BILL ANALYSIS Ó
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Date of Hearing: August 25, 2015
ASSEMBLY COMMITTEE ON PUBLIC HEALTH AND DEVELOPMENTAL SERVICES
Rob Bonta, Chair
ABX2 10
(Bloom) - As Introduced July 16, 2015
SUBJECT: Local taxes: authorization: cigarettes and tobacco
products.
SUMMARY: Authorizes a board of supervisors of a county or city
and county to impose taxes on cigarette and tobacco
distributors, including within an incorporated city within the
county.
EXISTING LAW:
1)Imposes a tax on distributors of cigarettes and tobacco
products, set at $0.87 per pack of 20 cigarettes. Requires
the taxes on cigarette and tobacco products to fund a variety
of programs and services including: health education,
research, hospital care, fire prevention, environmental
conservation, breast cancer research and early detection
services, and early childhood development programs.
2)Establishes the Board of Equalization (BOE) and requires the
BOE to administer the tobacco tax provisions, including
collecting the tax.
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3)Requires the BOE to annually set a tax on other tobacco
products, such as cigars and chewing tobacco, at an amount
equivalent to the tax on cigarettes.
4)Requires a distributor, wholesaler, manufacturer, or importer
of cigarettes or tobacco products to register with and be
licensed by the BOE.
5)States that the cigarette and tobacco products taxes apply in
lieu of all other state, county, municipal, or district taxes
on the privilege of distributing cigarettes or tobacco
products. The in-lieu language does not prohibit the
application of a fee, the sales and use tax, Uniform Local
Sales and Use Tax Law, or Transactions and Use Tax Law to the
sale, storage, use or other cigarette or tobacco products
consumption.
6)Prohibits a local government or district from imposing any
special tax unless and until such special tax is submitted to
the electorate of the local government, or district and
approved by a two-thirds vote of the voters voting in an
election on the issue.
FISCAL EFFECT: This bill has not yet been analyzed by a fiscal
committee.
COMMENTS:
1)PURPOSE OF THIS BILL. According to the author tobacco is the
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leading cause of preventable death and disease in the United
States and treatment for tobacco-related health conditions
costs the state billions of taxpayer dollars. The author
notes since the 1988 passage of Proposition 99, California has
seen smoking rates drop drastically due to the tax increase as
well as due to the programs funded by the tax. The author
contends it is time to take the success of the statewide tax
and utilize it on a more local level, empowering local
authorities to discourage the use of tobacco products and
providing a new source of funding to important local programs.
The author states, while rates of tobacco usage have
decreased in recent decades, there are still large numbers of
teenagers and young adults who are picking up their first
cigarette and becoming addicted and the Surgeon General
projects that, without a serious reversal of current trends,
5.6 million youth age 0-17 alive today will die prematurely
from tobacco use. The author concludes it is time to focus on
what can be done on a local level to directly address the
issues that are leading Californians to begin and maintain
this harmful habit.
2)BACKGROUND.
a) Tobacco taxes in California. Prior to 1989, California
levied an excise tax of $0.10 on each pack of 20
cigarettes. Passage of Proposition 99 in November 1988
increased the excise tax on cigarettes by $0.25 per pack
(to $0.35 per pack) effective January 1, 1989 and imposed a
"tobacco products tax" on cigars, chewing tobacco, pipe
tobacco, and snuff. The tobacco products tax, which is
stated as a percentage of the wholesale cost of tobacco,
was set at a rate equivalent to the excise tax on
cigarettes. Proposition 99 revenues are deposited into the
Cigarette and Tobacco Products Surtax Fund to support
anti-smoking education programs, tobacco-related diseases
research, indigent health care and public resources. An
additional $0.02 per pack cigarette increase was added in
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1994 to fund Breast Cancer Research. The proceeds from the
tax are deposited in the Breast Cancer Fund, with
allocations to the Breast Cancer Research Program and the
Breast Cancer Control Program.
Passage of Proposition 10 in November 1998 further increased
both the cigarette and tobacco products tax rates, bringing the
state tax to $0.87. Proposition 10 increased the cigarette tax
rate by $0.50 per pack and the other tobacco products tax rate
increased by an equivalent amount, effective January 1, 1999.
