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 11
(Nazarian) - As Introduced July 16, 2015
SUBJECT: Cigarette and tobacco product licensing: fees and
funding.
SUMMARY: Updates the Cigarette and Tobacco Products Licensing
Program under the Board of Equalization (BOE) by increasing
licensing, distributor, and wholesaler fees. Specifically, this
bill:
1)Increases, beginning January 1, 2016, the current one-time
retailer license fee of $100 per location to $265 per location
and imposes a $265 fee for the annual renewal of a tobacco
retailer license.
2)Increases, beginning January 1, 2016, the annual distributor
and wholesaler licensing fee from $1,000 to $1,200.
3)Requires BOE to report back to the Legislature no later than
January 1, 2019, regarding the adequacy of funding for the
Cigarette and Tobacco Products Licensing Act of 2003.
Requires the report to include data and recommendations about
whether the annual licensing fee funding levels are set at an
appropriate level to maintain an effective enforcement
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program.
EXISTING LAW:
4)Requires, under the Cigarette and Tobacco Licensing Act of
2003 (Licensing Act), a retailer to have in place and maintain
a license to engage in the sale of cigarettes or tobacco
products. Provides that a retailer license is valid for a
12-month period and must be renewed annually.
5)Requires a retailer, in order to obtain a license, to file a
license application accompanied by a one-time license fee of
$100 for each retail location. Requires the retailer to renew
the license annually but only requires the $100 fee per retail
location with the initial application.
6)Requires, if a retailer's license has expired, that as a
condition of reinstatement, they pay an additional fee of
$100.
7)Establishes the Stop Tobacco Access to Kids Enforcement
(STAKE) Act, which charges the Department of Public Health
(DPH) with developing a program to reduce the availability of
tobacco products to persons under 18 years of age and
specifies that various agencies, including, but not limited
to, DPH, the Attorney General, or local law enforcement
agencies may enforce the STAKE Act. Requires DPH, after a
third, fourth, or fifth violation, to notify the BOE of the
violation and for the BOE to then assess an additional civil
penalty and to suspend or revoke the sellers' license for a
specific amount of time, based on the number of violations in
a given period.
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FISCAL EFFECT: This bill has not yet been analyzed by a fiscal
committee.
COMMENTS:
1)PURPOSE OF THIS BILL. According to the author the one-time
tobacco licensing fee is not adequate to cover costs
associated with maintaining a viable enforcement program,
which is crucial to help maintain Master Settlement Agreement
(MSA) compliance and enforce the STAKE Act. The author states
this bill serves businesses by stopping violators from
circumventing the law and competing with legitimate
businesses. The author notes this bill ends BOE's practice of
relying on the administrative funds generated by tobacco taxes
such as Proposition 10 which funds First 5, to cover the
administration of the licensing program. The author contends
the licensing program must be funded solely by licensing fee
revenue, and this bill protects the viability of tobacco
health and education programs. The author concludes
additional revenue made available by this bill will eliminate
the need to divert tobacco excise taxes from their intended
purpose to instead pay for the deficit in the tobacco
licensing program.
2)BACKGROUND.
a) MSA. The MSA is an accord reached in November 1998
between the state Attorneys General of forty-six states
(including California), five U.S. territories, the District
of Columbia and the five largest tobacco companies in
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America concerning the advertising, marketing and promotion
of tobacco products. In addition to requiring the tobacco
industry to pay the settling states approximately $10
billion annually for the indefinite future, the MSA also
set standards for, and imposed restrictions on, the sale
and marketing of cigarettes by participating cigarette
manufacturers.
Under the MSA states must pass laws requiring
non-participating manufacturers to make payments to the
state based on their cigarette sales, and to diligently
enforce the payments requirements by tracking all
cigarettes sold in the state. To fulfill California's
obligations under the MSA, the Legislature created new
programs administered by the BOE and the Department of
Justice, including BOE's cigarette and Tobacco Licensing
Program.
b) Legislative Analyst Office (LAO) Budget Brief.
According to a 2015-16 LAO Budget Brief: Cigarette Tax and
Licensing Programs, the initial influx of revenue from the
licensing program was sufficient to pay the program's
costs, however in subsequent years fee revenue has been
one-tenth of the initial level and expenditures
consistently exceed revenue. Beginning in 2005-06, annual
expenditures averaged $7 million more than annual fee
revenue. As a result, the Legislature, in fiscal year
2006-07, allowed the BOE to charge the funds that receive
cigarette and tobacco excise tax revenue to cover the
administration of the licensing program. Consequently, the
funds pay about four-fifths of the licensing program's
costs, which have led to reduced programmatic resources.
The funds affected are:
i) The California Children and Families First Trust
Fund. Passage of Proposition 10 in November 1998
increased both the cigarette and tobacco products tax
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rates. Proposition 10 requires that revenues from the
tax increase be deposited in the California Children and
Families First Trust Fund (First 5) for the purpose of
promoting, supporting, and improving the development of
children from the prenatal stage to five years of age.
ii) The Cigarette and Tobacco Products Surtax Fund.
