BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 591|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: SB 591
Author: Pan (D), et al.
Amended: 6/2/15
Vote: 27
SENATE GOVERNANCE & FIN. COMMITTEE: 5-2, 4/22/15
AYES: Hertzberg, Beall, Hernandez, Lara, Pavley
NOES: Nguyen, Moorlach
SENATE HEALTH COMMITTEE: 6-2, 4/29/15
AYES: Hernandez, Hall, Mitchell, Monning, Pan, Wolk
NOES: Nguyen, Nielsen
NO VOTE RECORDED: Roth
SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/28/15
AYES: Lara, Beall, Hill, Leyva, Mendoza
NOES: Bates, Nielsen
SUBJECT: Cigarette and tobacco products taxes: California
Tobacco Tax Act of 2015
SOURCE: Author
DIGEST: This bill imposes an additional excise tax of $2.00 per
package of 20 cigarettes. This bill also (1) imposes an
equivalent one-time "floor stock tax" on the cigarettes held or
stored by dealers and wholesalers, and (2) indirectly increases
the tobacco products tax.
ANALYSIS:
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Existing law:
1)Imposes a tax of $1.01 per pack of 20 cigarettes with the
majority of the funds being used to fund children's health
programs, under federal law.
2)Imposes a $0.87 per pack of 20 cigarettes tax on distributors
of cigarettes and tobacco products which 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.
This bill:
1)Imposes an additional excise tax of $2.00 per package of 20
cigarettes.
2)Imposes a one-time "floor stock tax" on the cigarettes held or
stored by dealers and wholesalers.
3)Creates the Tobacco Tax Act Fund.
4)Requires that, except for payment of refunds and backfill
transfers, the Board of Equalization (BOE) deposit all
revenues into the Tobacco Tax Act Fund.
5)Specifies the Tobacco Tax Act Fund monies to be transferred to
three subaccounts: (a) the Tobacco Prevention and Education
Account, (b) the Tobacco Disease Related Health Care Account,
and (c) the Tobacco Law Enforcement Account.
6)Specifies that the monies are allocated in the following
manner:
14% to the Tobacco Prevention and Education Account,
84% to the Tobacco Disease Related Health Care Account,
And 2% to the Tobacco Law Enforcement Account.
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1)Becomes operative only if AB 1396 (Bonta) is also enacted.
Background
The California Cigarette and Tobacco Products Tax Law imposes
two types of excise taxes on cigarette and tobacco products
distributed in the state: 1) the cigarette tax, and 2) the
cigarette and tobacco products surtax. Cigarettes are subject
to both the cigarette tax and the cigarette and tobacco products
surtax. Distributors pay both the tax and surtax through the
use of cigarette indicia, or tax stamps, which are purchased
from the BOE and affixed to a cigarette package. Currently,
each stamp costs $0.87 per pack of 20 cigarettes: $0.12 cents
for the cigarette tax and $0.75 for the combined surtaxes.
A distributor, wholesaler, manufacturer, or importer of
cigarettes or tobacco products is required to register with the
BOE and be licensed. All licensed distributors, wholesalers,
manufacturers, and importers must file returns or reports on or
before the 25th of the month following the reporting period.
State law defines "cigarette" as any roll for smoking, made
wholly or in part of tobacco, irrespective of size, shape, or
whether the tobacco is flavored, adulterated or mixed with any
other ingredient, where such roll has a wrapper or cover made of
paper or any other material, except where such a wrapper is
wholly or in the greater part made of tobacco and weighs over
three pounds per thousand. "Tobacco products" includes all
forms of cigars, smoking tobacco, chewing tobacco, snuff and any
other articles or products made of, or containing at least 50%
tobacco, but does not include cigarettes.
There are certain transactions that are not subject to the
cigarette tax and the cigarette and tobacco products surtaxes,
like the sales by a distributor to a carrier engaged in
interstate or foreign passenger services, sales to U.S. military
exchanges, or an individual shipment of not more than 400
cigarettes personally transported into the state.
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If a consumer purchases cigarettes or tobacco for their own use
from outside the state, either through mail, telephone, or the
internet, without paying the excise tax, they must pay the tax
directly to the BOE. Consumers owe the tax if they physically
bring tobacco products or more than 400 cigarettes into the
state. These purchases are also subject to California's use tax
law.
Since 1998, the Legislature and voters have adopted three
tobacco tax measures:
On the November 1988 ballot, California voters approved
Proposition 99, which imposed a surtax of $0.25 cents per
package of 20 cigarettes, and created an equivalent tax on
tobacco products. Proceeds from the taxes fund health
education, disease research, hospital care, fire prevention,
and environmental conservation.
On November 3, 1998, California voters approved Proposition
10, which imposed an additional surtax of $0.50 per package of
20 cigarettes, and created a proportionately larger increase
in the tax on tobacco products. The revenues are used to fund
early childhood development programs, called "First 5."
