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