Senate Bill No. 591

Introduced by Senator Pan

(Principal coauthor: Assembly Member Bonta)

February 26, 2015

An act to amend Sections 30104, 30108, and 30181 of, and to add Article 2.5 (commencing with Section 30130.50) to Chapter 2 of Part 13 of Division 2 of, the Revenue and Taxation Code, relating to taxation, and making an appropriation therefor, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

SB 591, as introduced, Pan. Cigarette and tobacco products taxes: California Tobacco Tax Act of 2015.

The Cigarette and Tobacco Products Tax Law, the violation of which is a crime, imposes a tax of $0.87 per package of 20 cigarettes on every distributor of cigarettes and a tax on the wholesale cost of tobacco products distributed at a tax rate that is equivalent to the combined rate of all taxes imposed on cigarettes, and at a rate equivalent to $0.50 per pack cigarette tax. Revenues from taxes imposed under this law are deposited in specified accounts. These taxes are inclusive of the taxes imposed under the Tobacco Tax and Health Protection Act of 1988 (Proposition 99) and the California Families and Children Act of 1998 (Proposition 10).

This bill would, on or after the first day of the first calendar quarter commencing more than 90 days on or after the effective date of the bill, impose an additional tax on the distribution of cigarettes at the rate of $0.10 for each cigarette distributed which would be $2.00 per pack; would require a dealer and a wholesaler to file a return with the State Board of Equalization showing the number of cigarettes in its possession or under its control on that date, and impose a related floor stock tax; and would require a licensed cigarette distributor to file a return with the board and pay a cigarette indicia adjustment tax at the rate equal to the difference between the existing tax rate and the tax rate imposed by this bill for cigarette tax stamps in its possession or under its control on that date. Because the bill would impose an additional tax on cigarettes under the Cigarette and Tobacco Products Tax Law, it would increase the tax upon the distribution of tobacco products under that law.

The bill would provide that the revenues collected from the additional tax be deposited in the California Tobacco Tax Act of 2015 Fund created by this bill, which would be a continuously appropriated fund, and transferred into the Tobacco Prevention and Education Account, the Tobacco Disease Related Health Care Account, and the Tobacco Law Enforcement Account to be expended for specified purposes. Because the California Tobacco Tax Act of 2015 Fund would be a continuously appropriated fund, the bill would make an appropriation.

The bill would require moneys in the California Tobacco Tax Act of 2015 Fund to be transferred from the fund to the California Children and Families First Trust Fund, which is a continuously appropriated fund, the Cigarette and Tobacco Products Surtax Fund, the Breast Cancer Fund, and the General Fund, as necessary to offset revenue decreases to those funds directly resulting from imposition of additional taxes by these provisions. Because this bill would require funds to be transferred to a continuously appropriated fund, it would make an appropriation.

Because this bill would impose new requirements under the Cigarette and Tobacco Products Tax Law, the violation of which is a crime, it would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 2⁄3 of the membership of each house of the Legislature.

This bill would take effect immediately as a tax levy.

Vote: ²⁄₃. Appropriation: yes. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature hereby finds and declares all of
the following:

(a) Tobacco use is the single most preventable cause of death
and disease in California, claiming the lives of more than 36,000
people every year. California still has approximately 3.4 million
adult smokers and 200,000 youth smokers.

(b) The inevitable health care costs of smoking come to almost
$10 for every pack of cigarettes sold in California.

(c) Tobacco use costs Californians more than $9.1 billion in
tobacco-related medical expenses every year. The cost of lost
productivity due to tobacco use adds an additional estimated $8.5
billion to the annual economic consequences of smoking in
California.

(d) The treatment of cancer, heart disease and stroke, lung
disease, diabetes, and other diseases related to tobacco use
continues to impose a significant burden upon California’s
overstressed health care system, including publicly funded health
care programs.

(e) In 2015-16, it is estimated that the General Fund cost of
publicly funded health care programs to the state will be more than
$18 billion. In 2015-16, it is estimated that publicly funded health
care programs will provide health care coverage to more than 12
million Californians. At the same time, hundreds of thousands of
families and children go without any medical coverage due to
financial constraints upon the state and local government budgets
and recent cutbacks in publicly funded health care programs.