Proposition 10 requires that revenues from the Proposition 10
tax increase be deposited in the California Children and
Families First Trust Fund for the purpose of promoting,
supporting, and improving the development of children from the
prenatal stage to five years of age. Proposition 10 also
indirectly generated a second increase in the other tobacco
products tax rate, beginning July 1, 1999. This additional
increase resulted because Proposition 99 requires the other
tobacco products tax rate to be recalculated on July 1 of each
year based on the wholesale price of cigarettes in March of that
year. Thus, when Proposition 10 increased the tax on a pack of
cigarettes by $0.50 on January 1, it indirectly triggered an
additional increase in the other tobacco products tax on July 1,
1999. Revenues from this additional increase were deposited in
the Cigarette and Tobacco Products Surtax Fund to fund
Proposition 99 programs. There is a federal excise tax on
cigarettes of $1.01 per pack.
b) Smoking prevalence. According to the 2012 Surgeon
General's Report, nearly 90% of smokers in the United
States started smoking by the age of 18, and 99% started by
age 26. In California, 64% of smokers start by the age of
18 and 96% start by age 26. According to the Department of
Public Health (DPH), in 2010, 36.8% of high school students
had smoked a whole cigarette by age 13 or 14, and illegal
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tobacco sales to minors rose to 8.7% from 5.6% in 2011.
Yet, the state's adult smoking rate has hit a record low. In
2010, 11.9% of the state's adults smoked, down from 13.1% in
2009, making California one of only two states to reach the
federal Healthy People 2020 target of reducing the adult smoking
prevalence rate to 12%. However, research highlights that the
burdens of smoking do not fall evenly across the state.
According to the American Lung Association (ALA),
African-American men and women have the highest smoking usage
rate at 21.3% and 17.1% respectively, followed by white men at
17.2% and Latino men at 16%. The ALA reports that Korean men
have an unusually high tobacco usage rate at 27.9%, as do
Lesbian, Gay, Bisexual, and Transgender women who smoke at
almost triple the rate of women in general.
c) Tobacco-related diseases. Every year, an estimated
443,000 people in the United States die from tobacco and
smoking-related illnesses or exposure to secondhand smoke,
according to the Centers for Disease Control and Prevention
(CDC). The CDC also reports that another 8.6 million
people suffer from serious smoking-related illnesses.
According to DPH, smoking causes heart disease, cancer,
stroke, and chronic lower respiratory diseases, which are
the leading causes of death and disability among adults in
California. Smoking-attributed diseases are an economic
burden due not only to health care expenses but also
productivity losses related to disability or early death.
DPH asserts, since the 1988 passage of Proposition 99 in
California, adult smoking rates declined by more than 40%
from 22.7% to 13.3% in 2008. As smoking rates declined,
mortality and morbidity rates for diseases related to
smoking also declined. This parallel trend, according to
DPH, supports causal association between these conditions
and smoking.
d) Tobacco taxes and other states. California's tobacco
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tax rate ($0.87) ranks 33rd when compared to the rates of
other states. The national median cigarette tax rate is
$1.54 per pack. The highest tobacco tax rate is in New
York at $4.35 per pack and the lowest is Virginia at $0.30
per pack. Some local governments, such as New York City
($5.85 per pack total tax rate) and Chicago ($5.66 per pack
total tax rate) have their own tax in addition to the state
tax. California has not raised its cigarette excise tax
since 1998. According to the Campaign for Tobacco-Free
Kids, the average price for a pack of cigarettes in
California is $5.44 with all taxes included.
e) Impacts of higher cigarette prices. According to the
Legislative Analyst's Office (LAO), most revenue estimates
assume that an increased tax on cigarettes would raise the
retail prices of cigarettes to include the new cost. This
could potentially result in consumers reducing the quantity
of taxable products they consume. The LAO further reports,
since the use of tobacco products has been linked to
various adverse health effects, an increased cigarette tax
could reduce state, and local government health care
spending on tobacco-related diseases over the long-term.
In particular, state and local governments in California
incur costs for providing: i) health care for low-income
and uninsured persons; and, ii) health insurance coverage
for state and local government employees and retirees.
