BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 1901 |Hearing |6/29/16 |
| | |Date: | |
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|Author: |Quirk |Tax Levy: |No |
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|Version: |3/14/16 |Fiscal: |Yes |
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|Consultant|Bouaziz |
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Taxation: cigarettes: unaffixed stamps
Makes it a misdemeanor to buy, sell, or possess unaffixed
cigarette stamps.
Background
The Cigarette and Tobacco Products Tax Law imposes a tax on
cigarette distributors at the rate of $0.87 per package of 20
cigarettes. The cigarette tax must be paid through the use of
stamps or meter impressions. Specifically, these stamps or
meter impressions must be affixed to each package of cigarettes
distributed.
State law imposes a fine of up to $50,000, or imprisonment not
to exceed one year in county jail, or both, for possessing,
selling, or buying false or fraudulent cigarette tax stamps or
meter impressions, and requires the state Board of Equalization
(BOE) to destroy any stamps seized. Any fines assessed are
deposited in the Cigarette and Tobacco Products Compliance Fund.
Proposed Law
Assembly Bill 1901 provides that any person who possesses,
sells, or offers to sell, or who buys or offers to buy,
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"unaffixed stamps" is guilty of a misdemeanor, punishable by a
fine or imprisonment in county jail for up to a year, or both.
The bill requires BOE to destroy any unaffixed stamps.
AB 1901 defines "unaffixed stamps" as cigarette stamps for which
the tax has previously been paid by a licensed distributor and
previously affixed to a package. The term does not include any
unused and unapplied rolls of stamps or loose stamps acquired
from the State Board of Equalization (BOE) or its authorized
agent and in the possession of a licensed distributor.
The bill provides that no reimbursement is required under
Section Six of Article XIIIB of the California Constitution for
specified reasons.
State Revenue Impact
BOE estimates that this bill could potentially deter tax evasion
of approximately $400,000 annually.
Comments
1. Purpose of the bill. According to the author, "Under
existing law, cigarette distributors are required to pay an
87-cents excise tax on each pack of cigarettes by purchasing a
tax stamp which is affixed on each pack of cigarettes prior to
distribution. The BOE's inspection teams have recently
identified cigarette tax evasion schemes where used tax stamps
were re-used and affixed to another cigarette pack to evade the
87-cents per cigarette pack excise tax. BOE inspectors have
also found large collections of used stamps that are intended
for reuse. Current law is ambiguous whether BOE inspection
teams have the authority to seize and destroy the collection of
used stamps, even though it is clear that the used stamps have
been collected for the purpose of re-using the stamp to evade
the stamp tax. AB 1901 clarifies that it is a misdemeanor for
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anyone to possess, buy, sell, or offer to buy or sell any used
cigarette tax stamps. It also authorizes the BOE to seize and
destroy used cigarette tax stamps aggregated for reuse purposes.
Unlike postage stamps or trading cards that are collectibles
with value, cigarette tax stamp collections have value solely
related to tax evasion. During one enforcement operation alone,
BOE staff found a storage unit containing nearly 206,000
unaffixed, used stamps with a tax value of about $179,000 placed
on transfer sheets and prepared for affixation to cigarette
packs. AB 1901 serves to combat this tax evasion scheme,
minimize tax evasion opportunities, and assist in making the
marketplace fair and equitable for those that are legitimately
paying the excise tax."
2. Cigarette tax evasion. BOE's inspection teams have recently
identified tax evasion schemes involving reused cigarette tax
stamps. For example, an inspector's scan revealed that a stamp
affixed to a pack of Marlboros had originally been applied to a
pack of Camels. In these situations, it is obvious that the
original stamp was subsequently reused and affixed to another
cigarette pack. These used stamps can be acquired by rummaging
through trash bins or retailers may acquire them by offering to
unwrap cigarette packages for their customers. By applying used
stamps to an untaxed cigarette pack, taxpayers may evade the tax
and disguise duty free, counterfeit, stolen, smuggled, and
otherwise untaxed cigarettes as legitimate. The majority of
these used stamps appear to be affixed to counterfeit and duty
free cigarettes.
3. Strict liability. This bill establishes a strict liability
offense, meaning that the very act of possessing, buying, or
selling unaffixed stamps would be illegal. A prosecutor would
not need to prove that the person in possession of the stamps
intended to defraud the state or evade proper taxation. BOE
notes that there is no reason anyone would possess these stamps
for legitimate purposes. Unlike postage stamps or trading
cards, they have no value as collectables. Thus, used cigarette
tax stamps are only collected for tax evasion purposes.
Assembly Actions
Assembly Governmental Organization 18-0
Assembly Revenue and Taxation 9-0
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Assembly Appropriations 19-0
Assembly Floor 79-0
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Support and
Opposition (6/22/16)
Support : American Cancer Society Cancer Action Network;
American Lung Association; California Distributors Association;
Fiona Ma, State Board of Equalization Member; State Board of
Equalization.
Opposition : Unknown.
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