(f) A recent cost-benefit analysis concluded that if states
followed the United States Centers for Disease Control and
Prevention’s Best Practices for Comprehensive Tobacco Control
Programs 2007 funding guidelines, up to 14 to 20 times the cost
of program implementation could be saved through reduced
medical and productivity costs as well as reduced Medicaid costs.

(g) The California Tobacco Tax Act of 2015 will help fund the
comprehensive California Tobacco Control Program designed to
change social norms about tobacco and discourage individuals
from taking up smoking and the use of other tobacco products
through educational programs, thereby saving the state and local
governments significant money now and in the future.

(h) Tobacco tax increases are an appropriate way to mitigate
the impacts of tobacco-related diseases and improve existing
programs providing for quality and access to health care services
for families and children.

(i) An increase in the tobacco tax will have an immediate effect
on smoking and is the most appropriate mechanism to fund services
to prevent tobacco use, help people quit smoking, and discourage
many people from taking up smoking.

(j) California taxes cigarettes at only $0.87 per pack, and ranks
33rd in tobacco tax rates, reflecting one of the lowest tobacco taxes
in the United States. Thirty states have cigarette tax rates of $1 per
pack or higher, and California is well below other west coast states
(Washington: $3.025, Oregon: $1.18, and Arizona: $2). California
last raised its tobacco tax in 1998.

(k) The burden of smoking is not equally shared across
California populations and communities. Tobacco use rates are
much higher than the general population in African Americans,
white men, Korean men, enlisted military personnel, lesbian, gay,
bisexual, and transgender, young adult, rural, and low-income
populations.

(l) A reinvigorated tobacco control program will allow targeted
public health and research efforts to combat the tobacco industry’s
predatory marketing to ethnic groups, driving down smoking rates
and ultimately reducing heart disease, stroke, lung disease, and
cancer in these California communities, which together represent
more than half of our state’s residents.

SEC. 2.  

Section 30104 of the Revenue and Taxation Code is
amended to read:

30104.  

The taxes imposed by this part shall not apply to the
sale of cigarettes or tobacco products by a distributor to a common
carrier engaged in interstate or foreign passenger service or to a
person authorized to sell cigarettes or tobacco products on the
facilities of the carrier. Whenever cigarettes or tobacco products
are sold by distributors to common carriers engaged in interstate
or foreign passenger service for use or sale on facilities of the
carriers, or to persons authorized to sell cigarettes or tobacco
products on those facilities, the tax imposed begin delete by Sections 30101,
30123, and 30131.2 end delete begin insert under this part end insert shall not be levied with respect
to the sales of the cigarettes or tobacco products by the distributors,
but a tax is hereby levied upon the carriers or upon the persons
authorized to sell cigarettes or tobacco products on the facilities
of the carriers, as the case may be, for the privilege of making sales
in California at the same rate as set forth begin delete in Sections 30101, 30123,
and 30131.2. end delete begin insert under this part. end insert Those common carriers and
authorized persons shall pay the tax imposed by this section and
file reports with the board, as provided in Section 30186.

SEC. 3.  

Section 30108 of the Revenue and Taxation Code is
amended to read:

30108.  

(a) Every distributor engaged in business in this state
and selling or accepting orders for cigarettes or tobacco products
with respect to the sale of which the tax imposed begin delete by Sections
30101, 30123, and 30131.2 end delete begin insert under this part end insert is inapplicable shall,
at the time of making the sale or accepting the order or, if the
purchaser is not then obligated to pay the tax with respect to his
or her distribution of the cigarettes or tobacco products, at the time
the purchaser becomes so obligated, collect the tax from the
purchaser, if the purchaser is other than a licensed distributor, and
shall give to the purchaser a receipt therefor in the manner and
form prescribed by the board.

