BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2770|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: AB 2770
Author: Nazarian (D)
Amended: 8/15/16 in Senate
Vote: 21
SENATE BUS., PROF. & ECON. DEV. COMMITTEE: 8-0, 6/27/16
AYES: Hill, Block, Gaines, Galgiani, Hernandez, Jackson,
Mendoza, Wieckowski
NO VOTE RECORDED: Bates
SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/11/16
AYES: Lara, Beall, Hill, McGuire, Mendoza
NOES: Bates, Nielsen
ASSEMBLY FLOOR: 44-26, 5/27/16 - See last page for vote
SUBJECT: Cigarette and tobacco product licensing: fees and
funding
SOURCE: Author
DIGEST: This bill prohibits revenues, on or after July 1, 2019,
derived from the taxes imposed upon the distribution of
cigarettes and tobacco products be appropriated to the State
Board of Equalization (BOE) for the purpose of implementing,
enforcing, or administering the California Cigarette and Tobacco
Products Licensing Act of 2003 (Licensing Act); and requires BOE
to report back to the Legislature, no later than January 1,
2019, regarding the funding adequacy of the Licensing Act.
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Page 2
ANALYSIS:
Existing law:
1) The Licensing Act (AB 71, Horton, Chapter 890, Statutes of
2003) creates a comprehensive regulatory scheme governing the
distribution and sale of cigarettes and tobacco products in
this state, and requires the BOE to license manufacturers,
importers, distributors, wholesalers, and retailers of
cigarettes and tobacco products. (Business and Professions
Code (BPC) § 22970 et seq.)
2) Requires a retailer to have a license to sell cigarettes and
tobacco products in this state. Requires a retailer to
obtain a separate license for each retail location that sells
cigarettes and tobacco products. (BPC § 22972)
3) Requires retailers to pay an annual fee of $265 for each new
retail location, beginning June 9, 2016. (BPC § 22973 (d))
4) Requires retailers to file an application for license renewal
accompanied with a $265 per location renewal fee, for
calendar years beginning on and after January 1, 2017, in the
form and manner prescribed by BOE.
(BPC § 22973(e))
5) Imposes an excise tax of $0.87 per pack of 20 cigarettes.
Revenues from the tax on cigarettes and other tobacco
products are distributed as follows:
a) $0.10 to the General Fund (GF) (Revenue and Taxation
Code (RTC) §§ 30101 and 30462);
b) $0.50 of the per pack tax and an equivalent rate levied
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Page 3
on non-cigarette tobacco products to the California
Children and Families First Trust Fund (Prop. 10) (RTC §§
30122 and 30123);
c) $0.25 of the per pack tax and an equivalent rate levied
on non-cigarette tobacco products to the Cigarette and
Tobacco Products Surtax Fund
(Prop. 99) (RTC §§ 30122 and 30123); and
d) $0.02 to the Breast Cancer Fund (RTC §§ 30101 and
30461.6).
1) Imposes a tax upon the distribution of tobacco products,
based on the wholesale cost of these products at a tax rate
that is equivalent to the combined rate of tax imposed on
cigarettes. (RTC § 30123)
2) Imposes an additional tobacco products tax at a rate
equivalent to the $0.50 per pack cigarette tax. (RTC §
30131.2)
This bill:
1) Requires a retailer that adds an additional retail location
to renew the license for that location based on a 12-month
period beginning in the month the retailer obtained its
license for its first retail location.
2) Requires that the $265 application fee for a retail location
for the period provided, as specified, and not be prorated.
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3) Prohibits revenues, on or after July 1, 2019, derived from
the taxes imposed upon the distribution of cigarettes and
tobacco products be appropriated to the BOE for the purpose
of implementing, enforcing, or administering the Licensing
Act.
4) Specifies what information is required to be provided, on a
form, to the BOE when applying for a license for the sale of
a tobacco product.
5) Restates that BOE is required to report back to the
Legislature, Governor, and Department of Finance no later
than January 1, 2019, regarding the adequacy of funding for
the Licensing Act. 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.
