BILL ANALYSIS                                                                                                                                                                                                    Ó






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                                   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:
               








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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: Myriam Bouaziz / P.H. & D.S. /
          3/9/16 16:38:09


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