(b) Every person engaged in business in this state and making
gifts of untaxed cigarettes or tobacco products as samples with
respect to which the tax imposed begin delete by Sections 30101, 30123, and
30131.2 end delete begin insert under this part end insert is inapplicable shall, at the time of making
the gift or, if the donee is not then obligated to pay the tax with
respect to his or her distribution of the cigarettes or tobacco
products, at the time the donee becomes so obligated, collect the
tax from the donee, if the donee is other than a licensed distributor,
and shall give the donee a receipt therefor in the manner and form
prescribed by the board. This section shall not apply to those
distributions of cigarettes or tobacco products begin delete which end delete begin insert that end insert are
exempt from tax under Section 30105.5.

(c) “Engaged in business in the state” means and includes any
of the following:

(1) Maintaining, occupying, or using, permanently or
temporarily, directly or indirectly, or through a subsidiary, or agent,
by whatever name called, an office, place of distribution, sales or
sample room or place, warehouse or storage place, or other place
of business.

(2) Having any representative, agent, salesperson, begin delete canvasser end delete
begin insert canvasser, end insert or solicitor operating in this state under the authority
of the distributor or its subsidiary for the purpose of selling,
delivering, or the taking of orders for cigarettes or tobacco
products.

(d) The taxes required to be collected by this section constitute
debts owed by the distributor, or other person required to collect
the taxes, to the state.

SEC. 4.  

Article 2.5 (commencing with Section 30130.50) is
added to Chapter 2 of Part 13 of Division 2 of the Revenue and
Taxation Code, to read:

 

Article 2.5.  The California Tobacco Tax Act of 2015

 

30130.50.  

For the purposes of this article:

(a) “Cigarette” has the same meaning as in Section 30003 as it
read on January 1, 2013.

(b) “Tobacco products” includes, but is not limited to, all forms
of cigars, smoking tobacco, chewing tobacco, snuff, and any other
articles or products made of, or containing at least 50 percent,
tobacco, but does not include cigarettes.

30130.51.  

In addition to any other taxes imposed upon the
distribution of cigarettes, there shall be imposed an additional tax
upon every distributor of cigarettes at the rate of one hundred mills
($0.10) for each cigarette distributed on or after the first day of
the first calendar quarter commencing more than 90 days after the
effective date of this act.

30130.52.  

(a) (1) Every dealer and wholesaler, for the
privilege of holding or storing cigarettes for sale, use, or
consumption, shall pay a floor stock tax for each cigarette in its
possession or under its control in this state at 12:01 a.m. on the
first day of the first calendar quarter commencing more than 90
days after the effective date of this act at the rate of one hundred
mills ($0.10) for each cigarette.

(2) Every dealer and wholesaler shall file a return with the State
Board of Equalization on or before the first day of the first calendar
quarter commencing more than 180 days after the effective date
of this act on a form prescribed by the State Board of Equalization,
showing the number of cigarettes in its possession or under its
control in this state at 12:01 a.m. on the first day of the first
calendar quarter commencing more than 90 days after the effective
date of this act. The amount of tax shall be computed and shown
on the return.

(b) (1) Every licensed cigarette distributor, for the privilege of
distributing cigarettes and for holding or storing cigarettes for sale,
use, or consumption, shall pay a cigarette indicia adjustment tax
for each California cigarette tax stamp that is affixed to any
package of cigarettes and for each unaffixed California cigarette
tax stamp in its possession or under its control at 12:01 a.m. on
the first day of the first calendar quarter commencing more than
90 days after the effective date of this act at the following rates:

(A) Two dollars and fifty cents ($2.50) for each stamp bearing
the designation “25.”

(B) Two dollars ($2) for each stamp bearing the designation
“20.”

(C) One dollar ($1) for each stamp bearing the designation “10.”

(2) Every licensed cigarette distributor shall file a return with
the board on or before the first day of the first calendar quarter
commencing 180 days after the effective date of this act on a form
prescribed by the board, showing the number of stamps described
in subparagraphs (A), (B), and (C) of paragraph (1). The amount
of tax shall be computed and shown on the return.

(c) The taxes required to be paid by this section are due and
payable on or before the first day of the first calendar quarter
commencing 180 days after the effective date of this act. Payments
shall be made by remittances payable to the board and the payments
shall accompany the return and forms required to be filed by this
section.

