BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 603 - Padilla
Amended: April 15, 2009
Hearing: April 22, 2009 Fiscal: Yes
SUMMARY: Restricts tobacco retail licenses to 1 per 2,500
people in a county and imposes a $100 renewal fee
on each retail license
EXISTING LAW
Federal Law
Existing federal law provides that the federal government
may reduce each state's alcohol and substance abuse block
grant funding unless the youth purchase survey conducted by
each state, using underage decoys to purchase cigarettes,
is below 20 percent.
State Law
Existing state law requires the BOE to administer the
Cigarette and Tobacco Products Licensing Act of 2003, a
statewide cigarette and tobacco products license program
for the sale of cigarettes and tobacco products. Existing
law requires BOE to license manufacturers, distributors,
wholesalers, importers and retailers of cigarette or
tobacco products who are engaged in business in California.
Existing law also requires a retailer to have and maintain
a license to sell cigarettes or tobacco products.
A retailer that owns or controls more than one retail
location where cigarette and tobacco products are sold is
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required to obtain a separate license for each retail
location. Each retailer is required to submit a one-time
license fee of one hundred dollars ($100) with each
application and may submit a single application for those
licenses with a license fee of one hundred dollars ($100)
per location. A "retail location" is defined to mean any
building from which cigarettes or tobacco products are sold
at retail or a vending machine.
Existing law requires that all persons engaging in the
retail sale of cigarettes and tobacco products shall check
the identification of tobacco purchasers, to establish the
age of the purchaser, if the purchaser reasonably appears
to be under 18 years of age. Existing law also prohibits
any person, firm or corporation from selling, giving, or in
any way furnishing cigarettes or tobacco products to any
person who is under the age of 18 years.
Existing law provides BOE the authority to take enforcement
action if a retailer is convicted of either a Penal Code
violation of selling cigarettes or tobacco products to any
person who is under the age of 18 years or if a retailer is
convicted of violating the provisions of the STAKE Act.
Existing law limits this authority of BOE to take
enforcement action during periods when the statewide
underage sales rate in California, as measured in an annual
survey conducted by the Department of Public Health (DPH),
is 13 percent or more.
Existing law provides for a range of penalties, from
issuing a warning letter on the first violation to revoking
the license on the eighth violation within a 24-month
period that can be levied against a licensee during the
period when BOE has the authority to act on licenses for
violations of underage sales laws. Specifically, the
existing penalty structure is as follows:
Upon the first conviction of a violation, the
retailer receives a warning letter from BOE that
delineates the circumstances under which a retailer's
license may by suspended or revoked and the amount of
time the license may be suspended or revoked. The
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retailer and its employees are required to receive
training on tobacco control laws from the Department
of Health Services upon a first conviction.
Upon the second conviction of a violation within 12
months the retailer is subject to a fine of five
hundred dollars ($500).
Upon the third conviction of a violation within 12
months the retailer is subject to a fine of one
thousand dollars ($1,000).
Upon the fourth to the seventh conviction of a
violation within 12 months BOE is required to suspend
the retailer's license to sell cigarette and tobacco
products for 90 days.
Upon the eighth conviction of a violation within 24
months BOE is required to revoke the retailer's
license to sell cigarette and tobacco products.
Existing Local Law:
Existing local ordinances in some jurisdictions require
tobacco retailers to obtain a license for the retail sales
of cigarettes and tobacco products in those jurisdictions.
Existing local ordinances in some jurisdictions require
cigarette and tobacco product retailers to comply with
specific provisions of the jurisdiction's land use and
zoning ordinances, including provisions that regulate the
location of these retailers.
THIS BILL
Limits the issuance of new licenses to 1 per 2,500 people
in a county and imposes an annual renewal fee for all
tobacco licenses of $100.
FISCAL EFFECT:
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Retailer license fee revenues would increase by $3,820,000
annually under this measure.
Neither BOE nor committee staff are not able, however, to
quantify the revenue impact for the retailer licensing cap
provision in this bill. Potentially it could result in a
negative impact on excise taxes and licensing fees due to
less convenience for consumers seeking to purchase
cigarettes in some areas.
Administrative costs for this program already exceed the
amount collected in fees; costs to administer this bill
would be significant.
COMMENTS:
A. Purpose of the Bill
According to the author's office, retail tobacco licenses
are not subject to an annual renewal fee like many other
state issued licenses. Liquor licenses, for example, must
be renewed annually at a cost ranging from $71.00 to
$1,332.00, depending on the type of liquor license. The
funds generated through license renewal fees are typically
used to fund enforcement and compliance of laws affecting
the licensed industries. Absent an annual fee from tobacco
retailers, the Board of Equalization (BOE), the licensing
authority for tobacco retailers, struggles to administer
and enforce their licensing program. In 1994, the
Legislature approved a moratorium on the issuance of beer
and wine licenses and capped the number of licenses issued
at 1 per every 2500 people within a county. This limit was
intended to curb alcohol consumption, among other things.
