BILL ANALYSIS
AB 689
Page 1
ASSEMBLY THIRD READING
AB 689 (Charles Calderon)
As Amended April 23, 2009
4/5 vote
REVENUE & TAXATION 6-2 GOVERNMENTAL ORGANIZATION 12-2
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|Ayes:|Caballero, Beall, Coto, |Ayes:|Price, Chesbro, De Leon, |
| |Ma, Portantino, Saldana, | |Evans, Galgiani, Hall, |
| | | |Hill, Lieu, Mendoza, |
| | | |Portantino, Torres, |
| | | |Torrico |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Harkey, Nielsen |Nays:|Anderson, Nestande |
| | | | |
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APPROPRIATIONS 11-5
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|Ayes:|De Leon, Ammiano, Charles | | |
| |Calderon, Davis, | | |
| |Krekorian, Hall, John A. | | |
| |Perez, Price, Skinner, | | |
| |Solorio, Torlakson | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Nielsen, Duvall, Harkey, | | |
| |Miller, Audra Strickland | | |
| | | | |
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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
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district are associated with creating a new crime or changing
the definition of a crime.
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."
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
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existing definition of a crime.
FISCAL EFFECT : The Board of Equalization (BOE) estimates that
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 author states, "Current law defines the term
"tobacco products" to include any product that contains at least
50% tobacco. In today's marketplace, more products are being
produced that contain varying levels of tobacco. Moreover, the
state must generally rely on manufacturer representations
regarding the percentage of tobacco in each product.
"AB 689 addresses this concern by creating a bright line rule for
purposes of imposing the tobacco tax. Specifically, this bill
revises the definition of tobacco products to include any product
that contains tobacco, irrespective of the amount. By eliminating
an arbitrary content threshold, this bill ensures that no tobacco
product will escape taxation."
Committee staff comments:
1)The current definition of tobacco products:
a) 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;"
b) The very same definition was later included in Proposition
10, which California voters passed in 1998;
c) 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;"
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d) 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. By
the same token, BOE has determined that the 50% tobacco
threshold only applies to "other articles or products;"
e) 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; and,
f) 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.
2)What exactly are "other articles or products"?
a) 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).
b) 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 the tobacco content.
3)Related bills in the current legislative session:
a) AB 89 (Torlakson) would impose an additional excise tax on
cigarettes of $2.10 per pack. The proceeds would fund
various education, health, and research programs. AB 89 is
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pending in the Assembly Committee on Governmental
Organization; and,
b) SB 600 (Padilla) 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.
SB 600 is pending in the Senate Health Committee.
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
FN: 0000682