(d) Any amount required to be paid by this section that is not
timely paid shall bear interest at the rate and by the method
established pursuant to Section 30202 from the first day of the first
calendar quarter commencing 180 days after the effective date of
this act, until paid, and shall be subject to determination, and
redetermination, and any penalties provided with respect to
determinations and redeterminations.

30130.53.  

(a) The State Board of Equalization shall determine
within one year of the effective date of this act, and annually
thereafter, the effect that the additional taxes imposed on cigarettes
by this article, and the resulting increase in the tax on tobacco
products required by subdivision (b) of Section 30123, have on
the consumption of cigarettes and tobacco products in this state.
To the extent that a decrease in consumption is determined by the
State Board of Equalization to be a direct result of the additional
tax imposed by this article, or the resulting increase in the tax on
tobacco products required by subdivision (b) of Section 30123,
the State Board of Equalization shall determine the fiscal effect
the decrease in consumption has on the Cigarette and Tobacco
Products Surtax Fund created by Section 30122 (Proposition 99
as approved by the voters at the November 8, 1988, statewide
general election), the Breast Cancer Fund created by Section
30461.6, the California Children and Families Trust Fund created
by Section 30131 (Proposition 10 as approved by the voters at the
November 3, 1998, statewide general election), and the General
Fund with respect to revenues derived from Section 30101.

(b) Funds shall be transferred from the California Tobacco Tax
Act of 2015 Fund to the Cigarette and Tobacco Products Surtax
Fund, the Breast Cancer Fund, the California Children and Families
Trust Fund, and the General Fund, to offset the revenue decrease
directly resulting from imposition of additional taxes by this article.

(c) Transfers under this section shall be made by the board at
times as the board determines necessary to further the intent of
this section.

30130.54.  

(a) The California Tobacco Tax Act of 2015 Fund
is hereby established in the State Treasury for the purposes set
forth in this article. All revenues, less refunds, derived from the
taxes imposed by this article shall be deposited in the California
Tobacco Tax Act of 2015 Fund.

(b) Moneys in the California Tobacco Tax Act of 2015 Fund,
less moneys transferred pursuant to Section 30130.53, shall be
transferred as follows:

(1) ___ percent to the Tobacco Prevention and Education
Account, which is hereby created in the California Tobacco Tax
Act of 2015 Fund.

(2) ___ percent to the Tobacco Disease Related Health Care
Account, which is hereby created in the California Tobacco Tax
Act of 2015 Fund.

(3) ___ percent to the Tobacco Law Enforcement Account,
which is hereby created in the California Tobacco Tax Act of 2015
Fund.

(c) Funds deposited into the California Tobacco Tax Act of
2015 Fund may be placed into the Pooled Money Investment
Account for investment only, and interest earned shall be credited
to the fund and deposited, apportioned, and expended only in
accordance with this article and its purposes.

(d) Notwithstanding any other law, the California Tobacco Tax
Act of 2015 Fund is a trust fund established solely to carry out the
purposes set forth in this article and all revenues deposited into
the California Tobacco Tax Act of 2015 Fund, together with
interest earned by the fund, are hereby continuously appropriated
without regard to fiscal year to be expended only in accordance
with this article and its purposes.

(e) Notwithstanding any other law, the taxes imposed by this
article and the revenue derived therefrom, including investment
interest, shall not be considered to be part of the General Fund, as
that term is used in Chapter 1 (commencing with Section 16300)
of Part 2 of Division 4 of the Government Code, shall not be
considered General Fund revenue for purposes of Section 8 of
Article XVI of the California Constitution, and its implementing
statutes, and shall not be considered “moneys to be applied by the
state for the support of school districts and community college
districts” pursuant to Section 8 of Article XVI of the California
Constitution, and its implementing statutes.

(f) Notwithstanding any other law, revenues deposited into the
California Tobacco Tax Act of 2015 Fund, and any interest earned
by the fund, shall only be used for the specific purposes set forth
in this article. Revenues deposited into the California Tobacco Tax
Act of 2015 Fund shall not be subject to appropriation, reversion,
or transfer by the Legislature, the Governor, the Director of
Finance, or the Controller for any other purpose, nor shall the funds
be loaned to the General Fund or any other fund of the state or any
local government fund.

