BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
SB 622 (Monning) - Sweetened Beverage Tax: Children's Promotion
Fund
Amended: May 8, 2013 Policy Vote: G&F 5-2, Health 7-2
Urgency: No Mandate: Yes
Hearing Date: May 23, 2013 Consultant: Robert Ingenito
SUSPENSE FILE.
Bill Summary: SB 622 would impose a one-cent per fluid ounce tax
on bottled sweetened beverages and concentrate.
Fiscal Impact: The Board of Equalization (BOE) estimates that
this measure would result in a total revenue gain of about $1.8
billion (General Fund and special funds), in 2014-15, and $1.9
billion in 2015-16. This amount includes additional excise and
sales and use tax (SUT) revenue, as the excise tax raises the
sales price of the affected items on which the SUT is based.
BOE would incur unknown (an estimate is pending), major costs to
implement to administer the new tax, These costs include:
taxpayer identification, notification and registration;
regulation development; manual and publication revisions; tax
return design; computer programming; return, payment, and refund
claim processing; audit and collection tasks; staff training;
and public inquiry responses.
Additional costs would result to the extent the State is the
purchaser of items affected by the bill. Total spending is
unknown but could be in the range in the hundreds of thousands
of dollars.
Background: State and local sales and use taxes are imposed on
the sale or transfer of tangible personal property (TPP). The
total combined SUT rates range from 7.5 percent to 10 percent
based on the location of the sale. Currently, state law exempts
the sale, storage, use, or consumption of food products,
including fruit juices, vegetable juices, bottled water, and
snack foods, from the sales and use tax. Carbonated beverages
are not exempt. No other BOE-administered program imposes a tax
or fee on nonalcoholic sweetened beverages.
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In efforts to prevent childhood obesity, the Legislature enacted
a series of policies that regulate the types of sweetened
beverages available and amount of milk fat content in beverages
served in licensed child care facilities (AB 2084, Brownley,
2010), as well as when fruit and vegetable-based drinks,
non-sweetened water, and specified milk beverages may be sold in
schools (SB 677, Ortiz, 2003; SB 965, Escutia, 2005). Seven
other states -- Hawaii, Mississippi, Oregon, Rhode Island,
Texas, Vermont, and West Virginia -- have introduced similar
measures as SB 622 for this legislative session. None have been
enacted.
Proposed Law: This bill would establish the Sweetened Beverage
Tax Law, which imposes an excise tax, at a rate of one cent per
fluid ounce of added caloric sweetener in a bottled sweetened
beverage or concentrate, on every distributor for distributing
bottled sweetened beverages and concentrates in the State. BOE
would administer and collect the fee and deposit all taxes,
penalties, and interest collected under the law into the
Children's Health Promotion Fund, which this bill would
establish.
Related Legislation: In 1983, Assembly Bill 105 (Moore) imposed
a $0.07 per gallon excise tax on the distribution of
nonalcoholic carbonated beverages, except carbonated water and
carbonated fruit juice. The bill's provisions also included a
$0.50 per gallon excise tax on the distribution of nonalcoholic
carbonated beverage syrup. That bill died in the Assembly
Revenue and Taxation Committee (AR&T).
In 2002, Senator Ortiz introduced Senate Bill 1520, which
imposed an excise tax upon every distributor, manufacturer, or
wholesale dealer at a rate of $2 per gallon of soft drink syrup
or simple syrup, $0.21 per gallon of bottled soft drinks, and
$0.21 per gallon of soft drinks that may be produced from powder
sold in this state. The soda tax provisions were removed from
the April 29, 2002, version of the bill.
Two bills were introduced in 2010. AB 2100 (Coto) proposed a tax
of one cent per teaspoon of added sweetener in a beverage or in
a sweetened concentrate. Assembly
Bill 2100 was held under submission in the AR&T. SB 1210
(Florez) was substantially similar to AB 2100 and was placed on
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suspense in the Senate Committee on Revenue and Taxation with no
further action.
Staff Comments: The bill becomes operative on July 1, 2014.
However, BOE would incur costs (IT programming, notification and
registration of taxpayers, etc.) in the preceding fiscal year,
and the agency's budget as currently proposed for 2013-14 does
not includes funds for SB 622's implementation. Consequently,
BOE would require an appropriation to cover upfront
administrative implementation costs. Typically, BOE seeks
administrative cost reimbursement from the account or fund into
which tax proceeds are deposited. However, the special fund this
bill creates would lack monies to reimburse BOE prior to
collection of the tax, which could necessitate a loan from
another source.
To effectively implement this bill, the BOE must: notify and
register taxpayers; develop computer programs; hire and train
key staff; create necessary forms and schedules; and answer
taxpayer inquiries. These functions must take place before the
tax becomes operative.
Staff notes that the retail sales price of TPP is subject to the
SUT, unless specifically exempted or excluded by law. Since the
proposed excise tax imposed pursuant to this bill is not
specifically exempted or excluded, it would be included in the
total amount of the sales price and, therefore, subject to sales
or use tax. To the extent that the tax is reflected in the
retail prices of sweetened beverages, SUT revenues would be
higher than would otherwise be the case.
BOE staff cites an industry publication that reports that in
2012, California consumed 174 billion ounces of sweetened
beverages, implying that this measure's excise tax revenues
would have been $1.74 billion. BOE assumes a decline in
consumption through at least 2015-16, consistent with
microeconomic theory regarding taxpayers response to price
increase.
Staff notes that the BOE revenue may be overstated. The
industry-published consumption statistic that drives BOE's
revenue estimate implies that per-capita consumption of
sweetened beverages (excluding the age 0-9 cohort) was 5,305
ounces, or about 41 gallons. Even accounting for the fact that
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the published data may include beverages that are below the 50
percent threshold in the bill, the imputed per-capita
consumption may overstate actual consumption.