BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | ABX2 10|
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THIRD READING
Bill No: ABX2 10
Author: Bloom (D), et al.
Amended: 3/3/16
Vote: 21
SENATE PUBLIC HEALTH AND DEVELOPMENTAL SERVICES COMMITTEE:
9-3, 3/7/16
AYES: Hernandez, Beall, Hall, Leno, McGuire, Mitchell,
Monning, Pan, Wolk
NOES: Morrell, Anderson, Nielsen
NO VOTE RECORDED: Moorlach
SENATE APPROPRIATIONS COMMITTEE: 5-2, 3/8/16
AYES: Lara, Beall, De León, Hill, Mendoza
NOES: Bates, Nielsen
ASSEMBLY FLOOR: 46-27, 3/3/16 - See last page for vote
SUBJECT: Local taxes: authorization: cigarettes and tobacco
products
SOURCE: Author
_________________________________________________________________
_
DIGEST: This bill allows counties to impose a tax on the
privilege of distributing cigarettes and tobacco products.
ANALYSIS:
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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.
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.
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 BOE to collect and administer the local tax on
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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 BOE 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 BOE to
require reimbursement for costs incurred in complying with
such requests.
Comments
1)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
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.
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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.
2)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.
3)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
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.
The Department of Public Health maintains that higher taxes
are particularly effective in reducing smoking among
vulnerable populations, such as youth, pregnant women, and
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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.
4)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
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.
FISCAL EFFECT: Appropriation: No Fiscal
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Com.:YesLocal: No
According to the Senate Appropriations Committee:
Unknown costs to develop tax collection systems and procedures
and to collect local taxes by the BOE (reimbursements). The
number of counties that would elect to impose a new tax on
tobacco distributors is unknown. In addition, the bill does
not require that counties impose such a local tax in a uniform
manner. Therefore, the specific requirements of
locally-imposed taxes, including the tax amounts, would likely
vary between jurisdictions. Different tax requirements between
jurisdictions would increase startup costs to the BOE. Under
the requirements of the bill, all costs incurred by the BOE
would be reimbursed by the county imposing the new tax.
Unknown costs for the BOE to allow counties to access BOE
records (reimbursements). The bill requires the BOE to allow
counties to access BOE records regarding the existing tobacco
tax, in order for counties to administer the locally tax
authorized in the bill. (Presumably, counties would need
information on current tobacco tax payers in order to design
their own local tax.) Under the bill, the BOE is authorized to
require reimbursement for any costs it incurs in sharing this
information.
SUPPORT: (Verified 2/29/16)
American Academy of Pediatrics, California
American Cancer Society Cancer Action Network
American Heart Association/American Stroke Association
American Lung Association in California
Association of Northern California Oncologists
California Academy of Family Physicians
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
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Community Action Fund of Planned Parenthood Orange and San
Bernardino Counties
First 5 California
March of Dimes, California Chapter
Medical Oncology Association of California
Planned Parenthood Advocacy Project Los Angeles
Planned Parenthood Affiliates of California
Planned Parenthood Mar Monte
Planned Parenthood Northern California Action Fund
Planned Parenthood of the Pacific Southwest
OPPOSITION: (Verified2/29/16)
California Chamber of Commerce
California Distributor Association
California Retailers Association
California Taxpayers Association
Howard Jarvis Taxpayers Association
National Federation of Independent Business
ARGUMENTS IN SUPPORT: The supporters of this bill argue that
this bill will help dissuade people from smoking, which causes
various smoking-related diseases and is the single-largest
preventable cause of death-killing more people than alcohol,
AIDS, car crashes, illegal drugs, murders, and suicide combined.
Supporters also cite the strains that tobacco-related illness
cause on the state's health care system, which is estimated at
$13.29 billion a year. Supporters argue that the burdens of
smoking are disproportionately felt by underserved, low-income,
and minority groups, and that an increased cigarette tax will
further fund programs that currently exist to support these
communities.
ARGUMENTS IN OPPOSITION: The opponents of this bill argue
that the bill will further add to the already regressive nature
of tobacco taxes. Opponents also argue the bill will lead to tax
evasion, and smokers will move their purchases to neighboring
cities and counties. Further, they argue that the bill will
create massive confusion for retailers and customers.
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ASSEMBLY FLOOR: 46-27, 3/3/16
AYES: Alejo, Bloom, Bonilla, Bonta, Brown, Burke, Calderon,
Campos, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Dodd,
Eggman, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez,
Gonzalez, Gordon, Gray, Roger Hernández, Jones-Sawyer, Levine,
Lopez, Low, McCarty, Medina, Mullin, Nazarian, O'Donnell,
Quirk, Rendon, Ridley-Thomas, Rodriguez, Santiago, Mark Stone,
Thurmond, Ting, Weber, Williams, Wood, Atkins
NOES: Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang,
Chávez, Dahle, Beth Gaines, Gallagher, Hadley, Harper, Irwin,
Jones, Kim, Lackey, Linder, Maienschein, Mathis, Mayes,
Melendez, Obernolte, Patterson, Salas, Steinorth, Wagner, Wilk
NO VOTE RECORDED: Daly, Frazier, Grove, Holden, Olsen, Waldron
Prepared by: Bouaziz, Myriam/ P.H. & D.S. /
3/9/16 14:52:21
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