(g) All revenues deposited into the California Tobacco Tax Act
of 2015 Fund shall be expended only for the purposes expressed
in this article, and shall be used only to supplement existing levels
of service and not to fund existing levels of service. Moneys in
the fund shall not be used to supplant state or local general fund
moneys for any purpose.

30130.55.  

After transferring the moneys as required pursuant
to subdivision (b) of Section 30130.53 and pursuant to subdivision
(b) of Section 30130.54, the Controller shall allocate the moneys
from the accounts in the California Tobacco Tax Act of 2015 Fund
as follows:

(a) The Tobacco Prevention and Education Account shall be
allocated to supplement tobacco prevention and control programs
as follows:

(1) __ percent to the State Department of Public Health.

(2) __ percent to the State Department of Education.

(3) ___percent to the University of California.

(b) Funds in the Tobacco Disease Related Health Care Account
shall be allocated to the State Department of Health Care Services
to improve existing programs to provide quality and access to
health care programs for families and children pursuant to Chapter
7 (commencing with Section 14000) to Chapter 8.9 (commencing
with Section 14700), inclusive, of Part 3 of Division 9 of the
Welfare and Institutions Code.

(c) Funds in the Tobacco Law Enforcement Account shall be
allocated to the State Board of Equalization, the Department of
Justice, and the State Department of Public Health for the purpose
of supplementing funding for the enforcement of laws that regulate
the distribution and sale of cigarettes and other tobacco products,
including, but not limited to, laws that prohibit cigarette smuggling,
counterfeiting, selling untaxed tobacco, selling tobacco without a
proper license, and selling tobacco to minors, and enforcing
tobacco-related laws, court judgments, and settlements.

(d) Not more than 2 percent of the funds received from the
California Tobacco Tax Act of 2015 Fund shall be used by any
department for administrative costs.

(e) The Department of Justice, the State Department of Public
Health, the State Department of Education, the State Department
of Health Care Services, and the University of California shall, on
an annual basis, publish on their respective Internet Web sites an
accounting of moneys received from the California Tobacco Tax
Act of 2015 Fund and how the moneys were spent.

SEC. 5.  

Section 30181 of the Revenue and Taxation Code is
amended to read:

30181.  

(a)  begin delete When end delete begin insert If end insert any tax imposed upon cigarettes under
begin delete Article 1 (commencing with Section 30101), Article 2
(commencing with Section 30121), and Article 3 (commencing
with Section 30131) of Chapter 2 end delete begin insert this part end insert is not paid through the
use of stamps or meter impressions, the tax shall be due and
payable monthly on or before the 25th day of the month following
the calendar month in which a distribution of cigarettes occurs, or
in the case of a sale of cigarettes on the facilities of a common
carrier for which the tax is imposed pursuant to Section 30104,
the tax shall be due and payable monthly on or before the 25th day
of the month following the calendar month in which a sale of
cigarettes on the facilities of the carrier occurs.

(b) Each distributor of tobacco products shall file a return in the
form, as prescribed by the board, begin delete which end delete begin insert that end insert may include, but not
be limited to, electronic media respecting the distributions of
tobacco products and their wholesale cost during the preceding
month, and any other information as the board may require to carry
out this part. The return shall be filed with the board on or before
the 25th day of the calendar month following the close of the
monthly period for which it relates, together with a remittance
payable to the board, of the amount of tax, if any, due under Article
2 (commencing with Section 30121) or Article 3 (commencing
with Section 30131) of Chapter 2 for that period.

(c) To facilitate the administration of this part, the board may
require the filing of the returns for longer than monthly periods.

(d) Returns shall be authenticated in a form or pursuant to
methods as may be prescribed by the board.

begin delete end delete begin delete

(e) This section shall become operative on January 1, 2007.

end delete begin delete end delete

SEC. 6.  

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.

SEC. 7.  

This act provides for a tax levy within the meaning
of Article IV of the Constitution and shall go into immediate effect.