BILL ANALYSIS                                                                                                                                                                                                    Ó

                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de León, Chair

          SB 622 (Monning) - Sweetened Beverage Tax: Children's Promotion  
          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  

          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  

          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  

          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.