BILL ANALYSIS
AB 689
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Date of Hearing: April 30, 2009
ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION
Curren D. Price, Chairman
AB 689 (Charles Calderon) - As Amended: April 23, 2009
SUBJECT : Cigarette and Tobacco Products Tax Law: tobacco
products
SUMMARY : Expands the definition of "tobacco products"
contained in both the Tobacco Tax and Health Protection Act of
1988 (Proposition 99) and the California Children and Families
First Act of 1998 (Proposition 10) to include any articles or
products made of or containing tobacco. Specifically, this
bill :
1)Contains legislative findings noting that its provisions are
in furtherance of, and consistent with the purposes of, both
Proposition 99 and Proposition 10.
2)Specifies that it does not require the reimbursement of any
local government costs under the California Constitution
because the only costs that may be incurred by a local agency
or school district are associated with creating a new crime or
changing the definition of a crime.
3)This bill contains a 4/5 vote requirement.
EXISTING LAW
1)Provides, under both Proposition 99 and Proposition 10, that
the term "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" excluding cigarettes.
2)Defines the term "cigarette" as "any roll for smoking, made
wholly or in part of tobacco, irrespective of size or shape
and irrespective of 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 wrapper is wholly or in the
greater part made of tobacco and such roll weighs over three
pounds per thousand."
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3)Imposes a tax, under Proposition 99, upon the distribution of
tobacco products, based on the wholesale cost of these
products, at a tax rate equivalent to the combined rate of tax
imposed on cigarettes.
4)Provides that Proposition 99 revenues are to be deposited in
the Cigarette and Tobacco Products Surtax Fund and used only
for specified purposes, including health education programs,
disease research, and medical care for specified patients.
5)Specifies that the provisions of Proposition 99 may only be
amended by a vote of four-fifths of the membership of both
houses of the Legislature.
6)Imposes an additional tax, under Proposition 10, on tobacco
products based on the wholesale cost of these products, at a
rate equivalent to the $0.50 per pack rate Proposition 10
imposes on cigarettes.
7)Provides, under the California Constitution, that whenever the
Legislature or any state agency mandates a new program or
higher level of service on any local government, the State
shall provide a subvention of funds to reimburse that local
government for the costs of the program or increased level of
service. No reimbursement, however, is required when the
costs are associated with legislation defining a new crime or
changing the existing definition of a crime.
FISCAL EFFECT : According to the Board of Equalization, this
bill will increase tobacco products revenues by roughly $100,000
per year. To the extent that new dissolvable tobacco products
enter the California market, revenue gains will be higher by an
unknown amount.
COMMENTS :
The current definition of tobacco products . In 1988, California
voters passed Proposition 99, which imposes a tax upon the
distribution of tobacco products, based on the wholesale cost of
these products, at a tax rate equivalent to the combined rate of
tax imposed on cigarettes. Proposition 99 provides that the
term "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."
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The same definition was later included in Proposition 10, which
California voters passed in November 1998.
This definition can be interpreted in at least one of two ways,
depending upon whether the clause "made of, or containing at
least 50 percent, tobacco" is read to qualify all items listed
in the definition or only "any other articles or products."
Based on its interpretation of federal statutes defining
"tobacco products", BOE has taken the second approach and
concluded that the term "tobacco products" includes all forms of
cigars, smoking tobacco, chewing tobacco, and snuff,
irrespective of the amount of pure tobacco they contain.
However, BOE has determined that the 50% tobacco threshold only
applies to "other articles or products."
This seems to be a reasonable interpretation given the
underlying purpose of Propositions 99 and 10, and the fact that
the definition specifically provides that the term "tobacco
products" includes, but is not limited to, the specified product
categories, suggesting the definition should be given broad
application.
In addition, Committee staff is not aware of any other state
that has a 50% tobacco content threshold. Therefore, it would
appear that this bill would make California's definition of
tobacco products similar to the definition used by other states
for tax purposes.
What exactly are "other articles or products"? In response to
increased restrictions on public smoking, the tobacco industry
has been actively developing new smokeless products. For
example, R.J. Reynolds Tobacco Co. is currently introducing
three dissolvable smokeless products - Camel Orbs (a
lozenge-like pellet), Camel Sticks (a twisted toothpick-size
stick), and Camel Strips (a film strip for the tongue).
If these or similar products are represented to contain less
than 50% tobacco, and are subsequently found to contain more
than 50% tobacco, distributors are concerned that they will be
held responsible for payment of back taxes on these products.
This bill seeks to alleviate this concern by creating a bright
line rule that all products containing tobacco will be treated
as tobacco products for purposes of taxation, irrespective of
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the tobacco content.
Related legislation. AB 89 (Torlakson) of the 2008 Legislative
Session. This bill would impose an additional excise tax on
cigarettes of $2.10 per pack. The proceeds would fund various
education, health, and research programs. This bill is located
in the Assembly Governmental Organization Committee.
SB 600 (Padilla) of the 2008 Legislative Session. This bill
would impose an additional excise tax on cigarettes of $1.50 per
pack, with the amount adjusted annually for inflation. Funds
would be deposited in the Tobacco Tax and Health Protection Fund
and the General Fund. This bill is located in the Senate Health
Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California Distributors Association
Opposition
None on file
Analysis Prepared by : Rod Brewer / G. O. / (916) 319-2531