BILL ANALYSIS Ó
SENATE COMMITTEE ON PUBLIC HEALTH AND DEVELOPMENTAL SERVICES
Senator Ed Hernandez, O.D., Chair
BILL NO: SBX2 9
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|AUTHOR: |McGuire |
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|VERSION: |July 16, 2015 |
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|HEARING DATE: |August 19, | | |
| |2015 | | |
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|CONSULTANT: |Myriam Bouaziz |
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SUBJECT : Local taxes: authorization: cigarettes and tobacco
products
SUMMARY : Allows counties to impose a tax on the privilege of
distributing cigarettes and tobacco products.
Existing law:
1)Imposes a tax on distributors of cigarettes and tobacco
products, set at $0.87 per pack of 20 cigarettes. Requires the
taxes on cigarette and tobacco products to fund a variety of
programs and services including: health education, research,
hospital care, fire prevention, environmental conservation,
breast cancer research and early detection services, and early
childhood development programs.
2)Establishes the Board of Equalization (BOE) and requires the
BOE to administer the tobacco tax provisions, including
collecting the tax.
3)Requires the BOE to annually set a tax on other tobacco
products, such as cigars and chewing tobacco, at an amount
equivalent to the tax on cigarettes.
4)Requires a distributor, wholesaler, manufacturer, or importer
of cigarettes or tobacco products to register with and be
licensed by the BOE.
5)States that the cigarette and tobacco products taxes apply in
lieu of all other state, county, municipal, or district taxes
on the privilege of distributing cigarettes or tobacco
products. The in-lieu language does not prohibit the
application of a fee, the sales and use tax, Uniform Local
SBX2 9 (McGuire) Page 2 of ?
Sales and Use Tax Law, or Transactions and Use Tax Law to the
sale, storage, use or other cigarette or tobacco products
consumption.
This bill:
1)Allows a board of supervisors of a county, or city and county,
to impose a tax on the privilege of distributing cigarettes
and tobacco products in the county or city and county.
2)Allows a board of supervisors to impose this tax within an
incorporated city within the county.
3)Requires a board of supervisors, subject to California
Constitution limitations, to adopt an ordinance to levy a tax
on the privilege of distributing cigarettes and tobacco
products. The vote threshold is majority for a general tax,
and two-thirds for a special tax.
FISCAL
EFFECT : This bill has not been analyzed by a fiscal committee.
COMMENTS :
1)Author's statement. According to the author, tobacco use is
the single most preventable cause of death and disease in
California. Smoking claims the lives of nearly 40,000 people
every year. In California alone, there are over 3.6 million
adult smokers and 21,300 youth smokers. In fact, nearly half a
million youth living in our state will die prematurely from
tobacco related diseases.
Increasing the cost of tobacco is widely recognized as the
most effective way to reduce smoking across California,
especially for young people. It has been 16 years since
California last raised its tobacco tax and during that time,
we have seen the state costs of providing health care increase
significantly. In fact, smoking related diseases cost our
state roughly $3.5 billion in direct expenses through tobacco
related illness in Medi-Cal.
At $0.87 per pack of cigarettes, our state currently ranks
35th in the nation for tobacco tax rates. The national average
state tobacco tax is now $1.60 per pack. New York is the
highest at $4.35 per pack. SB2X 9 allows counties, if they so
choose, to increase local cigarette taxes, independent of the
state. As a result, this legislation would provide counties
SBX2 9 (McGuire) Page 3 of ?
more local control in reducing the public health effects of
tobacco use.
2)Smoking prevalence. According to the 2012 Surgeon General's
Report, nearly 90 % of smokers in the United States started
smoking by the age of 18, and 99 % started by age 26. In
California, 64 % of smokers start by the age of 18 and 96 %
start by age 26. According to the Department of Public Health
(DPH), in 2010, 36.8 % of high school students had smoked a
whole cigarette by age 13 or 14, and illegal tobacco sales to
minors rose to 8.7 % from 5.6 % in 2011. Yet, the state's
adult smoking rate has hit a record low. In 2010, 11.9 % of
the state's adults smoked, down from 13.1 % in 2009, making
California one of only two states to reach the federal Healthy
People 2020 target of reducing the adult smoking prevalence
rate to 12 %. However, research highlights that the burdens of
smoking do not fall evenly across the state. According to the
American Lung Association (ALA), African-American men and
women have the highest smoking usage rate at 21.3 % and 17.1 %
respectively, followed by white men at 17.2 % and Latino men
at 16 %. The ALA reports that Korean men have an unusually
high tobacco usage rate at 27.9 %, as do Lesbian, Gay,
Bisexual, and Transgender women who smoke at almost triple the
rate of women in general.
