BILL ANALYSIS
AB 2100
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Date of Hearing: May 3, 2010
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Anthony J. Portantino, Chair
AB 2100 (Coto) - As Amended: March 25, 2010
2/3 vote. Tax levy. Fiscal committee.
SUBJECT : Taxation: sweetened beverages: Pediatric Obesity
Fund
SUMMARY : Enacts the Sweetened Beverage Tax Law which, beginning
January 1, 2011, would impose a tax of $0.01 per teaspoon of
added sweetener in a bottled sweetened beverage or concentrate.
Specifically, this bill :
1)Contains the following findings:
a) Over 64% of adults in the United States (U.S.) are
overweight and 17% of children and adolescents ages 2 to 19
are overweight. Overweight is a significant risk factor
for the development of diabetes. 23% of children and
adults have diabetes and rates continue to explode;
b) Currently, over 5.6 million adults in California, which
equals 21.2%, are obese and an additional half million
adolescents, which equals 14.2%, are overweight or obese.
The costs of physical inactivity, obesity, and overweight
costs California residents over $28 billion per year;
c) An average 12 ounce serving of soda contains 10
teaspoons of sugar, whereas the U.S. Department of
Agriculture recommends that a person eating a 2,200 calorie
diet should consume no more than 12 teaspoons of refined
sugar per day;
d) There is an overwhelming link between obesity and the
consumption of sweetened beverages. The average American
consumes 278 additional calories than they did in 1977.
120 of these calories can be attributed to sugar sweetened
beverages; and,
e) Adam Smith, in 1776, declared "Sugar, rum and tobacco
are commodities which are nowhere necessities of life,
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which are become objects of almost universal consumption,
and which are therefore extremely proper subjects of
taxation."
2)Imposes a new tax at the rate of $0.01 per "teaspoon" of
"added sweetener" in a "bottled sweetened beverage." The tax
is imposed on every person who does the following:
a) Makes the first sale in this state of a "bottled
sweetened beverage";
b) Uses or consumes an untaxed "bottled sweetened beverage"
in this state; or,
c) Places in this state an untaxed "bottled sweetened
beverage" in a vending machine or in retail stock for the
purpose of selling the beverage to consumers.
3)Defines a "teaspoon" as 4.2 grams.
4)Defines "added sweetener" as any additive that enhances the
sweetness of a beverage, including added sugar. The term does
not include natural sugar(s) contained within fruit juice that
is a component of the beverage.
5)Defines a "bottled sweetened beverage" as a "sweetened
beverage" contained in a "beverage container."
a) A "sweetened beverage," in turn, means any sweetened
nonalcoholic beverage sold for human consumption including
the following: soda water, ginger ale, root beer, all
beverages commonly referred to as cola, lime, lemon,
lemon-lime, and other flavored beverages, including any
fruit or vegetable beverage containing 10% or less natural
fruit juice or natural vegetable juice, as defined, and all
other drinks and beverages commonly referred to as "soda,"
"soda pop," and "soft drinks." The term does not include
any of the following:
i) Any nonalcoholic beverage sweetened entirely with
artificial sweeteners that do not add calories to the
beverage;
ii) Any product sold in liquid form for consumption by
infants, which is commonly referred to as "infant
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formula";
iii) Any product sold in liquid form for weight
reduction;
iv) Water, to which no natural sweeteners have been
added; or,
v) Any product containing milk or milk products, as
defined.
b) A "beverage container," in turn, means any closed or
sealed glass, metal, paper, plastic, or other type of
container regardless of size or shape.
6)Imposes a new tax at the rate of $0.01 per teaspoon of added
sweetener in the "concentrate." The tax is imposed on every
person who does the following:
a) Makes the first sale in this state of "concentrate";
b) Uses or consumes untaxed "concentrate" in this state;
or,
c) Places in this state untaxed concentrate in a vending
machine or retail stock for the purpose of selling a
sweetened beverage to consumers.
