BILL ANALYSIS
AB 2496
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Date of Hearing: May 19, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2496 (Nava) - As Amended: May 13, 2010
Policy Committee: Governmental
Organization Vote: 17 - 1
Judiciary 8 - 1
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill amends provisions of California's Cigarette and
Tobacco Products Licensing Act (Tobacco Licensing Act),
Cigarette and Tobacco Products Tax Law (Tobacco Tax Law), and
other statutes as they relate to the obligations of tobacco
manufacturers who were either not original signatories or did
not agree to the terms of the Master Settlement Agreement (MSA)
between the state and the major tobacco manufacturers.
Specifically, among other provisions, this bill:
1)Requires a manufacturer or importer of tobacco products, as a
condition of obtaining and maintaining a license to operate in
California, to do all of the following:
a) Consent to jurisdiction of the California courts for the
purpose of enforcement of the Tobacco Licensing Act, the
MSA and the Tobacco Tax Law.
b) Waive any sovereign immunity defense that may apply to
any action brought by the state Attorney General (AG) or
Board of Equalization (BOE) to enforce the Tobacco
Licensing Act, the Tobacco Tax Law, or the MSA.
c) Provide a copy of any valid, corresponding federal
permit issued by the United States Treasury, Alcohol and
Tobacco Tax and Trade Bureau.
d) Certify that it is either a "participating manufacturer"
(PM) in the Master Settlement Agreement or that it is in
full compliance with escrow fund requirements for
non-participating manufacturers (NPM) and related
provisions of state tobacco laws.
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2)Gives the AG additional authority to conduct audits and
investigations in order to enforce the MSA, Tobacco Licensing
Act, and Tobacco Tax Law, and, as necessary, to issue
subpoenas, compel attendance of witnesses, administer oaths,
take depositions, and compel the production of books, records,
and other documents relevant to an audit or investigation.
3)Requires, as a condition of selling cigarettes in California,
a tobacco manufacturer to provide certain federal tax returns
and forms. Makes failure to file forms, or the submission of
false forms, subject to civil penalties and removal from the
AG's directory.
4)Amends Tobacco Tax Law to conform to recently enacted federal
legislation regulating the sale and distribution of tobacco
products over the Internet or in any other non-face-to-face
manner. Clarifies that provisions of federal law that require
Internet sellers to comply with state laws also require
compliance with state laws governing escrow fund obligations
and specified provisions of the Tobacco Licensing Act and
Tobacco Tax Law.
FISCAL EFFECT
1)Costs associated with this legislation are minor and
absorbable within existing resources as this bill enhances the
AG's authority to enforce the existing provisions of the
Master Settlement Agreement.
2)In an earlier version of the bill, the Board of Equalization
estimated their administrative costs associated with the
legislation would likely be minor, between $10,000 and
$50,000.
3)This bill does not affect the state's tax revenues.
4)Potential minor non-reimbursable local costs for investigation
and prosecution of violations, potentially offset by fine
revenue.
COMMENTS
1)Rationale . The California Department of Justice, the sponsor,
intends for this bill to enhance the department's efforts to
enforce existing provisions of state law related to the MSA
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between California and the major tobacco manufacturers. The
measure would protect against the sale of cigarettes below
market prices, and would help protect the state's share of
tobacco settlement payments under the Master Settlement
Agreement.
2)Master Settlement Agreement . In 1998 the Attorney General of
California, along with the attorneys general of 45 other
states and five U.S. territories, entered into a MSA with four
major tobacco companies. (Four other states reached separate
agreements with the tobacco companies.) The MSA settled more
than 40 pending lawsuits that were brought on behalf of the
states or state entities to recover the public costs of
treating smoking-related illnesses. Under the terms of the
MSA, the tobacco companies were released from past, present,
and certain future actions brought by the states or state
entities for recovering costs associated with smoking-related
illnesses. (It did not release tobacco companies from private
civil actions.)
In exchange for this release from state actions, the tobacco
companies agreed to make payments to each state that was a
party to settlement in amounts based on the volume of sale in
that state. For California, the amount is likely to equal
about $25 billion through the year 2025. Under an
implementing Memorandum of Understanding signed in California,
those funds are divided between the state and local
governments. In addition to the payments, the participating
tobacco companies agreed to fund a national public health
foundation and to change certain advertising and marketing
practices, especially with the intent of reducing underage
smoking.
The MSA, however, did not apply to many smaller tobacco
manufactures that were not part of the agreement. These
"non-participating manufacturers" - or NPMs - are not subject
to the payment requirements or advertising changes. To ensure
that NPMs would not enjoy a competitive advantage, the MSA
included a "Model Reserve Fund Statute" that each state was
encouraged to adopt. These statutes would require NPMs to
deposit funds in an escrow account in amounts similar to those
required under the MSA. Not only would this equalize the
playing field between the PMs and NPMs, it would also create a
reserve fund to pay judgments or settlements on claims brought
against the NPM by the state. All 50 states have enacted such
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statutes.
In California, the model statute requires any tobacco
manufacturer selling products in this state to either (a)
agree to become a "participating manufacturer" and be bound by
the terms of the MSA, or (b) place funds into a qualified
escrow account, with the amount to be determined by the volume
of sales within the state. The amount that a NPM must place
in the escrow account is supposed to approximate the amount
that it would be required to pay if it were a participating
manufacturer in the MSA agreement. Existing law provides that
any funds not withdrawn will be returned to the NPM after 25
years.
(This bill would amend this provision so as to authorize the
NPM to make an irrevocable assignment of its share of the
funds to the State of California, with any funds so assigned
to the state to be deposited in the GF as a credit against any
future judgment or settlement.)
3)Related Legislation . SB 822 (Escutia; Chapter 780, Statutes of
1999) created California's version of the MSA model statute,
requiring tobacco manufacturers selling products within the
state to either become a participating manufacturer under the
terms of the Master Settlement Agreement, or, if a
non-participating member, to deposit specified funds in a
qualified escrow fund each year.
AB 71 (Horton; Chapter 890, Statutes of 2003) created the
Cigarette and Tobacco Products Licensing Act of 2003, which
generally provides for the licensing of tobacco manufacturers,
importers, distributors, wholesalers, and retailers, and
prohibits any such entity from operating in California without
a license. Authorizes BOE to suspend or revoke licenses for
violations of the Act and related provisions of law.
Currently, AB 2733 (Ruskin) amends the Tobacco Licensing Act
to prohibit displaying or gifting of cigarettes and tobacco
products during any period of license suspension and
revocation. The bill also requires a person that has received
a notice of suspension or revocation to post a copy of the
notice at the primary entrance and near the cash register.
That bill is currently pending in this committee.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
AB 2496
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319-2081