3)Tobacco-related diseases. Every year, an estimated 443,000
people in the United States die from tobacco and
smoking-related illnesses or exposure to secondhand smoke,
according to the Centers for Disease Control and Prevention
(CDC). The CDC also reports that another 8.6 million people
suffer from serious smoking-related illnesses. According to
DPH, smoking causes ischemic heart disease, cancer, stroke,
and chronic lower respiratory diseases, which are the leading
causes of death and disability among adults in California.
Smoking-attributed diseases are an economic burden due not
only to health care expenses but also productivity losses
related to disability or early death. DPH asserts, since the
1988 passage of Proposition 99 in California, adult smoking
rates declined by more than 40 % from 22.7 % to 13.3 % in
2008. As smoking rates declined, mortality and morbidity rates
for diseases related to smoking also declined. This parallel
trend, according to DPH, supports causal association between
these conditions and smoking.
4)Tobacco taxes and other states. California's tobacco tax rate
SBX2 9 (McGuire) Page 4 of ?
($0.87) ranks 33rd when compared to the rates of other states.
The national median cigarette tax rate is $1.54 per pack. The
highest tobacco tax rate is in New York at $4.35 per pack and
the lowest is Virginia at $0.30 per pack. Some local
governments, such as New York City ($5.85 per pack total tax
rate) and Chicago ($5.66 per pack total tax rate) have their
own tax in addition to the state tax. California has not
raised its cigarette excise tax since 1998. According to the
Campaign for Tobacco-Free Kids, the average price for a pack
of cigarettes in California is $5.44 with all taxes included.
5)Impacts of higher cigarette prices. According to the
Legislative Analyst's Office (LAO), most revenue estimates
assume that an increased tax on cigarettes would raise the
retail prices of cigarettes to include the new cost. This
could potentially result in consumers reducing the quantity of
taxable products they consume. Additionally, the state and
local governments in California incur costs for providing: 1)
health care for low-income and uninsured persons and 2) health
insurance coverage for state and local government employees
and retirees. The LAO further reports, since the use of
tobacco products has been linked to various adverse health
effects, an increased cigarette tax could reduce state and
local government health care spending on tobacco-related
diseases over the long-term.
DPH maintains that higher taxes are particularly effective in
reducing smoking among vulnerable populations, such as youth,
pregnant women, and low-income smokers. Increases in tobacco
prices affect the behavior of the young and low-income, who
tend to be more responsive to price changes than older and
wealthier individuals. Higher tobacco taxes could encourage
more low-income smokers to quit. According to the Federal
Trade Commission Cigarette Report, since three out of every
four smokers expected to quit because of cigarette tax
increase are estimated to be low-income, the public health
benefits of reduced tobacco-related illnesses from smoking
will also be borne by lower-income households. However, if
individuals considered to be low-income do not quit, the
tobacco tax increase could be considered a regressive tax
because these populations would be spending more of their
income on the product.
Higher cigarette prices through tax or fee increases can also
exacerbate tax evasion and foster illegal cigarette sales.
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These illegal activities include increased smuggling of
cigarettes and tobacco products into California and the sale
of counterfeit cigarette stamps and products. According to
the BOE, cigarette tax evasion is highly correlated with
cigarette prices and excise tax rates. It was this concern
regarding illegal sales that led to the enactment of the
California Cigarette and Tobacco Products Licensing Act of
2003 (AB 71 [Horton], Chapter 890, Statutes of 2003), which
established a comprehensive licensing program for retailers,
manufacturers, distributors, and importers of cigarettes and
tobacco products. According to the BOE, the California
Cigarette and Tobacco Licensing Act of 2003 has been
successful in reducing illegal sales.
6)Local Tobacco Fee. The City and County of San Francisco's
Cigarette Litter Abatement Fee is a $0.20 per pack of
cigarettes fee collected at the point of sale by the retailer.