DPH maintains that higher taxes are particularly effective
in reducing smoking among vulnerable populations, such as
youth, pregnant women, and low-income smokers. Increases in
tobacco prices affect the behavior of the young and
low-income, who tend to be more responsive to price changes
than older and wealthier individuals. Higher tobacco taxes
could encourage more low-income smokers to quit. According
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to the Federal Trade Commission Cigarette Report, since
three out of every four smokers expected to quit because of
cigarette tax increase are estimated to be low-income, the
public health benefits of reduced tobacco-related illnesses
from smoking will also be borne by lower-income households.
However, if individuals considered to be low-income do not
quit, the tobacco tax increase could be considered a
regressive tax because these populations would be spending
more of their income on the product.
Higher cigarette prices through tax or fee increases can
also exacerbate tax evasion and foster illegal cigarette
sales. These illegal activities include increased
smuggling of cigarettes and tobacco products into
California and the sale of counterfeit cigarette stamps and
products. According to the BOE, cigarette tax evasion is
highly correlated with cigarette prices and excise tax
rates. It was this concern regarding illegal sales that
led to the enactment of the California Cigarette and
Tobacco Products Licensing Act of 2003 [AB 71 (Horton),
Chapter 890, Statutes of 2003], which establisheds a
comprehensive licensing program for retailers,
manufacturers, distributors, and importers of cigarettes
and tobacco products. According to the BOE, the California
Cigarette and Tobacco Licensing Act of 2003 has been
successful in reducing illegal sales.
f) Local Tobacco Fee. The City and County of San
Francisco's Cigarette Litter Abatement Fee is a $0.20 per
pack of cigarettes fee collected at the point of sale by
the retailer. The funds generated by the fee are used to
abate cigarette litter through education and removal of
cigarette litter. In 2008, the City and County of San
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Francisco spent over $24 million in public litter clean up,
with cigarette related waste alone amounting to
approximately $6.1 million of the City's annual litter
removal costs. The fee is estimated to generate $5 million
annually. The ordinance has been in effect since 2009.
3)SUPPORT. The American Cancer Society Cancer Action Network
(ACS CAN) is the sponsor of this bill and states California
has one of the lowest tobacco taxes in the nation, currently
ranking 35th with a tax of 0.87. ACS CAN notes the average
nationwide cigarette tax in $1.60 per pack, and that local
control of tobacco taxes is a critical tool in allowing
communities to set public health priorities that can better
meet the needs of its citizens. ACS CAN concludes tobacco
taxes are one of the most effective ways to drive down smoking
and studies have shown communities benefit when those tobacco
taxes are passed.
The American Heart Association/American Stroke Association
(AHA/ASA) states regular, significant increases in the retail
price of cigarettes reduce the number of people who begin
smoking and increase the number of smokers who quit. AHA/ASA
points out for every 10% increase in the price of cigarettes;
there is a 4% reduction in overall cigarette consumption and a
.5% reduction in youth consumption.
4)RELATED LEGISLATION.
a) SBX2 9 (McGuire) is substantially similar to this bill.
SBX2 9 was heard in the Senate Committee on August 19, 2015
and passed w/ a vote of 9 to 2. SBX2 9 is currently
pending a vote on the Senate Floor.
b) SBX2 5 (Leno) and ABX2 6 (Cooper) define the term
smoking for purposes of the Stop Tobacco Access to Kids
Enforcement (STAKE) Act; expand the definition of a tobacco
product to include e-cigarettes and extends current
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restrictions and prohibitions against the use of tobacco
products to e-cigarettes. Extend current licensing
requirements for manufacturers, importers, distributors,
wholesalers, and retailers of tobacco products to
e-cigarettes. SBX2 5 was heard in the Senate Committee on
Public Health and Developmental Disabilities on August 19,
2015 and passed out on a vote of 9 to 3. SBX2 5 is
currently pending in the Senate Committee on
Appropriations. ABX2 6 is set to be heard on August 25th
in this Committee.
c) SBX2 6 (Monning) and ABX2 7 (Stone) prohibit smoking in
owner-operated businesses and remove specified exemptions
in existing law that allow tobacco smoking in certain
workplaces. SBX2 6 was heard on August 19, 2015 in the
Senate Committee on Public Health and Developmental
Disabilities and passed on a 9 to 2 vote. SBX2 6 is
currently pending in the Senate Appropriations Committee.
