BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | ABX2 10| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: ABX2 10 Author: Bloom (D), et al. Amended: 3/3/16 in Assembly 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: ABX2 10 Page 2 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 ABX2 10 Page 3 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. ABX2 10 Page 4 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 ABX2 10 Page 5 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 ABX2 10 Page 6 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 ABX2 10 Page 7 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. ABX2 10 Page 8 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: Myriam Bouaziz / P.H. & D.S. / 3/9/16 16:38:09 **** END ****