The funds generated by the fee are used to abate cigarette
litter through education and removal of cigarette litter. In
2008, the City and County of San Francisco spent over
$24,792,558 in public litter clean up, with cigarette related
waste alone amounting to approximately $6,098,969 of the
City's annual litter removal costs. The fee is estimated to
generate $5 million annually. The ordinance has been in effect
since 2009.
7)Related legislation. SBX2 5 (Leno)/AB X2 6 (Cooper) recast
and broaden the definition of "tobacco product" in current law
to include electronic cigarettes as specified; extend current
restrictions and prohibitions against the use of tobacco
products to electronic cigarettes; extend current licensing
requirements for manufacturers, importers, distributors,
wholesalers, and retailers of tobacco products to electronic
cigarettes; and, require electronic cigarette cartridges to be
child-resistant. SB X2 5 will be heard on August 19, 2015 in
this committee and AB X2 6 is pending in the Assembly.
SBX2 6 (Monning)/AB X2 7 (Stone) prohibit smoking in
owner-operated businesses and remove specified exemptions in
existing law that allow tobacco smoking in certain workplaces.
SB X2 6 will be heard on August 19, 2015 in this committee and
AB X2 7 is pending in the Assembly.
SBX2 7 (Hernandez)/AB X2 8 (Wood) increase the minimum legal
age to purchase or consume tobacco from 18 to 21. SB X2 7 will
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be heard on August 19, 2015 in this committee and AB X2 8 is
pending in the Assembly.
SBX2 8 (Liu)/ABX2 9 (Thurmond and Nazarian) extend current
tobacco use prevention funding eligibility and requirements to
charter schools; broaden the definition of products containing
tobacco and nicotine, as specified, and prohibit their use in
specified areas of schools and school districts, regardless of
funding; and require specified signs to be prominently
displayed at all entrances to school property. SB X2 8 will be
heard on August 19, 2015 in this committee and AB X2 9 is
pending in the Assembly.
ABX2 10 (Bloom) allow counties to impose a tax on the
privilege of distributing cigarettes and tobacco products. AB
X2 10 is pending in the Assembly.
SBX2 10 (Beall)/ABX2 11 (Nazarian) revise the Cigarette and
Tobacco Products Licensing Act of 2003 to change the retailer
license fee from a $100 one-time fee to a $265 annual fee, and
increase the distributor and wholesaler license fee from
$1,000 to $1,200. SB X2 10 will be heard on August 19, 2015 in
this committee and AB X2 11 is pending in the Assembly.
8)Prior legislation. SB 653 (Steinberg, 2011), proposed to
authorize the governing board of any county or city and
county, any community college district, and any county office
of education to levy, increase, or extend, among others, a
cigarette and tobacco products tax. SB 653 died on the Senate
inactive file.
9)Support. The supporters of this bill argue that this bill
will help dissuade people from smoking, which causes various
smoking-related diseases and is the single-largest preventable
cause of death-killing more people than alcohol, AIDS, car
crashes, illegal drugs, murders, and suicide combined.
Supporters also cite the strains that tobacco-related illness
cause on the state's health care system, which is estimated at
$13.29 billion a year. Supporters argue that the burdens of
smoking are disproportionately felt by underserved,
low-income, and minority groups, and that an increased
cigarette tax will further fund programs that currently exist
to support these communities.
10)Policy Comment. This bill authorizes a county to impose a
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tax on the privilege of distributing cigarettes and tobacco
products. Unfortunately, collecting the tax may be costly and
burdensome. If a cigarette distributor provides cigarettes to
10 counties in California, all with different local tax rates,
compliance and bookkeeping may be difficult. Furthermore, if
an out of county distributor is subject to the local tax, at
what point will the tax be collected, at the point of sale to
the local retailer? If the BOE, who has a relationship with
all of the distributors, were to contract with the counties to
collect the tax, the administrative cost may be more than the
tax collected. The author may wish to specify the collection
method of the tax if imposed.
SUPPORT AND OPPOSITION :
Support: American Cancer Society Cancer Action Network
American Heart Association/American Stroke Association
American Lung Association in California
Association of Northern California Oncologists
California Black Health Network
California Chronic Care Coalition
California Dental Association
California Medical Association
California Pan-Ethnic Health Network
California Primary Care Association
California Society of Addiction Medicine
First 5 California
Medical Oncology Association of California
Planned Parenthood Affiliates of California
Oppose: None received.
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