BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 591
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|AUTHOR: |Pan |
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|VERSION: |April 16, 2015 |
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|HEARING DATE: |April 29, 2015 | | |
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|CONSULTANT: |Reyes Diaz |
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SUBJECT : Cigarette and tobacco products taxes: California
Tobacco Tax Act of 2015
SUMMARY : Imposes an additional cigarette tax at a rate of $2.00 per
package of 20 cigarettes, and a corresponding rate for a
cigarette tax stamp. Imposes a floor stock tax on dealers and
wholesalers for cigarettes in their possession or under their
control on January 1, 2016. Establishes in the State Treasury
the California Tobacco Tax Act of 2015 Fund into which revenues
of the additional cigarette tax will be deposited to be
transferred into specified existing and newly created accounts
for specified purposes.
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
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licensed by the BOE.
5.Establishes the Department of Public Health (DPH) and grants
it responsibility for public health programs, including
tobacco control.
This bill:
California Tobacco Tax Act of 2015
1.Enacts the California Tobacco Tax Act of 2015, which imposes
an additional cigarette tax at a rate of $0.10 per cigarette,
or $2.00 per package of 20 cigarettes.
2.Requires every dealer and wholesaler, for the privilege of
holding or storing cigarettes for sale, use, or consumption,
to pay a floor stock tax for each cigarette in its possession
or under its control in this state at 12:01 a.m. on January 1,
2016, at the rate of $0.10 for each cigarette. Requires every
dealer and wholesaler to file a return with the BOE on or
before July 1, 2016, on a form prescribed by the BOE, showing
the number of cigarettes in its possession or under its
control in this state at 12:01 a.m. on January 1, 2016.
Requires the amount of the tax to be computed and shown on the
return.
3.Requires every licensed cigarette distributor, for the
privilege of distributing cigarettes and for holding or
storing cigarettes for sale, use, or consumption, to 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 January 1,
2016, at the following rates:
a. $2.50 for each stamp bearing the designation
"25."
b. $2.00 for each stamp bearing the designation
"20."
c. $1.00 for each stamp bearing the designation
"10."
4.Requires every licensed cigarette distributor to file a return
with the BOE on or before July 1, 2016, on a form prescribed
by the BOE, showing the number of the stamps described in (3
above. Requires the amount of the tax to be computed and shown
on the return.
SB 591 (Pan) Page 3 of ?
California Tobacco Tax Act of 2015 Fund
5.Establishes in the State Treasury the California Tobacco Tax
Act of 2015 Fund (the Fund) into which all revenues (except
for those required to be deposited into the Cigarette and
Tobacco Products Surtax Fund, the Breast Cancer Fund, the
California Children and Families Trust Fund, and the General
Fund) will be deposited to be transferred in unspecified
percentages to the following accounts created by this bill:
a. Tobacco Prevention and Education Account;
b. Tobacco Disease Related Health Care Account;
and,
c. Tobacco Law Enforcement Account.
6.Allows funds deposited into the Fund to be placed in the
Pooled Money Investment Account for investment only. Requires
interest earned to be credited to the Fund and deposited,
apportioned, and expended only in accordance with the purposes
of this bill.
7.Prohibits taxes imposed by this bill and the revenue derived
therefrom, including investment interest, from being
considered part of the State General Fund (SGF), or from being
moneys to be applied by the state for the support of school
districts and community college districts.
8.Requires revenues deposited into the Fund and any interest
earned by the Fund to be used for the specific purposes
required in this bill. Prohibits the Legislature, Governor,
Director of Finance, or the Controller from subjecting
revenues deposited into the Fund to appropriation, reversion,
or transfer for any other purpose or from being loaned to the
SGF or any other state or any local government fund.
9.Requires revenues deposited into the Fund to be expended only
for purposes expressed in this bill and to be used to
supplement existing levels of service, not to fund existing
levels of service. Prohibits moneys in the Fund from being
used to supplant the SGF or local general fund moneys for any
purpose.
10.Provides that this bill becomes operative only if Assembly
Bill 1396 (Bonta), is also enacted and takes effect on or
before January 1, 2016.
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FISCAL
EFFECT : This bill has not been analyzed by a fiscal committee.
COMMENTS :
1.Author's statement. According to the author, tobacco-related
deaths are the single most preventable cause of death in
California, claiming more than 40,000 lives per year and
costing taxpayers billions of dollars to treat victims of
tobacco-related diseases. SB 591 will increase the tobacco tax
by $2 per pack. This bill will raise $1.5 billion that will,
through allocations made by AB 1396, increase access to care
for Medi-Cal patients, support existing statewide programs to
prevent youth from using tobacco, and stop illegal sales of
tobacco. These two bills together will reduce tobacco use in
California while restoring California's leadership in smoking
prevention and research to offset the costs of tobacco-related
diseases for taxpayers.