AB l 478 (Friedman, 1993) added an excise tax of $0.02 per
packet of 20 cigarettes for breast cancer research and early
detection services.
The federal cigarette tax is $1.01 per pack. Current state
taxes and surtaxes are allocated in the following manner:
$0.10 to the state General Fund.
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$0.25 to the Cigarette and Tobacco Products Surtax Fund
(Proposition 99, 1988).
$0.02 to the Breast Cancer Fund.
$0.50 to the California Children and Families Trust Fund
(Proposition 10, 1998).
In November 1998, state attorney generals and tobacco companies
entered into the Master Settlement Agreement, whereby, tobacco
companies, agreed to change the way tobacco products were
marketed and agreed to pay, in perpetuity, various annual
payments to compensate for medical costs for caring for persons
with smoking-related illnesses. In 2012, California received a
Master Settlement Payment around $735.7 million, which adds an
additional $0.50 tax per pack.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
According to the Senate Appropriations Committee, the BOE
estimates that this bill will result in a net cigarette tax
revenue gain (nearly all of which would be special funds) of
$665 million in 2015-16 (a half-year effect), and $1.3 billion
in 2016-17. In addition, the higher excise tax would lead to
increased sales and use tax revenue. For example, 2016-17 sales
and use tax revenues would increase by $39 million. The
associated floor stock tax would raise an estimated $86 million.
Additionally, though this bill does not directly increase the
tobacco products tax, current law triggers an automatic tobacco
products tax increase whenever the tax imposed on cigarettes is
increased. Specifically, current law requires BOE to annually
determine the tobacco products tax rate at a rate equivalent to
the combined rate of all taxes imposed on cigarettes. Thus,
when the cigarette tax is increased, the tobacco products tax
rate increases as well. BOE estimates the increase associated
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with this bill to be $96 million (special funds) in 2016-17.
BOE administrative costs related to this bill are substantial,
likely about $10 million annually. These costs include:
taxpayer notification, tax return design, computer programming,
cigarette tax stamp design and denomination changes, and
compliance and audit efforts to ensure proper reporting, and
floor stock tax administration. Furthermore, this bill requires
enhanced efforts to ensure proper floor stock tax reporting and
collection, greater compliance efforts for additional billings
and delinquencies, and an increase in BOE program, audit and
investigative staff presence related to increased tax evasion.
SUPPORT: (Verified6/2/15)
American Cancer Society Cancer Action Network
American Heart Association
American Lung Association
Association of Northern California Oncologists
California Academy of Family Physicians
California Black Health Network
California Chapter of the American College of Emergency
Physicians
California Chronic Care Coalition
California Medical Association
California Pan-Ethnic Health Network
California Pharmacists Association
California Primary Care Association
California Primary Care Association
California Tax Reform Association
Campaign for Tobacco-Free Kids
Health Access
Health Officers Association of California
Kaiser Permanente
March of Dimes California Chapter
Medical Oncology Association of Southern California, Inc.
Planned Parenthood Action Fund of Orange County and San
Bernardino Counties
Planned Parenthood Action Fund of Santa Barbara, Ventura, and
San Luis Obispo Counties
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Planned Parenthood Action Fund of the Pacific Southwest
Planned Parenthood Affiliates of California
Planned Parenthood Mar Monte
Planned Parenthood Northern California Action Fund
Planned Parenthood Pasadena and San Gabriel Valley
Santa Clara County Board of Supervisors
Service Employees International Union
OPPOSITION: (Verified6/2/15)
California Chamber of Commerce
California Taxpayers Association
Cigar Association of America
Howard Jarvis Taxpayers Association
National Federation of Independent Business
ARGUMENTS IN SUPPORT: According to the author,
"Tobacco-related deaths are the single most preventable cause of
death in California claiming over 40,000 lives per year and
costing taxpayers billions of dollars to treat victims of
tobacco-related diseases. SB 591 will increase the capacity of
proven statewide prevention and education programs that reach
adults and youth alike through the media, schools and workplaces
while restoring California's leadership in smoking prevention
and research to offset the costs of tobacco-related diseases for
taxpayers."
ARGUMENTS IN OPPOSITION: Opponents argue that this bill
creates a regressive tax on a declining revenue source.
Opponents also argue that raising the cost of cigarettes will
exacerbate tax evasion and foster illegal cigarette sales. Tax
evasion reduces state revenues that cigarettes and other tobacco
products taxes generate. BOE staff estimates that cigarette tax
evasion in California runs at a rate of approximately $126
million, along with $88 million in tax on other tobacco
products. These illegal activities include smuggling of
cigarettes and tobacco products into California, and the sale of
counterfeit cigarette stamps and products.
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Prepared by:Myriam Bouaziz / GOV. & F. / (916) 651-4119
6/2/15 22:42:03
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