BILL ANALYSIS Ó
AB 669
Page A
Date of Hearing: May 2, 2011
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 669 (Monning) - As Amended: April 7, 2011
VOTE ONLY
2/3 vote. Fiscal committee.
SUBJECT : Taxation: sweetened beverages: Children's Health
Promotion Fund
SUMMARY : Enacts the Sweetened Beverage Tax Law, which would
impose a tax of $0.01 per fluid ounce on "bottled sweetened
beverages." Specifically, this bill :
1)Contains numerous legislative findings including the
following:
a) The prevalence of obesity in the United States has
increased dramatically over the past 30 years. From the
1960s to the late 1970s, the prevalence was relatively
constant, with about 15% of the population classified as
obese. After the 1970s, these rates began to climb. By
2006, 23.3% of Americans were considered obese. In
California, obesity rates have increased even more, rising
from 8.9% in 1984 to 25.5% in 2010. Although no group has
escaped the epidemic, ethnic minorities and the poor are
disproportionately affected.
b) The rate of children who are overweight has also
increased dramatically in recent decades. After being
relatively constant from the 1960s to the 1970s, the
prevalence of overweight children has more than quadrupled
among children between ages 6 and 11 and nearly tripled
among those between ages 12 and 19.
c) The obesity epidemic is of particular concern because
obesity increases the risk of diabetes, heart disease,
certain types of cancer, arthritis, asthma, and breathing
problems. Depending on their level of obesity, from 60% to
over 80% of obese adults have type 2 diabetes, high blood
cholesterol, high blood pressure, or other related
AB 669
Page B
conditions. It has been reported that up to 60% of obese
children 5 to 10 years of age have early signs of heart
disease.
d) Type 2 diabetes, previously only seen among adults, is
now increasing among children. If the current obesity
trends are not reversed, it is predicted that one in three
children and nearly one-half of Latino and African American
children born in the year 2000 will develop type 2 diabetes
in their lifetime.
e) There is overwhelming evidence of the link between
obesity and the consumption of sweetened beverages such as
soft drinks, energy drinks, sweet teas, and sports drinks.
California adults who drink a soda or more per day are 27%
more likely to be overweight or obese, regardless of income
or ethnicity.
f) Research shows that almost one-half of the extra
calories Americans have been consuming since the 1970s
could come from soda, with the average American drinking
nearly 50 gallons of sweetened beverages a year, the
equivalent of 39 pounds of extra sugar every year.
g) It is the Legislature's intent, by adopting the
Sweetened Beverage Tax Law and creating the Children's
Health Promotion Fund (Fund), to diminish the human and
economic costs of obesity and dental disease in California.
This act is intended to discourage excessive consumption
of sweetened beverages by increasing the price of these
products and by creating a dedicated revenue source for
health programs designed to prevent and treat childhood
obesity and dental disease and reduce the burden of
attendant health conditions.
2)Imposes a new tax on distributors for the privilege of
distributing "bottled sweetened beverages" and "concentrate"
in this state, calculated as follows:
a) The tax on "bottled sweetened beverages" distributed in
this state shall be $0.01 per fluid ounce.
b) The tax on "concentrate" distributed in this state
either as "concentrate" or as a "sweetened beverage"
derived from that "concentrate" shall be equal to $0.01 per
AB 669
Page C
fluid ounce of "sweetened beverage" produced from that
"concentrate."
3)Defines a "bottled sweetened beverage" as a "sweetened
beverage" contained in a "beverage container."
a) A "sweetened beverage," in turn, means any sweetened
nonalcoholic beverage sold for human consumption that
contains any added "caloric sweeteners," including the
following: soda water, ginger ale, root beer, all
beverages commonly referred to as cola, lime, lemon,
lemon-lime, and other flavored beverages, including any
fruit or vegetable beverage containing 10% or less natural
fruit juice or natural vegetable juice, as defined, and all
other drinks and beverages commonly referred to as "soda,"
"soda pop," and "soft drinks." The term does not include
any of the following:
i) Any product sold in liquid form for consumption by
infants, which is commonly referred to as "infant
formula";
ii) Any product sold in liquid form for weight
reduction;
iii) Water, to which no caloric sweeteners have been
added;
iv) Any product containing milk, milk products, or plant
protein sources;
v) Medical food, as defined; and,
vi) Coffee and tea.
b) A "beverage container," in turn, means any closed or
sealed container regardless of size or shape, including
those made of glass, metal, paper, plastic, or any other
material or combination of materials.