7)Exempts from the tax on "concentrate" the sale of untaxed
"concentrate" to a sweetened beverage manufacturer, as
defined, whose sale of the concentrate or bottled sweetened
concentrate is subject to either of the taxes set forth above.
8)Defines "concentrate" as a sweetened beverage syrup, simple
syrup, powder, or base product for mixing, compounding, or
making sweetened beverages.
9)Exempts from both taxes the sale, use, or consumption in this
state of bottled sweetened beverages or concentrate where the
state is prohibited from taxing the sale, use, or consumption
under federal or state law.
10)Requires the State Board of Equalization (BOE) to administer
and collect the taxes under the Fee Collection Procedures Law.
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11)Requires taxpayers to file with BOE a return on or before the
last day of the calendar month following the calendar quarter
to which it relates, together with a remittance for the amount
of tax due for that period.
12)Provides that BOE may prescribe reporting requirements
necessary to implement the tax, including information
regarding the total amount of added sweetener, the total
amount of bottled sweetened beverage drinks sold, and the
amount of tax due.
13)Provides that payments on delinquent taxes owed shall be
applied as follows:
a) First, to any interest due on the tax;
b) Second, to any penalty imposed; and,
c) Third, to the tax due.
14)Provides that, upon appropriation, BOE shall be reimbursed
for expenses incurred in administering and collecting the tax.
15)Establishes the Pediatric Obesity Fund in the State Treasury,
which shall consist of all taxes, interest, penalties, and
other amounts collected pursuant to this bill, less refunds
and reimbursement to BOE for expenses incurred in
administering and collecting the tax.
16)Provides that all moneys in the Pediatric Obesity Fund shall,
upon appropriation, be allocated to the Department of
Education for distribution of grants to eligible school
districts for the purpose of employing a school nurse or
health educator and creating a healthful diet and lifestyle
plan for the school.
17)Takes immediate effect as a tax levy, but becomes operative
on January 1, 2011.
EXISTING LAW :
1)Imposes a sales tax on retailers for the privilege of selling
tangible personal property (TPP), absent a specific exemption.
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The tax is based upon the retailer's gross receipts from TPP
sales in this state.
2)Provides a sales and use tax (SUT) exemption for specified
"food products." The term "food products" is defined to
include all fruit juices, vegetable juices, and other
beverages including bottled water. Carbonated beverages,
however, are specifically excluded from the exemption.
3)Imposes no additional taxes on nonalcoholic sweetened
beverages.
FISCAL EFFECT : The BOE estimates that this bill would generate
about $636 million in fiscal year (FY) 2010-11, and $1.38
billion in FY 2011-12 for the Pediatric Obesity Fund. In
addition, this bill would generate $34.7 million in FY 2010-11,
and $66.9 million in FY 2011-12 in state and local SUT revenue.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
As Chair of the Legislative Task Force on Diabetes and
Obesity I learned first hand about the devastating effects
that diabetes and obesity are having on both Californians'
health and wallets. At the conclusion of the Task Force, a
number of policy recommendations were made and putting
forward a sweetened beverage tax was key among them. This
bill also allows taxes collected to go directly to schools
to promote healthy diets and lifestyles.
2)Proponents state, "Intake of sugar-sweetened beverages has
been implicated as a likely contributing factor to the growing
obesity rates among children and adolescents. In a recent
study by the California Center for Public Health Advocacy and
the UCLA Center for Health Policy Research, sixty-two percent
of adolescents ages 12 to 17 and 41 percent of children ages 2
to 11 imbibe at least one sugar-sweetened drink a day. These
drinks contain a lot of calories with little or no nutritional
benefit. Drinking just one 12-ounce can of soda every day for
a year is equal to 55,000 calories, or 15 pounds a year."
3)Opponents state, "Last year, legislators increased taxes by
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$12.6 billion, the largest hike in the history of any state.
