
Section 308 of the Penal Code by a retailer, the State
Department of Public Health or other enforcing agency shall
notify the board of the conviction in a timely manner.
"Failure by a State and local law enforcement agency to
notify BOE within a timely manner shall not mean that the
board cannot consider a violation or by a retail license
holder for the purposes of this section. For the purposes
of this section "convictions for violations" can mean
convictions under Section 308 of the Penal Code or final
administrative adjudications under the STAKE Act.
POSITIONS
Support: American Cancer Society
American Heart Association
Breathe California
California Dental Association
California Medical Association
Magna Systems Incorporated
Oppose: California Grocers Association
California Independent Grocers Association
STAFF ANALYSIS OF SENATE BILL SB 602 (Padilla)Page 10
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