4)Defines "caloric sweetener" as any caloric substance suitable
for human consumption that humans perceive as sweet and
includes, without limitation, sucrose, fructose, including
high fructose corn sweetener, glucose, other sugars, and fruit
juice concentrates.
AB 669
Page D
5)Defines "concentrate" as a syrup, powder, or base product that
is used for mixing, compounding, or making sweetened beverages
in a beverage dispensing machine. The following items,
however, are specifically excluded from the definition:
a) Any product solely used in preparing coffee or tea;
b) Infant formula;
c) Any product used for weight reduction;
d) Any product containing milk, milk products, or plant
protein sources;
e) Any frozen concentrate or freeze-dried concentrate to
which only water is added to produce a sweetened beverage
"containing more than Ý10%] natural fruit juice or more
than Ý10%] natural fruit juice";
f) Any product that is sold and is intended to be used for
the purpose of an individual consumer mixing a sweetened
beverage;
g) Medical food, as defined in Health and Safety Code
Section 109971; and,
h) Any product to which no caloric sweeteners have been
added.
6)Requires the State Board of Equalization (BOE) to administer
and collect the tax pursuant to the Fee Collection Procedures
Law.
7)Provides that the taxes are due and payable to the BOE
quarterly on or before the last day of the month following
each quarterly period.
8)Establishes the Fund in the State Treasury, which shall
consist of all taxes, interest, penalties, and other amounts
collected pursuant to this bill, less refunds and
reimbursement to the BOE for expenses incurred in
administering and collecting the tax.
9)Provides that all moneys in the Fund, upon appropriation by
AB 669
Page E
the Legislature, shall be allocated for the purposes of
statewide childhood obesity prevention activities and programs
as follows:
a) 20% to the State Department of Public Health (DPH) to
coordinate statewide childhood obesity prevention
activities and to fund state-level childhood obesity
prevention and children's dental programs;
b) 35% for community-based childhood obesity prevention
programs. DPH shall be responsible for distributing these
funds to community-based organizations and to local health
departments, with priority given to counties that have
established childhood obesity prevention coalitions to
build political support for programs;
c) 10% to evidence-based prevention, early recognition,
monitoring, and weight management intervention activities
in the medical setting. DPH shall be responsible for
identifying activities and allocating these funds; and,
d) 35% to elementary and secondary schools for educational,
environmental, policy, and other public health approaches
that promote nutrition and physical activity. The
Superintendent of Public Instruction shall be responsible
for the allocation and distribution of these funds.
10)Becomes operative on July 1, 2012.
EXISTING LAW :
1)Imposes a sales tax on retailers for the privilege of selling
tangible personal property (TPP), absent a specific exemption.
The tax is based upon the retailer's gross receipts from TPP
sales in this state.
2)Imposes a complementary use tax on the storage, use, or other
consumption in this state of TPP purchased from any retailer.
The use tax is imposed on the purchaser, and unless the
purchaser pays the use tax to a retailer registered to collect
the California use tax, the purchaser remains liable for the
tax, unless the use is exempted. The use tax is set at the
same rate as the state's sales tax and must be remitted to the
BOE.
AB 669
Page F
3)Provides a sales and use tax (SUT) exemption for specified
"food products." The term "food products" is defined to
include all fruit juices, vegetable juices, and other
beverages including bottled water. Carbonated beverages,
however, are specifically excluded from the exemption.
4)Imposes no additional taxes on nonalcoholic sweetened
beverages.
FISCAL EFFECT : The BOE estimates that this bill would generate
Fund revenues of about $1.66 billion in fiscal year (FY) 2012-13
and $1.72 billion in FY 2013-14. In addition, the BOE estimates
that this bill would generate additional SUT revenues of $135.1
million in FY 2012-13 and $139.4 million in FY 2013-14.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
Childhood obesity is reaching crisis proportions in
California and throughout the United States. AB 669 would
tax sweetened beverages, which are the leading contributor
to obesity trends, and generate $1.7 billion annually to
combat childhood obesity. We are all currently paying for
the health care associated with obesity and those who
consume sugary drinks should pay their fair share of these
expenses.
