BILL ANALYSIS Ó
AB 11 X2
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(Without Reference to File)
ASSEMBLY THIRD READING
AB 11
X2 (Nazarian)
As Amended March 3, 2016
Majority vote
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+---------------------|
|Public Health |9-4 |Bonta, Bonilla, |Maienschein, Baker, |
| | |Campos, Eduardo |Mayes, Steinorth |
| | |Garcia, Levine, | |
| | |Santiago, Mark Stone, | |
| | |Thurmond, Wood | |
| | | | |
|----------------+-----+----------------------+---------------------|
|Finance |6-3 |Weber, Bloom, Gomez, |Melendez, Bigelow, |
| | | |Obernolte |
| | | | |
| | |Jones-Sawyer, | |
| | |McCarty, Ting | |
| | | | |
| | | | |
AB 11 X2
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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, 2017, 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, 2017, 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
program.
EXISTING LAW:
1)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.
2)Requires a retailer, in order to obtain a license, to file a
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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.
3)Requires, if a retailer's license has expired, that as a
condition of reinstatement, they pay an additional fee of
$100.
4)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.
FISCAL EFFECT: This bill, as amended, has not been analyzed by
a fiscal committee.
COMMENTS: 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 (1998) which
funds First 5, to cover the administration of the licensing
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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.
1)MSA. The MSA is an accord reached in November 1998 between
the state Attorneys General of 46 states (including
California), five United States territories, the District of
Columbia and the five largest tobacco companies in 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.
2)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
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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:
a) The California Children and Families First Trust Fund.
Passage of Proposition 10 in November 1998 increased both
the cigarette and tobacco products tax 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.
b) 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.
c) The Breast Cancer Fund. Created by AB 2055 (Friedman)
Chapter 661, Statutes of 1993, to fund breast
cancer-related research and breast cancer screening for
uninsured women.
d) The General Fund (GF). Funds deposited into the GF are
available for appropriation by the Legislature.
e) 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:
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i) Instituting a recurring fee at the retail level to
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.
f) Other licensing fees. The state tobacco license fee is
currently only a one-time $100 fee. Many other businesses
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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.
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.
There is no known opposition on file.
Analysis Prepared by:
Lara Flynn / P.H. & D.S. / (916) 319-2097 FN:
0002644
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