2.Tobacco taxation in California. According to the BOE, there
are two types of excise taxes for cigarettes and tobacco
products distributed in California: 1) the cigarette tax; and,
2) the cigarette and tobacco products surtax. While cigarettes
are subject to both the cigarette tax and the cigarette and
tobacco products surtax, tobacco products are subject only to
the cigarette and tobacco products surtax. Tobacco products
include all forms of cigars, smoking tobacco, chewing tobacco,
and snuff, as well as other products containing at least 50
percent tobacco. The tax and the surtax are paid by
distributers through the use of tax stamps which are purchased
from the BOE and affixed to each packet of cigarettes before
distribution. In the 1960's, the Legislature passed a $0.10
cigarette tax that was allocated to the SGF. The Legislature
and voters have adopted the following three additional tobacco
tax measures since 1988:
a. Proposition 99, from the November 1988 ballot,
imposed a cigarette and tobacco product surtax of $0.25
per package of 20 cigarettes and the resulting revenue is
used for the following purposes: tobacco-related health
education programs and disease research; medical and
hospital care and treatment of patients who cannot afford
those services, and for whom payment will not be made by
any private coverage or federal program; programs for
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fire prevention, environmental conservation, protection,
restoration, enhancement, as well as maintenance of fish,
waterfowl, and wildlife habitat areas; and enhancement of
state and local parks and recreation
b. Assembly Bill 478 (Friedman), Chapter 660, Statutes
of 1993, and Assembly Bill 2055 (Friedman), Chapter 661,
Statutes of 1993, added a cigarette excise tax of $0.02
per package of 20 cigarettes for breast cancer research
and early detection services.
c. Proposition 10, from the November 3, 1998 ballot,
imposed an additional cigarette and tobacco product
surtax of $0.50 per package of 20 cigarettes and is used
for programs that encourage proper childhood development,
including: the development of professional and parental
education and training; informed selection of childcare;
development and education of childcare providers; and
research into best practices and standards for all
programs and services related to early childhood
development.
3.Smoking prevalence. According to the 2012 Surgeon General's
Report, nearly 90 percent of smokers in the United States
started smoking by the age of 18, and 99 percent started by
age 26. In California, 64 percent of smokers start by the age
of 18 and 96 percent start by age 26. According to DPH in
2010, 36.8 percent of high school students had smoked a whole
cigarette by age 13 or 14, and in 2012, illegal tobacco sales
to minors rose to 8.7 percent from 5.6 percent in 2011.
According to DPH, the state's adult smoking rate has hit a
record low. In 2010, 11.9 percent of the state's adults
smoked, down from 13.1 percent 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
percent. 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 percent and
17.1 percent respectively, followed by white men at 17.2
percent and Latino men at 16 percent. The ALA reports that
Korean men have an unusually high tobacco usage rate at 27.9
percent, as do Lesbian, Gay, Bisexual, and Transgender women
who smoke at almost triple the rate of women in general.
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4.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 percent from 22.7 percent to
13.3 percent 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.
5.California Tobacco Control Program. The California Tobacco
Control Program (CTCP) is a program administered by DPH.
Established in 1990 through the passage of Proposition 99,
CTCP funds and coordinates the efforts of local communities in
California to create smoke-free environments, prevent illegal
sales of tobacco to youth, counter the aggressive marketing
practices of the tobacco industry, and help smokers to quit.
To ensure that federal, state, and local laws are followed,
CTCP works closely with law enforcement agencies. CTCP
currently works in all 58 counties in partnership with many
nonprofit, community-based organizations around the state. A
key component of CTCP's comprehensive approach is its focus on
changing social norms rather than a frontal attack designed to
market cessation services directly to tobacco users. According
to a recent study conducted by UC San Francisco, while CTCP
has cost $2.4 billion over the span of the more than 20 years
of the program's existence, CTCP has reduced health care costs
by $134 billion.
6.Tobacco taxes and other states. California's tobacco tax rate
($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
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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.
7.Impacts of higher cigarette prices. According to the
Legislative Analyst's Office (LAO), most revenue estimates
assume that an increased excise tax on cigarettes would raise
the retail prices of cigarettes and other tobacco products 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. Consequently, changes in state law, such as this
bill that could affect the health of the general population
and low-income and uninsured persons and public employees in
particular, could affect publicly funded health care costs.
The LAO further reports, since the use of tobacco products has
been linked to various adverse health effects, an increase in
a cigarette excise 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.