2)This bill is sponsored by the California Center for Public
Health Advocacy, which states, "ÝThe] link between sugary
drinks and the obesity epidemic makes a tax on sugary drinks a
logical funding source for mediating the harm of these
products upon society. One of the most successful public
health interventions in recent years is the taxation of
tobacco in order to fund programs that mediate the harms to
society caused by that product. It is time for California to
build upon the success of the tobacco tax in order to fund our
schools and critically needed childhood obesity prevention
efforts."
3)Proponents state, "With nearly 119 million Americans
overweight or obese, there is a crisis of obesity and related
illnesses in California and the United States. The 2006
report, F as in Fat: How Obesity Policies Are Failing in
AB 669
Page G
America, finds that United States governmental policy efforts
have consistently failed to provide viable solutions to the
growing obesity crisis. This report also found that
California ranks twenty-third nationwide in the prevalence of
obesity. ÝCitation omitted.] Shockingly, the annual cost of
medical care attributable to obesity in California is
estimated to be almost $7.7 billion."
4)Opponents state, "AB 669 would impose a tax on soft drinks.
While we are in no position to comment on health issues
related to soda consumption, we are concerned that such a tax
could drive down consumption and adversely affect employment
in the soft drink industry."
5)The BOE notes the following in its staff analysis of this
bill:
a) Funding necessary for administrative start-up costs .
"This bill proposes a new sweetened beverage tax to be
imposed beginning July 1, 2012. In order to notify and
register distributors, develop computer programs and
reporting forms, and hire appropriate staff, an adequate
appropriation would be required to cover the BOE's
administrative costs that would not already be identified
in the BOE's 2011-12 budget.
"Typically, the BOE would seek payment from the Fund for
administrative start-up costs through the budget change
proposal (BCP) process. However, the Fund would not have a
balance to reimburse the BOE's administrative start-up
costs prior to the collection of the tax. To address this
funding issue, this bill should be amended to add language
authorizing a loan from the General Fund, or other eligible
fund, to the Fund, to be repaid from taxes collected and
deposited into the ÝFund].
"The constitutional and statutory provisions prohibit the
BOE from using special fund appropriations to support the
administration of the sweetened beverage tax program.
Without an appropriation for administrative start-up costs,
the BOE would have to divert General Fund dollars to the
proposed tax program, which would have a negative impact on
the revenues of State and local government."
b) Product exclusions . "This bill excludes from the
AB 669
Page H
definition of "concentrate" any product containing milk or
milk products, and any product that is solely used in
preparing coffee or tea. As such, this would exclude
powdered coffee, tea, or chocolate milk mix from the tax,
even if those products contain added caloric sweetener.
The definition of "sweetened beverage" also excludes any
product containing milk or milk products, and coffee and
tea, thereby excluding products such as chocolate or
strawberry milk, smoothie beverages, and bottled coffee
beverages that have added caloric sweetener.
"Also excluded would be syrups and powders that are
intended to be used for the purpose of an individual
consumer mixing a sweetened beverage. This would include,
for example, products such as chocolate milk Ýpowder] and
syrup, sweetened tea mixes, and sweetened punch and
lemonade mixes which are generally available at places such
as grocery stores and general merchandise department stores
for a consumer to purchase and mix beverages at home."
c) Proposed tax would be subject to the SUT . "Under
current Sales and Use Tax Law, the total amount of the
retail sale is subject to sales or use tax unless
specifically exempted or excluded by law. Because the new
tax imposed pursuant to this measure is not specifically
exempted or excluded, it would be included in the total
amount of the sale and, therefore, subject to sales or use
tax.
"In order to be reimbursed for the excise tax, persons
subject to the tax pursuant to this measure may request
payment from their customers. Ultimately, this cost would
be reflected in the retail sales price of bottled sweetened
beverages and concentrates sold to the consumer and would
be subject to the sales and use tax, unless specifically
exempt as a food product."