Meanwhile, there is no cap on the number of tobacco
licenses that can be issued within a county.
Considering the often deadly effects of tobacco use, it
makes sense to have alcohol and tobacco laws more closely
aligned. SB 603 is needed to reduce the availability of
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tobacco products in our communities to prevent youth from
tobacco use.
B. How is the BOE currently funded under the
Licensing Act?
The BOE's costs to enforce and administer the Licensing Act
are funded with revenues deposited into the Compliance
Fund, which includes license fee revenues, penalties and
fines. The Compliance Fund fully reimbursed those costs
through fiscal year 2005-06. In 2006-07, the BOE's
administrative costs were partially offset with cigarette
and tobacco products tax revenues. As of 2007-08,
substantially all of the BOE's costs will be funded in this
manner in order to cover the difference between Compliance
Fund revenues and expenses. Below is a funding summary for
the Licensing Act program, as reflected in the 2009-10
Governor's Budget:
-----------------------------------------------------
| | | | |
| Fund | 2007-08 | 2008-09 | 2009-10 |
| | | | |
|--------------------+----------+----------+----------|
| | | | |
|General Fund | $928,000|$1,047,000|$1,261,000|
| | | | |
| | | | |
|--------------------+----------+----------+----------|
| | | | |
|Breast Cancer Fund | 186,000| 209,000| 251,000|
| | | | |
|--------------------+----------+----------+----------|
| | | | |
|Cigarette and | 2,319,000| 2,618,000| 3,135,000|
|Tobacco Products | | | |
|Surtax Fund | | | |
| | | | |
|--------------------+----------+----------+----------|
| | | | |
|CA Children and | 4,641,000| 5,236,000| 6,273,000|
|Families First | | | |
|Trust Fund | | | |
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| | | | |
|--------------------+----------+----------+----------|
| | | | |
|Cigarette and | 1,198,000| 1,130,000| 682,000|
|Tobacco Products | | | |
|Compliance Fund | | | |
| | | | |
|--------------------+----------+----------+----------|
| | | | |
| Total |$9,272,000|$10,240,00|$11,602,00|
| | | 0|0 |
| | | | |
-----------------------------------------------------
The fees generated by this measure would not fully offset
the shortfall in the Compliance Fund. The BOE estimates
this bill would generate approximately $3,820,000 in
additional revenue that would be deposited into the
Compliance Fund (see the fiscal effect above). Since the
annual shortfall amount appears to be approximately $8
million beginning in fiscal year 2007-08, this bill would
not fully eliminate the Compliance Fund shortfall. The
author may wish to consider a higher fee to more completely
offset the costs associated with administering the new
programs in this bill as well as SB 601 and SB 602.
C. Precedent for renewal fees
While the local city and county licensing laws generally
require an annual licensing fee, the state's Licensing Act
currently imposes only a one-time retailer license fee.
Many local cities and counties in California have adopted
local tobacco retailer licensing laws, which require a
retailer to pay an annual licensing fee and to be subject
to suspension or revocation of that license if they are
found selling tobacco to minors. Therefore, California
retailers engaged in the sale of cigarettes or tobacco
products and located in a city or county that has adopted
local tobacco retailer licensing laws have two licenses
(state and city/county). For example, in addition to the
one-time $100 state tobacco retail license fee, the City of
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Santa Ana, located in Orange County, requires a $635 annual
city tobacco retail license fee, while the County of Los
Angeles charges a $235 annual fee for a county tobacco
retail license. Furthermore, liquor licenses require an
annual renewal fee.
This committee reviews bills related to fees. As this fee
is used directly to administer the program associated with
tobacco retail licenses, it is considered a user fee.
D. How does it work for the locals?
Many local cities and counties in California have adopted
local tobacco retailer licensing laws which require a
retailer to pay an annual licensing fee and be subject to
suspension or revocation of that license if they are found
selling tobacco to minors. Therefore, California retailers
engaged in the sale of cigarettes or tobacco products and
located in a city or county that has adopted local tobacco
retailer licensing laws have two licenses (state and
city/county). This also means that some retailers may have
local licensing requirements and restrictions unrelated to
payment of excise taxes. For example, Los Angeles County
has a tobacco retail license program in which they indicate
the necessity of having both a state and county license:
I already have a state tobacco license issued by
the California Board of Equalization. Why do I
need a tobacco license from the County? The
tobacco license issued by BOE is meant to curb
tobacco tax fraud and the counterfeiting of
tobacco products. That license does not preempt
local jurisdictions from adopting local tobacco
licenses. The Los Angeles County Board of
Supervisors adopted this ordinance on December
18, 2007 to encourage responsible tobacco
retailing and to discourage violations of
federal, state and local tobacco-related laws,
especially those that prohibit the sale or
distribution of tobacco products to minors.