8.Double referral. This bill was heard in the Senate Governance
and Finance Committee on April 22, 2015, and passed with a
vote of 5-2.
9.Related legislation. AB 1396 (Bonta) requires moneys collected
from an additional tax to be imposed on the distribution of
cigarettes, a related floor stock tax, and a cigarette indicia
adjustment tax deposited into the California Tobacco Tax Act
of 2015 Fund, and transferred from that fund to specified
funds. AB 1396 continuously appropriates funds in the
California Tobacco Tax Act of 2015 Fund to DPH, the Department
of Justice, the Department of Education, and the Department of
Health Care Services, and the University of California (UC),
and requires the state departments, and requests of the
Regents of the UC, to annually publish an accounting of moneys
received from the Fund on their respective Internet Web sites.
AB 1396 becomes operative only if this bill is also enacted
and takes effect on or before January 1, 2016. AB 1396 is
pending in the Assembly Appropriations Committee.
10.Prior legislation. SB 768 (de León), of 2013, was
substantially similar to this bill. SB 768 held under
submission in the Senate Appropriations Committee.
SB 330 (Padilla), of 2011, would have increased the tobacco
tax by $1.50 per pack and dedicated 85 percent of revenue to
the SGF and 15 percent to tobacco control and lung cancer
efforts. The tobacco tax provisions were amended out of SB
330 before hearing in Senate Health Committee.
SB 600 (Padilla), of 2009, was substantially similar to SB
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330. SB 600 was held in the Senate Rules Committee.
AB 89 (Torlakson), of 2009, would have increased the tobacco
tax by $2.10 per pack. Revenues would have been directed to
education, children's health care, cessation services, lung
cancer research, and general health care. AB 89 was never
heard and died in the Assembly Governmental Organization
Committee.
SB 564 (Torlakson), of 2004, would have imposed an additional
tax on the distribution of cigarettes at the rate of $2.00 per
package of cigarettes. SB 564 was held in the Senate Revenue
and Taxation Committee.
AB 35 (Vargas), of 2003, would have imposed an additional tax
on the distribution of cigarettes at the rate of $1.50 per
package of cigarettes. AB 35 was subsequently amended to a
different subject.
SB 1890 (Ortiz), of 2002, would have increased cigarette tax
by $0.65 per package with the proceeds being used for
health-related programs. SB 1890 was held in the Senate
Revenue and Taxation Committee.
11.Support. The sponsors and supporters of this bill, generally
comprised of health care professionals, consumer advocates,
local governments, and labor groups, 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.
12.Support if Amended. The California Chapter of the American
College of Emergency Physicians supports this bill for the
same reasons as other supporters but would like to see an
amendment that allocates a portion of the Fund revenues to the
Maddy Emergency Medical Services Fund, which is dramatically
underfunded and is the only source of reimbursement to
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emergency physicians and call panelists who provide care to
the uninsured.
13.Opposition. Opponents of the bill, generally representing
large and small businesses and taxpayers, argue that this bill
taxes an industry that already has declining sales, which will
further decrease revenues in the various programs that
currently benefit from cigarette taxes. Opponents also state
that an increased tax would result in the black market
profiting from counterfeit cigarettes, and that Californians
already pay the highest sales, income, and gas taxes in the
nation.
14.Policy comment. While the author intends to continue working
with stakeholders to determine appropriate allocation amounts
of revenues in the Fund, this bill currently leaves the
percentage allocations for the newly created accounts
unspecified.
SUPPORT AND OPPOSITION :
Support: American Cancer Society Cancer Action Network
(co-sponsor)
American Lung Association in California (co-sponsor)
California Medical Association (co-sponsor)
SEIU California (co-sponsor)
Association of Northern California Oncologists
California Academy of Family Physicians
California Black Health Network
California Chronic Care Coalition
California Pan-Ethnic Health Network
California Pharmacists Association
California Primary Care Association
California Tax Reform Association
Community Action Fund of Planned Parenthood of Orange
and San Bernardino Counties
Health Officers Association of California
Kaiser Permanente
March of Dimes California Chapter
Medical Oncology Association of Southern California,
Inc.
Planned Parenthood Action Fund of the Pacific
Southwest
Planned Parenthood Action Fund of Santa Barbara,
Ventura and San Luis Obispo Counties, Inc.
Planned Parenthood Mar Monte
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Planned Parenthood Northern California Action Fund
Planned Parenthood Pasadena and San Gabriel Valley
Santa Clara County Board of Supervisors
Oppose: California Chamber of Commerce
California Taxpayers Association
Howard Jarvis Taxpayers Association
National Federation of Independent Business
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