ABX2 7 is set for hearing on August 25th in this Committee.
d) SBX2 7 (Ed Hernandez) and ABX2 8 (Wood) increase the
minimum legal age to purchase or consume tobacco from 18 to
21. SBX2 7 was heard on August 19, 2015 in the Senate
Committee on Public Health and Developmental Disabilities
and passed on a 9 to 3 vote and is pending in the Senate
Appropriations Committee. ABX2 8 is set to be heard on
August 25th in this Committee.
e) SBX2 10 (Beall) and ABX2 11 (Nazarian) revise the
Cigarette and Tobacco Products Licensing Act of 2003 to
change the retailer license fee from a $100 one-time fee to
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a $265 annual fee, and increase the distributor and
wholesaler license fee from $1,000 to $1,200. SBX2 10 was
heard on August 19, 2015 in the Senate Committee on Public
Health and Developmental Disabilities and passed with a
vote of 9 to 3 and is pending in the Senate Appropriations
Committee. ABX2 11 is set to be heard on August 25th in
this Committee.
f) AB 1396 (Bonta) allocates the revenues generated by SB
591 (Pan), the California Tobacco Tax Act of 2015 (Tobacco
Tax Act), to various state funds, as specified. Makes the
enactment of that bill contingent upon enactment of SB 591.
Contains an urgency clause to ensure that the provisions
of that bill go into immediate effect upon enactment. AB
1396 is currently on the Assembly Inactive File.
g) SB 591 imposes an additional excise tax of $2.00 per
package of 20 cigarettes. Imposes an equivalent one-time
"floor stock tax" on the cigarettes held or stored by
dealers and wholesalers, and indirectly increases the
tobacco products tax. SB 591 is currently on the Senate
Inactive File.
5)PREVIOUS LEGISLATION.
a) SB 653 (Steinberg) of 2011 would have authorized the
governing board of any county or city and county, any
school district, any community college district, and any
county office of education subject to specified
constitutional and voter approval requirements, to levy,
increase, or extend a local personal income tax,
transactions and use tax, vehicle license fee, and excise
tax, including, but not limited to, an alcoholic beverages
tax, a cigarette and tobacco products tax, a sweetened
beverage tax, and an oil severance tax, as provided. SB
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653 failed passage on the Senate Floor.
b) AB 1040 (Leno) of 2003 would have, subject to specified
requirements, authorized the board of supervisors of a
county to impose a tax, in addition to other local taxes,
on the privilege of selling cigarette and tobacco products
at retail within its boundaries, whether or not within an
incorporated city. Among other things, the tax would be
subject to approval by a majority vote of the board of
supervisors and by a two-thirds vote of the qualified
voters of the county and would be imposed at an unspecified
rate in increments of 1/8%. The ordinance levying the tax
would, among other things, require the county to contract
with the State Board of Equalization with respect to the
administration of the tax, as provided. AB 1040 was held
in the Assembly Committee on Revenue and Taxation.
REGISTERED SUPPORT / OPPOSITION:
Support
American Cancer Society Cancer Action Network (sponsor)
American Heart Association/American Stroke Association
American Lung Association in California
Association of Northern California Oncologists
California Black Health Network
California Chronic Care Coalition
California Dental Association
California Medical Association
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California Optometric Association
California Pan-Ethnic Health Network
California Primary Care Association
California Society of Addiction Medicine
Community Action Fund of Planned Parenthood of Orange and San
Bernardino Counties
Health Access California
Medical Oncology Association of Southern California, Inc.
Planned Parenthood Advocacy Project Los Angeles County
Planned Parenthood Affiliates of California
Planned Parenthood Mar Monte
Planned Parenthood Northern California Action Fund
Planned Parenthood Action Fund of the Pacific Southwest
Opposition
None on file.
Analysis Prepared by:Lara Flynn / HEALTH / (916) 319-2097