6)Committee Staff Comments:
a) A national epidemic : Sugar-sweetened beverages have
been linked to health problems ranging from obesity to
diabetes. For example, a study examining middle-school
students over two academic years showed that the risk of
becoming obese increased by 60% for each additional serving
AB 669
Page I
of sugar-sweetened beverages per day.<1> Moreover, it is a
fallacy to suggest that consumers bear the full costs of
their consumption choices. Medical costs for overweight
and obesity alone are estimated to be $147 billion annually
- or 9.1% of national health care expenditures - with half
of these costs paid for publicly through the Medicare and
Medicaid programs.<2> As such, some have proposed taxation
as a means of both reducing the consumption of
sugar-sweetened drinks and generating revenue for health
programs.
b) How much tax are we talking about? : This bill would
impose a tax on sweetened beverages of $0.01 per fluid
ounce. This would translate to an additional tax of $0.12
for a 12-ounce can of soda. This tax appears to be modeled
on a proposal advanced in the New England Journal of
Medicine, which advocated an excise tax of $0.01 per ounce
for beverages containing any added caloric sweetener.<3>
The authors of this study estimated that such a tax would
lead to at least a 10% reduction in calorie consumption
from sweetened beverages.
c) Keeping pace with inflation : The author may wish to
consider amendments providing for the automatic adjustment
of the tax rate over time to keep pace with inflation.
a) Technical amendments : Committee staff suggests the
following technical amendments to the bill:
i) On page 2, line 5, insert "the" before "prevalence";
ii) On page 3, line 35, insert "the" before
"consumption";
-------------------------
<1> Ludwig DS, Peterson KE, Gortmaker SL. Relation between
consumption of sugar-sweetened drinks and childhood obesity: a
prospective, observational analysis. Lancet 2001; 357:505-8.
<2> Finkelstein EA, Trogdon JG, Cohen JW, Dietz W. Annual
medical spending attributable to obesity:
payer-and-service-specific estimates. Health Aff (Millwood)
2009; 28:w822-w831.
<3> Brownell KD, Farley T, Willett WC, Popkin BM, Chaloupka FJ,
Thompson JW, Ludwig DS. The Public Health and Economic Benefits
of Taxing Sugar-Sweetened Beverages. New England Journal of
Medicine 2009.
AB 669
Page J
iii) On page 5, line 15, replace "which" with "that";
iv) On page 5, line 37, replace "proteins" with
"protein";
v) On page 6, line 2, replace "fruit" with "vegetable";
and,
vi) On page 9, line 37, insert "be" after "required to".
b) Related Legislation :
i) AB 2100 (Coto), of the 2009-10 Legislative Session,
would have imposed a tax of $0.01 per teaspoon of added
sweetener in a bottled sweetened beverage or concentrate.
AB 2100 was held in this Committee.
ii) SB 1210 (Florez), of the 2009-10 Legislative
Session, would have imposed a tax of $0.01 per teaspoon
of caloric sweetener in a bottled sweetened beverage.
Revenues from the tax would have been deposited in a
newly established Children's Health Promotion Fund, with
moneys allocated for statewide childhood obesity
prevention programs. SB 1210 was held by the Senate
Committee on Revenue and Taxation.
iii) SB 1520 (Ortiz), of the 2001-02 Legislative Session,
would have, among other things, imposed an excise tax of
$2 per gallon of soft drink syrup or simple syrup. These
provisions were eventually amended out of the bill. SB
1520 failed passage in committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California Center for Public Health Advocacy (sponsor)
Abraham Lincoln High School
Alameda County Board of Supervisors
American Heart Association
Balboa High School
California Academy of Family Physicians
California Academy of Physician Assistants
AB 669
Page K
California Association for Health, Physical Education,
California Chiropractic Association
California Food Policy Advocates
California Medical Association
California Pan-Ethnic Health Network
California Park & Recreation Society
California Primary Care Association
California Rural Legal Assistance Foundation
California School Nutrition Association
California Tax Reform Association
California WIC Association
Center for Oral Health
Center for Science in the Public Interest
Central Valley Health Network
Children Now
Children's Advocacy Institute
County of Santa Clara Board of Supervisors
First 5 LA
Food Empowerment Project
Galileo Academy of Science & Technology High School
George Washington High School
Health Improvement Partnership of Santa Cruz County
International Studies Academy High School
John O'Connell High School
Lowell High School
Mission High School
Philip & Sala Burton High School
Raoul Wallenberg High School
Recreation and Dance
San Francisco Unified School District
San Mateo County Board of Supervisors
Thurgood Marshall High School
Opposition
CalChamber
California Automatic Vendors Council
California Grocers Association
California League of Food Processors
California Manufacturers & Technology Association
California Nevada Soft Drink Association
California Restaurant Association
California Retailers Association
California Taxpayers Association
California Teamsters Public Affairs Council
AB 669
Page L
Grocery Manufacturers Association
Howard Jarvis Taxpayers Association
11 individuals
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098