Enacted by voters in November 1988, the California
Tobacco Health Protection Act of 1988, also known as
Proposition 99, increased the state cigarette tax by
$0.25 per pack and added an equivalent amount on other
tobacco products. The new revenues were earmarked for
programs to reduce smoking, to provide health care
services to indigents, to support tobacco-related
research, and to fund resource programs for the
environment.
iii) The Breast Cancer Fund. Created by AB 2055
(Friedman) Chapter 661, Statues of 1993, to fund breast
cancer-related research and breast cancer screening for
uninsured women.
iv) The General Fund (GF). Funds deposited into the GF
are available for appropriation by the Legislature.
c) BOE report on funding options. In 2014 representatives
from Proposition 10 programs expressed concern about the
administrative costs and funding of BOE's Cigarette and
Tobacco Program resulting in reduced funds for other
special programs, and the Legislature required BOE to
report back with other funding options. Some BOE's
proposals include:
i) Instituting a recurring fee at the retail level to
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increase the share of costs covered by the licensing
fees;
ii) Increasing the taxes assessed on cigarettes and
tobacco products by an unspecified amount;
iii) Tax electronic cigarettes, dissolvable tobacco, and
other recently developed products by expanding the
definition of tobacco product;
iv) Paying for the cigarette and tobacco products
licensing program with funds from the GF; and,
v) Reduce spending and cap administrative costs on the
cigarette and tobacco products licensing program.
The LAO brief notes that closing the funding gap through
reduced spending would be risky because the Legislature
created the licensing program to comply with the MSA
requirement for diligent enforcement of tobacco laws, and
states found not to be diligent have had their revenues
reduced.
According to the BOE report, there are currently 37,000
licensed retailers. Staff notes, if they each paid an
additional $265 annual renewal fee as proposed by this bill
it would generate an additional $9.8 million which more
closely aligns with the BOE's cost to run the program.
d) Other licensing fees. The state tobacco license fee is
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currently only a one-time $100 fee. Many other businesses
in California pay much larger license fees, for example,
the state liquor license fees for stores that sell beer,
wine and spirits for consumption off premises is $13,800
for the original license with an annual renewal fee of
$582. A state pharmacy license costs $260 for the original
application with a biennial renewal fee of $207.
3)SUPPORT. The American Lung Association (ALA) in California,
and numerous other organizations including the California
Dental Association, California Pan-Ethnic Health Network,
Health Access California, and California Black Health Network
support this bill, stating, adjusting state tobacco licensee
fees to ensure that they cover the cost of administering the
licensing program will eliminate a chronic shortfall in the
BOE's costs to administer the program and allow the current
diversion of tobacco excise taxes to cease. The ALA notes
that siphoning of funds into the licensing programs means that
there are fewer Proposition 99 funds available for reducing
smoking, providing health care services, supporting
tobacco-related research, and funding resource programs for
the environment - the intended purposes of the Proposition 99
funds.
4)RELATED LEGISLATION.
a) SBX2 10 (Beall) is substantially similar to this bill.
SBX2 10 was heard in the Senate Committee on Public Health
and Developmental Disabilities on August 19, 2015 and
passed out with a vote of 9 to3. SBX2 10 is currently
pending in the Senate Appropriations Committee.
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
restrictions and prohibitions against the use of tobacco
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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 8 (Liu) and ABX2 9 (Thurmond and Nazarian) clarify
charter school eligibility for tobacco use prevention
program (TUPE) funds; require the California State
Department of Education to require all school districts,
charter schools, and county offices of education receiving
TUPE funds to adopt and enforce a tobacco-free campus
policy; prohibit the use of tobacco and nicotine products
in any county office of education, charter school, or
school district-owned or leased building, on school or
district property, and in school or district vehicles; and,
require all schools, districts, and offices of education to
post a sign reading "Tobacco use is prohibited" at all
entrances. SBX2 8 passed the Senate Committee on Public
Health and Developmental Disabilities with a vote of 9 to 3
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on August 19, 2015 and is currently pending in the Senate
Committee on Appropriations. ABX2 9 is set for hearing on
August 25th in this Committee.
e) SBX2 9 (McGuire) and ABX2 10 (Bloom) allow counties to
impose a tax on the privilege of distributing cigarettes
and tobacco products. SBX2 9 was heard on August 19, 2015
in the Senate Committee on Public Health and Developmental
Disabilities and passed with a vote of 9 to 2 and is
currently pending in the Senate Appropriations Committee.
ABX2 10 is set for hearing on August 25th in this
Committee.
5)PREVIOUS LEGISLATION.
a) SB 625 (Padilla), Chapter 654, Statutes of 2007,
establishes a $100 reinstatement fee upon retailers that
engage in the sale of cigarettes and tobacco products in
this state but fail to renew the necessary licenses.
b) AB 71 (Horton), Chapter 890, Statutes of 2003, enactes
the Cigarette and Tobacco Products Licensing Act of 2003,
which imposes licensing requirements on tobacco
manufacturers, wholesalers, retailers and importers;
requires manufacturers to pay a one-time fee; and, imposes
additional civil and criminal penalties on individuals and
businesses who violate tobacco-related, anti-contraband
laws, and laws prohibiting tobacco-related sales to minors.
REGISTERED SUPPORT / OPPOSITION:
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Support
American Cancer Society Cancer Action Network
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 Action Fund of the Pacific Southwest
Planned Parenthood Advocacy Project Los Angeles
Planned Parenthood Affiliates of California
Planned Parenthood Mar Monte
Planned Parenthood Northern California Action Fund
Opposition
None on file.
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Analysis Prepared by:Lara Flynn / HEALTH / (916) 319-2097