BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1901|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
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THIRD READING
Bill No: AB 1901
Author: Quirk (D)
Amended: 8/1/16 in Senate
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 6/29/16
AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach,
Pavley
SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/1/16
AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen
ASSEMBLY FLOOR: 79-0, 5/5/16 (Consent) - See last page for
vote
SUBJECT: Taxation: cigarettes: unaffixed stamps
SOURCE: Author
DIGEST: This bill makes it a misdemeanor to buy, sell, or
possess unaffixed cigarette stamps.
ANALYSIS:
Existing law:
1)Imposes a tax on cigarette distributors at the rate of $0.87
per package of 20 cigarettes.
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2)Requires that the cigarette tax is paid through the use of
stamps or meter impressions. Specifically, these stamps or
meter impressions must be affixed to each package of
cigarettes distributed.
3)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.
This bill:
1)Provides that any person who possesses, sells, or offers to
sell, or who buys or offers to buy, "unaffixed stamps" is
guilty of a misdemeanor, punishable by a fine or imprisonment
in county jail for up to a year, or both.
2)Requires the BOE to seize and destroy these stamps aggregated
for reuse purposes.
3)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 BOE or its authorized agent and in the
possession of a licensed distributor.
Background
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
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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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
According to the Senate Appropriations Committee, BOE estimates
that based on current trends, enactment of this bill could deter
tax evasion of about $400,000 annually (special funds). BOE
would incur absorbable administrative costs to notify affected
retailers, amend appropriate publications, and answer inquiries.
SUPPORT: (Verified8/3/16)
American Cancer Society Cancer Action Network
American Lung Association
California Distributors Association
Fiona Ma, State Board of Equalization Member
State Board of Equalization
OPPOSITION: (Verified8/3/16)
None received
ARGUMENTS IN SUPPORT: According to the author, "Under
existing law, cigarette distributors are required to pay an
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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
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."
ASSEMBLY FLOOR: 79-0, 5/5/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,
Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley,
Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier,
Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson,
Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger
Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey,
Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes,
McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte,
O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez,
Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting,
Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon
NO VOTE RECORDED: Beth Gaines
Prepared by:Myriam Bouaziz / GOV. & F. / (916) 651-4119
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8/3/16 18:09:05
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