BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 2770 (Nazarian) - Cigarette and tobacco product licensing:
fees and funding
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|Version: June 16, 2016 |Policy Vote: B., P. & E.D. 8 - |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 1, 2016 |Consultant: Brendan McCarthy |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 2770 would prohibit tobacco tax revenues from being
appropriated to the State Board of Equalization to support the
Cigarette and Tobacco Products Licensing Program.
Fiscal
Impact:
Unknown cost pressure to provide General Fund monies to
support the Cigarette and Tobacco Products Licensing Program
(General Fund). In recent years, the Licensing Program has
been funded with a combination of licensing fees paid by
tobacco retailers and distributors and revenues derived from
taxes imposed on tobacco products. Recently, the licensing
fees assessed on tobacco retailers and distributors were
increased, with the intention of fully funding the Licensing
Program with licensee fees. Those fee increases go into effect
on January 1, 2017. The current year budget still provides
some funding from tobacco tax revenues to support the
Licensing Program, because the increased license fee revenues
AB 2770 (Nazarian) Page 1 of
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will only be in place for one-half of the current year. Under
the bill, if projected fee revenues are not sufficient to
fully fund the Licensing Program, there would be pressure to
either augment the fee revenues with General Fund revenue or
reduce program expenditures. Until full-year fee revenues have
been collected, there is uncertainty about whether the fee
revenues will be sufficient to fully fund the Licensing
program.
In addition, the licensing fee levels are set in statute. As
the costs to implement the licensing program grow over time
due to cost inflation, the Board of Equalization will not be
able to raise the licensing fees to offset those cost
increases. Under this bill, there would be cost pressure on
the General Fund to offset cost increases or to raise
licensing fees.
Background: Current law requires the Board of Equalization to license
tobacco wholesalers and retailers. The purpose of this licensing
requirement is to facilitate the collection of state tobacco
taxes and prevent tax evasion. Tobacco products are subject to
both a specific excise tax on tobacco products as well as the
general Sales and Use Tax. Prior to this year, retailers of
tobacco products were required to pay a one-time, $100 fee to be
licensed and distributors and wholesalers were required to pay
an annual licensing fee of $1,000. In recent years, licensing
fees generated about $1.8 million per year, whereas the
Licensing Program cost the Board about $10 million per year. The
difference has been made up with revenues generated by tobacco
taxes.
AB X2 11 (Nazarian, Statutes of 2015) changed the retail
licensing fee from a one-time $100 fee to an annual $265 fee and
raised the annual fee paid by distributors to $1,200. Those
changes go into effect on January 1, 2017. SB X2 5 (Leno,
Statutes of 2015) would require retailers of electronic
cigarettes to be licensed by the Board of Equalization, amongst
other requirements. That bill is likely to increase license fee
revenues and licensing program expenditures, because there are
electronic cigarette retailers not currently licensed by the
Board that must now be licensed.
AB 2770 (Nazarian) Page 2 of
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Proposed Law:
AB 2770 would prohibit tobacco tax revenues from being
appropriated to the State Board of Equalization to support the
Cigarette and Tobacco Products Licensing Program.
The bill would revise an existing reporting requirement on the
Board of Equalization regarding the funding for the Licensing
Program, to require the report annually, and to require the
report to address the existing fund balance in the Cigarette and
Tobacco Tax Compliance Fund.
Staff
Comments: In enacted, this bill would go into effect on January
1, 2017. Since the Board of Equalization has already been
appropriated funding from tobacco tax revenues for the current
year (2016-17) this bill would arguably not impact Board
operations in the current year. The Board of Equalization has
indicated that it may change its internal financial processes to
comply with the bill's requirements, by using appropriated
tobacco tax revenues as the first source of funding in the first
part of the current year, rather than relying on licensing fee
revenues first and backfilling any shortfall with appropriated
tobacco tax funds later in the current year.
Recommended
Amendments: In order to simplify implementation for the Board,
the bill should be amended to delay implementation until July 1,
2017
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