Raising taxes on soda will harm the beverage industry, a major
employer in California. Soda taxes on distributors will also
ultimately be passed on to consumers in the form of higher
prices. It could also negatively impact the repayment of
hundreds of millions worth of loans made to the CRV fund,
possibly representing another hit to the state budget."
4)BOE's staff analysis of this bill raises the following issues:
a) BOE states that, in its current form, this bill does not
clearly specify the taxpayer or provide a mechanism for
notifying customers that the tax has been paid.
Specifically, BOE notes that the taxpayer, under this
measure, could be a beverage or concentrate manufacturer,
distributor, wholesaler, retailer, or consumer. The
imposition language is virtually identical to that provided
for the excise tax on cigarettes and tobacco products, but
lacks a single taxpayer, which would complicate BOE's
administration of the proposed tax. In addition, it is
possible that the tax could be imposed more than once as
the beverage or concentrate moves through the distribution
chain. BOE is available to work with the author to draft
appropriate amendments to address these issues.
b) BOE requires a six-month lead time to implement any new
tax program. To implement this bill, BOE would have to
notify and register taxpayers, develop appropriate computer
programs, hire and train key staff, create new forms and
schedules, and answer taxpayer inquiries. Moreover, these
activities should all take place before the new tax goes
into effect. As such, BOE suggests amending this bill to
provide a delayed operative date, whereby the bill would
become operative on the first day of the first calendar
quarter beginning more than six months after AB 2100 is
enacted. This would provide BOE with sufficient lead-time
and would be consistent with the quarterly reporting
proposed in this bill.
c) The proposed tax would be subject to SUT. BOE notes
that, under the SUT Law, the total amount of the sale is
subject to SUT (unless a specific exemption or exclusion
applies). Because the new tax imposed by this bill is not
specifically excluded, it would be included in the total
amount of the sale and, therefore, would be subject to SUT.
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5)Committee Staff Comments:
a) A National Epidemic : Sugar-sweetened beverages have
been linked to health problems ranging from obesity to
diabetes. For example, a study examining middle-school
students over two academic years showed that the risk of
becoming obese increased by 60% for each additional serving
of sugar-sweetened beverages per day.<1> Moreover, it is a
fallacy to suggest that consumers bear the full costs of
their consumption choices. Medical costs for overweight
and obesity alone are estimated to be $147 billion annually
- or 9.1% of national health care expenditures - with half
of these costs paid for publicly through the Medicare and
Medicaid programs.<2> As such, some have proposed taxation
as a means of both reducing the consumption of
sugar-sweetened drinks and generating revenue for health
programs.
b) How Much Tax Are We Talking About? : This bill would
impose a tax of $0.01 per teaspoon (or 4.2 grams) of added
sweetener. A typical 12 ounce can of soda, in turn,
contains anywhere from 39 to 46 grams of "sugars." This
would translate to an additional tax of between $0.09 -
$0.11 per can. This is roughly in line with a proposal
advanced in the New England Journal of Medicine, which
advocated an excise tax of $0.01 per ounce for beverages
containing any added caloric sweetener.<3> Moreover, the
authors of this study estimated that such a tax would lead
to at least a 10% reduction in calorie consumption from
sweetened beverages.
c) An Easier Way? : This bill would impose a tax of $0.01
--------------------------
<1> Ludwig DS, Peterson KE, Gortmaker SL. Relation between
consumption of sugar-sweetened drinks and childhood obesity: a
prospective, observational analysis. Lancet 2001; 357:505-8.
<2> Finkelstein EA, Trogdon JG, Cohen JW, Dietz W. Annual
medical spending attributable to obesity:
payer-and-service-specific estimates. Health Aff (Millwood)
2009; 28:w822-w831.
<3> Brownell KD, Farley T, Willett WC, Popkin BM, Chaloupka FJ,
Thompson JW, Ludwig DS. The Public Health and Economic Benefits
of Taxing Sugar-Sweetened Beverages. New England Journal of
Medicine 2009.
