BILL ANALYSIS Ó
SENATE COMMITTEE ON PUBLIC HEALTH AND DEVELOPMENTAL SERVICES
Senator Ed Hernandez, O.D., Chair
BILL NO: ABX2 10
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|AUTHOR: |Bloom |
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|VERSION: |March 3, 2016 |
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|HEARING DATE: |March 7, 2016 | | |
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|CONSULTANT: |Myriam Bouaziz |
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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; allows
counties, or cities and counties to enter into agreements with
other counties, or cities and counties to share any startup and
administrative costs; and, also allows them to enter into an
agreement with the State Board of Equalization (BOE) to perform
functions incident to the administration or operation of a tax
imposed pursuant to the authorization of this bill.
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 BOE and requires the BOE to administer the
tobacco tax provisions, including collecting the tax.
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.
ABX2 10 (Bloom) Page 2 of ?
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.
This bill:
1)Allows a board of supervisors of a county, or city and county,
to impose a tax on the privilege of distributing cigarettes
and tobacco products in the county or city and county
.
2)Requires a board of supervisors, subject to California
Constitution limitations, to adopt an ordinance to levy a tax
on the privilege of distributing cigarettes and tobacco
products. The vote threshold is majority for a general tax,
and two-thirds for a special tax
.
3)Allows the Board of Equalization to collect and administer the
local tax on behalf of a county or a city and county.
4)Allows the board of supervisors of a county, or city and
county, to contract with another county, or city and county,
to share any administration costs in order to impose the local
tax.
5)Requires the Board of Equalization to allow, upon request, a
county, or city and county officer or employee to examine any
records regarding the administration of the cigarette and
tobacco products tax ordinance of the county or city and
county. Allows the Board of Equalization to require
reimbursement for costs incurred in complying with such
requests.
FISCAL
EFFECT : This bill has not been analyzed by a fiscal committee.
PRIOR
VOTES :
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|Assembly Floor: | 46-27 |
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ABX2 10 (Bloom) Page 3 of ?
|Assembly Appropriations Committee: | |
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|Assembly Public Health and | 9-4 |
|Developmental Services Committee: | |
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COMMENTS :
1)Author's statement. According to the author, tobacco is the
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)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 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 %
ABX2 10 (Bloom) Page 4 of ?
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.
3)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 ischemic 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.
4)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 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
ABX2 10 (Bloom) Page 5 of ?
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.
5)Tobacco taxes and other states. California's tobacco 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.
6)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. Additionally, the state and
local governments in California incur costs for providing: 1)
health care for low-income and uninsured persons and 2) health
insurance coverage for state and local government employees
and retirees. The LAO further reports, since the use of
ABX2 10 (Bloom) Page 6 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.
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 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
established 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.
7)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 Francisco spent over
$24,792,558 in public litter clean up, with cigarette related
ABX2 10 (Bloom) Page 7 of ?
waste alone amounting to approximately $6,098,969 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.
8)Related legislation. SBX2 5 (Leno) recasts and broadens the
definition of "tobacco product" in current law to include
electronic cigarettes as specified; extends current
restrictions and prohibitions against the use of tobacco
products to electronic cigarettes; extends current licensing
requirements for manufacturers, importers, distributors,
wholesalers, and retailers of tobacco products to electronic
cigarettes; requires electronic cigarette cartridges to be
child-resistant; and exempts active duty military personnel,
as specified, from the requirement of being 21 years of age or
older to purchase tobacco products. SBX2 5 is pending on the
Senate Floor.
SBX2 7 (Hernandez) increases the minimum legal age to purchase
or consume tobacco from 18 to 21. SB X2 7 is pending on the
Senate Floor.
ABX2 7 (Stone) removes many, but not all, exemptions in
existing law that allow tobacco smoking in certain indoor
workplaces and expands the prohibition on smoking in a place
of employment to include owner-operated businesses. ABX2 7
will be heard in this committee on March 7, 2016.
ABX2 9 (Thurmond) extends current tobacco use prevention
funding eligibility and requirements for county offices of
education and school districts to include charter schools;
broadens the definition of products containing tobacco and
nicotine, as specified, and prohibits their use in specified
areas of schools and school districts, regardless of funding;
and requires specified signs to be prominently displayed at
all entrances to school property. ABX2 9 will be heard in this
committee on March 7, 2016.
ABX2 10 (Bloom) allows counties to impose a tax on the
privilege of distributing cigarettes and tobacco products.
ABX2 10 will be heard in this committee on March 7, 2016.
ABX2 11 (Nazarian) revises the Cigarette and Tobacco Products
Licensing Act of 2003 to change the retailer license fee from
a $100 one-time fee to a $265 annual fee, and increase the
ABX2 10 (Bloom) Page 8 of ?
distributor and wholesaler license fee from $1,000 to $1,200.
ABX2 11 will be heard in this committee on March 7, 2016.
9)Prior legislation. 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 653 failed passage on the
Senate Floor.
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.
10)Support. The American Cancer Society Cancer Action Network
(ACS CAN) 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
ABX2 10 (Bloom) Page 9 of ?
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.
11)Opposition. The California Distributor Association opposes
this bill stating it would create massive confusion for
retailers and consumers alike because small businesses in the
same area but different municipalities will have different
tax-rates, allowing the store with the lower tax a business
advantage.
SUPPORT AND 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
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
Oppose: California Chamber of Commerce
California Distributor Association
CalTax
Howard Jarvis Taxpayers Association
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