BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 1210 - Florez
Amended: May 5, 2010
Hearing: May 12, 2010 Tax Levy Fiscal: Yes
SUMMARY: Enacts an Excise Tax of One Cent per Teaspoon of
Added Caloric Sweetener in a Bottled Sweetened
Beverage or Concentrate
EXISTING LAW levies a sales and use tax on the
transfer of tangible personal property from one person to
another unless explicitly exempted. The current state
sales and use tax rate is 6% until July 1, 2011, when state
law reduces the rate to 5% (ABx3 3, Evans, 2009); however,
local sales and use taxes can increase the total sales and
use tax rate to between 8.25% and 10.25%.
EXISTING LAW exempts from the sales and use tax the
sale, storage, use, or other consumption of food products,
including fruit and vegetable juices; however, carbonated
beverages are not exempt.
EXISTING LAW (California Constitution) prohibits the
Legislature, counties, cities and counties, cities, and
special districts from levying or collecting a sales and
use tax on the sale, storage, use, or other consumption of
food in the state, unless specifically provided for by
statute prior to adoption of the initiative which added
Section 34 of Article XIII (Proposition 163, 1992). The
initiative also amended state law to include snack foods on
the list of exempt foods, but did not change the taxability
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of carbonated beverages.
EXISTING LAW levies excise taxes in addition to sales
taxes when purchasing certain goods. In California, excise
taxes apply to gasoline and diesel fuel (currently 18 cents
per gallon; both rates change under ABx8 6, Committee on
Budget, 2010), tobacco (87 cents per pack), and alcohol,
(20 cents per gallon of beer and wine; 30 cents per gallon
of sparkling wine) and distilled spirits ($3.30 per gallon
below 100 proof; $6.60 per gallon above 100 proof).
Generally, excise taxes apply to items deemed harmful to
the public.
THIS BILL applies an excise tax of one cent per
teaspoon of added caloric sweetener in a bottled sweetened
beverage or concentrate sold or offered for sale to a
retailer. The tax applies to distributors, who must
separately state the amount of tax due to the Board of
Equalization (BOE) on the receipt or invoice given to the
retailer, but retailers are liable for tax at the time of
sale to a consumer. The tax goes into effect on the first
day of the first calendar quarter
THIS BILL makes findings regarding the prevalence of
adult and child obesity, and the increased risk of
specified diseases for obese populations, among others.
The measure also defines its terms, including: "beverage
container," "bottled sweetened beverage," "caloric
sweetener," "concentrate," "consumer," "distributor,"
"medical food," "milk," "natural fruit juice," "natural
vegetable juice," "nonalcoholic beverage," "non-caloric
sweetener," "person," "powder," "retailer," "sale," "simple
syrup," "sweetened beverage," "syrup," and "teaspoon."
THIS BILL requires all persons required to pay the tax
to register with the BOE on a form prescribed by BOE, which
must include the person's name under which the applicant
conducts business, the location of his or her place of
business, and any other information BOE may require.
Persons must file returns and pay tax electronically on or
before the last day of the calendar month following the
calendar quarter to which it related with a remittance
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payable to the BOE. The bill provides that BOE shall
administer the tax pursuant to the Fee Collections
Procedures Law, authenticate and prescribe forms and
returns as necessary, and may prescribe regulations,
including emergency regulations, necessary to implement the
bill. BOE shall be reimbursed for its administration and
collection costs upon appropriation to the Legislature.
THIS BILL creates the Children's Health Fund in the
State Treasury, into which BOE deposits all proceeds from
the excise tax, or interest or penalties assessed by the
BOE, less refunds and reimbursement to BOE for its
administration and collection costs. The Legislature shall
appropriate all moneys from the fund.
FISCAL EFFECT:
According to the BOE, SB 1210 results in revenue
increases of $636 million in 2010-11, and $1.377 billion in
2011-12, all deposited into the Children's Health Fund in
the State Treasury. By increasing the taxable base by
adding the excise tax, SB 1210 also increases in sales tax
revenues for the state General Fund and local agencies of
$34.7 in 2010-11, and $66.9 in 2011-12.
COMMENTS:
A. Purpose of the Bill
According to the Author, "SB 1210 would levy an excise
tax of a penny per teaspoon of added sugar in soda and
other sweetened beverages. Initial projections estimate
that the excise tax on soda producers and distributors
would raise $1.5 billion a year, with funds going directly
to local communities to support schools and build
communities where children are active, eat healthy foods
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and grow up to live long, healthy, and productive lives."
B. I'd Like to Buy the World a Bottled Water?
The famous economist Adam Smith wrote in the Wealth of
Nations (1776): "It has for some time past been the policy
of Great Britain to discourage the consumption of
spirituous liquors, on account of their supposed tendency
to ruin the health and to corrupt the morals of the common
people." While few would equate sugary srinks with the
moral decay of American society, proponents of SB 1210 make
a very clear excise tax case for soda damaging the public
health. A Health Policy Research Brief from the UCLA
Center for Public Health Research shows startling increases
in the number of adults and children who are obese or
overweight in the last thirty years, and references studies
that show that links greater consumption of sweetened
beverages with adult and child obesity and overweight, and
demonstrates that reducing intake of these beverages
results in reductions of obesity and overweight.