Background
BOE Licensing Act Issues. As AB 71 was developed and made its
way through the Legislature, it was determined that the
licensure fees would not permanently sustain the Licensing Act
program. Since the Licensing Act enforces the Cigarette and
Tobacco Products Tax Law (Revenue and Taxation Code § 30001, et
seq.), and directly benefits the funds established pursuant to
that program, the funding for the Licensing Act would eventually
shift to the cigarette and tobacco products tax funds: General
Fund, Breast Cancer Fund, Cigarette and Tobacco Products Surtax
Fund (Prop. 99) and California Children and Families Trust Fund
(Prop. 10). However, there was concern about the Licensing Act
program and the impact it would have on the cigarette and
tobacco products tax funds if the Licensing Act expenses were
more than the revenues generated. To address this concern, a
sunset date of January 1, 2010, was incorporated into the
Licensing Act to ensure it would not harm the cigarette and
tobacco products tax funds. Furthermore, AB 71 included
uncodified language to clarify that all revenues and expenses
generated by the Licensing Act are to be allocated in the same
manner as those revenues and expenses are allocated under the
Cigarette and Tobacco Products Tax Law to make sure no one
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cigarette and tobacco product fund benefited or was burdened
when the funding shift took place. In 2006, AB 1749 (J. Horton,
Chapters 501, Statutes of 2006) repealed the sunset date for the
Licensing Act due to the amount of additional excise tax
revenues generated. The BOE has estimated that the Licensing
Act and enhanced cigarette tax stamp generates an additional
$66.8 million in cigarette excise tax annually. The Licensing
Act generates an additional $24.5 million in additional tobacco
products tax. The resulting additional sales and use tax
revenue is estimated to be $44.4 million annually.
State Auditor Report. In March 2016, the California State
Auditor released a report concerning the costs of the Cigarette
and Tobacco Products Tax Program and the Cigarette and Tobacco
Products Licensing Program administered by the BOE.
The report concludes that although the BOE's enforcement efforts
are effective and properly funded, other funding options and
cost saving measures exist for the licensing program. In 2004,
the BOE implemented the licensing program and began licensing
all entities involved in the sale of cigarette and tobacco
products in California, with a goal to inspect annually 10,000
of these licensees. In 2005, the BOE tax program put into use
an encrypted cigarette tax stamp. According to the BOE's most
recent estimate, in fiscal year 2012/13 the BOE's three-part
approach to enforcing compliance with California's cigarette and
tobacco products excise tax laws-licensing, inspections, and an
encrypted cigarette tax stamp-prevented the loss of $91 million
in tobacco tax revenue.
The report found since fiscal year 2006/07, license fees have
not covered all of the licensing program's costs. For example,
in fiscal year 2014/15 licensing fees contributed only $1.8
million of the $9.8 million needed to administer the program.
To make up the program's $8.0 million shortfall, the BOE uses
money from the four funds that receive cigarette and tobacco
products taxes (see above). Although it is legally permissible
to use excise taxes to fund the licensing program, the BOE has
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accumulated an excess amount of unspent license fees that it
could use to offset the shortfall.
The report makes several recommendations for handling the $8.0
million shortfall, including, encouraging the Legislature to
pass legislation to implement a funding model that will include
a license fee increase or a combination of license fee
increases, continued use of money from the Cigarette Tax Fund,
and a cigarette tax increase.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Senate Appropriations analysis dated August 11,
2016, this bill would incur unknown cost pressure to provide
General Fund monies to support the Cigarette and Tobacco
Products Licensing Program.
SUPPORT: (Verified8/11/16)
First 5 California
OPPOSITION: (Verified8/11/16)
None received
ARGUMENTS IN SUPPORT: First 5 California offers its "strong
support of AB 2770 (Nazarian), which would prohibit the taxes
imposed upon the distribution of cigarettes and tobacco products
to the Board of Equalization (BOE) for the purposes of
implementing, enforcing, or administering the Cigarette and
Tobacco Products Licensing Program. The bill also would require
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Page 7
the BOE to report to the Legislature annually regarding the
adequacy of funding for the licensing program."
ASSEMBLY FLOOR: 44-26, 5/27/16
AYES: Alejo, Arambula, Atkins, Bloom, Bonilla, Bonta, Burke,
Calderon, Campos, Chau, Chu, Cooley, Cooper, Dababneh, Daly,
Frazier, Cristina Garcia, Eduardo Garcia, Gatto, Gipson,
Gomez, Gonzalez, Gordon, Gray, Holden, Jones-Sawyer, Levine,
Lopez, Low, McCarty, Medina, Mullin, Nazarian, Quirk,
Ridley-Thomas, Rodriguez, Santiago, Mark Stone, Thurmond,
Ting, Weber, Williams, Wood, Rendon
NOES: Achadjian, Travis Allen, Baker, Bigelow, Chang, Chávez,
Dahle, Beth Gaines, Gallagher, Harper, Irwin, Jones, Kim,
Lackey, Linder, Maienschein, Mathis, Mayes, Obernolte, Olsen,
Patterson, Salas, Steinorth, Wagner, Waldron, Wilk
NO VOTE RECORDED: Brough, Brown, Chiu, Dodd, Eggman, Grove,
Hadley, Roger Hernández, Melendez, O'Donnell
Prepared by:Mark Mendoza / B., P. & E.D. / (916) 651-4104
8/15/16 19:39:57
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