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per teaspoon of added sweetener. Thus, a can of A&W Cream
Soda with 46 grams of sugar would be taxed at roughly
$0.11, while a can of Sprite with 39 grams of sugar would
be taxed at $0.092. This approach maintains a direct
correlation between the amount of added sweetener and the
amount of tax, and could therefore result in some
manufacturers reformulating their products. Nevertheless,
this approach could be somewhat difficult to administer. A
simpler approach, like the one advanced in the New England
Journal of Medicine, would impose a per ounce tax on any
beverage with added caloric sweetener.
d) Keeping Pace with Inflation : The author may wish to
consider amendments providing for the automatic adjustment
of the tax rate over time to keep pace with inflation.
e) How Will the Tax Revenues be Used? : Tax revenues will
be deposited in the Pediatric Obesity Fund and, upon
appropriation, will be allocated to the Department of
Education for distribution of grants to "eligible school
districts" for purposes of employing a school nurse or
health educator and creating a healthful diet and lifestyle
plan for the school. This raises the following questions:
i) The bill does not define the term "eligible school
districts" and provides no criteria for the Department of
Education to apply in awarding grants. The author may
wish to provide some legislative guidance on these
issues.
ii) The bill provides that grant moneys will be used for
"employing" a school nurse or health educator. As such,
it is not clear whether grant moneys would be used
exclusively for new hires or, potentially, to fund
existing positions. Moreover, would new positions be
permanent or would they be contingent on continued grant
funding?
iii) What exactly is a "health educator"? Would health
educators be required to have specific training or
education?
iv) This bill provides that grant moneys could also be
used to create a "healthful diet and lifestyle plan" for
the school. Would the nurse or health educator be
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responsible for spearheading this effort? Moreover, what
happens when the plan is developed? Would grant moneys
be available to implement the plan through, for example,
a revamped cafeteria menu?
f) Related Legislation :
i) SB 1210 (Florez), of the current Legislative
Session, would impose a tax of $0.01 per teaspoon of
caloric sweetener in a bottled sweetened beverage.
Revenues from the tax would be deposited in a newly
established Children's Health Promotion Fund, with moneys
allocated for statewide childhood obesity prevention
programs. SB 1210 is set to be heard in the Senate
Committee on Revenue and Taxation on May 12, 2010.
ii) SB 1520 (Ortiz), of the 2001-02 Legislative Session,
would have, among other things, imposed an excise tax of
$2 per gallon of soft drink syrup or simple syrup. These
provisions were eventually amended out of the bill. SB
1520 failed passage in committee.
g) Potential Amendments :
i) This bill defines a "concentrate manufacturer" as
any person that manufacturers concentrate for sale to
distributors, dealers, consumers, or others in this
state. It would appear, however, that this term is not
included within the text of this bill. As such,
Committee staff questions whether the inclusion of this
definition is necessary or useful.
ii) In its staff analysis, BOE has also requested
amendments to provide for electronic registration and
filing, and to allow BOE to adopt appropriate regulations
to implement the proposed tax program.
h) Technical Amendments :
i) On page 3, line 5, replace "Overweight" with "Being
overweight";
ii) On page 3, line 10, replace "The costs of" with "It
is estimated that";
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iii) On page 4, line 1, replace "costs" with "cost";
iv) On page 4, line 9, replace "additional" with "more";
v) On page 7, line 9, replace "tax" with "taxes";
vi) On page 7, line 14, replace "tax" with "taxes";
vii) On page 7, line 18, replace "tax" with "taxes";
viii) On page 7, line 19, replace "the tax" with "any
tax";
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees,
AFL-CIO
California Chiropractic Association
California Tax Reform Association
Opposition
California Automatic Vendors Council
California Chamber of Commerce
California Grocers Association
California Independent Grocers Association
California Manufacturers and Technology Association
California Restaurant Association
California Retailers Association
California Taxpayers Association
Howard Jarvis Taxpayers Association
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098