Epidemiological research shows the classic case for
assessing an excise tax: the societal costs including lost
productivity and health care costs of obesity and
overweight are clearly linked with sweetened beverages but
not paid for by the beverage drinker, representing an
externality that is not accounted for in the price system.
Essentially, sweetened beverages are sold at a price which
does not account for the societal costs they incur that are
paid by the taxpayer with general purpose revenues. By
adding an excise tax, SB 1210 seeks to correct the market
failure by adding costs, thereby depressing consumption, of
a product that causes obesity and overweight.
C. Pour Me Another
In contrast to Adam Smith, Dr. Samuel Johnson wrote in
his 1755 dictionary: "EXCI'SE. n.s. ... A hateful tax
levied upon commodities, and adjudged not by the common
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judges of property, but wretches hired by those to whom
excise is paid." Opponents to SB 1210 raise similar
points: first, that adult and child obesity and overweight
are not the fault of an industry which supplies consumers
with a product they want; instead, governments can better
improve public health by investing ina nd promoting
physical education and superior nutrition. Second,
opponents argue that enacting additional taxes on sweetened
beverages will squeeze margins, depress earnings, therefore
leading to layoffs and wage cuts, in addition to increasing
taxes on lower-income persons who spend a higher percentage
of dispensible income on these drinks. Tax theory posits
that taxing something necessarily means getting less of it,
meaning that if the Legislature enacts SB 1210, causing
lower consumption of sweetened beverages that will result
in lower revenues and profits for the sweetened beverage
industry, as well as fewer employees needed to produce and
distribute less quantity demanded.
D. Getting Chubby
The sales and use tax base may include excise taxes as
part of the base, such as gasoline, and sometimes it's
excluded from the taxable base. SB 1210 chooses the former
route by assessing the excise tax on the number of
teaspoons of added caloric sweetener in a bottled sweetened
beverage or concentrate without subtracting that amount out
of the taxable sale, resulting in a slight increase of
General Fund revenues to the state, as well as some cream
to local agencies too. While the bill seeks to affect the
behavioral changes of reducing consumption of sweetened
beverages, if enacted as currently constructed, SB 1210
would also provide some scraps to very hungry state
coffers.
E. Different Base
Most excise taxes do not differentiate the content of
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the taxed product, with the notable exception of the excise
tax on distilled spirits. For example, gasoline is subject
to an 18 cent tax per gallon regardless of whether a
specific blend of gas pollutes more or than another blend,
and cigarettes are taxed the same regardless of tar or
nicotine content. SB 1210 works differently because the
tax for any beverage depends on the exact number of
teaspoons of added caloric sweetener in a bottled sweetened
beverage or concentrate, which can vary from drink to
drink. The benefit of this approach is that the tax is
flexible and pegged to the ingredient deemed bad for
society, sugar, and beverages with more sugar will have a
higher imputed tax than less sugary ones, hopefully
influencing consumers to make healthier choices. The
drawback of using a very specific measurement is that tax
collection and administration could be complex: a 12 ounce
can of soda contains between 30 and 40 grams of sugar, but
a 64 ounce container of berry punch contains 250 grams of
sugar, according to the BOE analysis. Taxpayers would have
to make more carefully measure the sugar content of the
drinks distributed to comply with the tax, which would be
considerably more complex than counting boxes of cigarettes
or tanker trunks of gasoline.
Support and Opposition
Support:California School Nutrition Association, Chula
Vista Healthy Eating Active Communities, Venice Family
Clinic, Network of Ethnic Physician Organizations,
Stanford School of Medicine, Department of Pediatrics (28
physicians), Latino Coalition for a Healthy California,
Center for Public Health Advocacy, Partnership for Children
and Youth, California Chiropractic Association, Children
Now, California WIC Association, San Mateo County Board of
Supervisors, California Medical Association, California
Academy of Family Physicians, Central California Regional
Obesity Prevention Program, American Academy of Pediatrics,
California Center of Public Health Advocacy, Fresno Metro
Ministry, Dental Health Foundation, California Food Policy
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Advocates, California School Nutrition Association,
Catholic Healthcare West, Center of Science in the Public
Interest, Prevention Institute, Strategic Alliance for
Healthy Food and Activity Environments, Santa Monica-Bonita
School District.
Oppose:248 Individuals, California Nevada Soft Drink
Association, California Chamber of Commerce, California
Grocers Association, California Independent Grocers
Association, California Manufacturers and Technology
Association, California Restaurant Association, California
Retailers Association, California Taxpayers Association,
Wine Institute, California Automatic Vendors Council
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Consultant: Colin Grinnell