To legally sell tobacco products in the
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unincorporated areas of the County retailers will
need a valid state tobacco license and a County
tobacco license.
Existing law states that, with the exception of collection
of state taxes , nothing in the Licensing Act preempts or
supersedes local tobacco control laws. However, the
proposed state licensing limitation appears to be related
to health and public safety, rather than collection of
state taxes. Would the proposed licensing limitations in a
county preempt or supersede related local tobacco control
laws? It may be necessary for the author to authorize the
State to preempt or supersede local tobacco control laws in
order to prevent conflicts between local and state
licensing requirements.
E. Retailer renewal fee - suggested amendments.
This bill would require a retailer to pay a license renewal
fee and also require the license fee to be submitted
annually thereafter per location. In addition, the bill
strikes the language that allows a retailer to submit a
single application for all retail locations. The purpose
of this provision is to simplify the application and
renewal process for retailers and reduce the number of
applications received and processed by the BOE. However,
BOE staff prefers that the bill be amended to add back this
provision.
Further, the provisions could be construed to mean that a
retailer that allows their license to expire must only pay
the reinstatement fee to have the license reinstated. It
is suggested that the author amend the bill to clarify that
the renewal fee must accompany the renewal application, and
that the reinstatement fee is in addition to the annual
retailer license fee.
F. Overconcentration-does it work and are there too many
definitions?
Some research has shown that underage use of cigarettes is
related to the retail tobacco outlet density. This
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research finds that the access to tobacco and proximity to
youth increases the amount of underage smoking. Other
research has yielded contradictory results and has not
found that retail density has affected adolescent cigarette
use. Yet other studies speak about so-called "shoulder
tapping," an adult acquaintance buying tobacco for youth as
the biggest problem. Local governments have used their
land use power to restrict the placement of tobacco
outlets, but it does not appear that any, at least in
California, have attempted to address the concentration of
tobacco retailers
While this bill focuses on the definition of
overconcentration and the census track, another bill that
is before this committee, SB 602, restricts the number of
retailers by the census track. While both definitions
exist in the Business and Professions Code and relate to
alcohol licenses, they are not cause for automatic denial.
In both this bill and SB 602, overconcentration is
sufficient for denial of a tobacco license. The committee
may wish to consider if one definition makes more sense.
G. Arguments in support
Supporters state that with over 38,000 tobacco retailers in
the state, there is no shortage of tobacco in our
communities and cite studies that confirm the connection
between communities dense with tobacco retail
establishments and higher smoking rates. Furthermore, they
argue that unlike existing law governing liquor licenses,
tobacco retailers are not required to pay license renewal
fees for the privilege of selling tobacco in the state.
Similarly, there is no limit on the number of tobacco
retail establishments like there is for liquor licenses.
This lack of a limit makes tobacco more available.
H. Arguments in opposition
The California Grocers Association opposes SB 603 and
argues that the state's tobacco licensing law has been a
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success in reducing cigarette tax evasion and reducing
sales to minors. They argue that the overconcentration
provisions will reduce the number of licensees in any
downtown area. They are also concerned that this bill
would lead to increased tax avoidance, and that there is no
research to document the effectiveness of
overconcentration. The California Distributors Association
expresses concerns that the bill would harm retail
establishments and reduce the number of small business in
this state. As amended this bill does not affect existing
retailers; they have been grandfathered in.
I. Is the BOE the appropriate agency?
The mission of the BOE is to serve the public through fair,
effective, and efficient tax administration. The
provisions in this bill may represent a departure from
their traditional "tax collection" functions although they
do issue and enforce tobacco licenses currently. In
general, the BOE requires a license, permit, or
registration for the various tax and fee programs in the
state "to ensure collection of vital revenues for the
state."
The BOE states that although the Licensing Act provided
stricter retailer licensing requirements, compared to
permit requirements for sales and use tax, the stricter
standards were established to support the overall goal of
improving tax collection. The BOE expresses concerns that
the licensing restrictions that this bill proposes appear
to be related to health, public safety, or other non-tax
purposes.
J. Related Legislation
SB 601 (Padilla) adds provisions to the Licensing Act to
prohibit the issuance of a retail license for a location
within 1,000 feet of a school, and limits retail licenses
to "traditional retail locations."
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SB 602 (Padilla) adds provisions to the Licensing Act to
prohibit the issuance of a new license to a retailer in an
"area of overconcentration," and makes reporting
requirement changes related to sales to minors.
Both of these bills are set for hearing in this committee
on April 22, 2009.
Support and Opposition
Support: American Cancer Society
American Heart Association
American Lung Association
Magna Systems Incorporated
California Dental Association
Oppose: California Grocer's Association
California Distributor's Association
California Independent Grocers Association
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Consultant: Gayle Miller
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