BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
603 (Padilla)
Hearing Date: 05/11/2009 Amended: 04/28/2009
Consultant: Mark McKenzie Policy Vote: Rev&Tax 5-3
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BILL SUMMARY: SB 603 would impose a $100 renewal fee on each
license issued by the Board of Equalization (BOE) for the sale
of cigarette and tobacco products. This bill would also limit
the number of retail licenses issued by BOE to 1 per every 2,500
adults in a county, unless public convenience or necessity would
be served by the issuance, as specified.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
Tobacco license renewals
License revenue gain ($955) ($3,820) ($3,820) Special*
BOE programming $100 $100 General
BOE administration $90 $180 $180
Special*/
General
Tobacco license restriction
Determination of license Unknown, significant annual
administrative Special*/
applicant eligibiltiy costs, potentially in the range of
$600-$1,000 General
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* Cigarette and Tobacco Products Compliance Fund, General Fund,
other tobacco tax special funds (see staff comments)
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
Annual Tobacco Retailer License Fee
Existing law requires retailers of cigarette and tobacco
products to pay a one-time license fee of $100 and requires
annual renewal of the retailer license; there is no fee for
tobacco license renewal. A retailer is subject to a $100
reinstatement fee if they allow the license to expire. Fees
collected pursuant to the Cigarette and Tobacco Licensing Act
are deposited into the Cigarette and Tobacco Products Compliance
Fund and are available solely for the purpose of implementing,
enforcing, and administering the Act. Approximately 38,200
retailers are currently licensed by BOE. Each year
approximately 6,000 new licenses are issued, but a corresponding
number are typically surrendered, so the total number of active
licenses has been fairly stable since the Licensing Act was
established in 2003.
Up until 2005-06, all BOE costs to enforce and administer the
Licensing Act were fully covered by license fee revenues,
penalties, and fines deposited into the Compliance Fund.
However, since the retail license revenues were predominantly a
one-time revenue gain, the Compliance Fund does not have
sufficient revenues to cover BOE's ongoing costs. In 2008-09,
for example, revenues deposited into the Compliance Fund totaled
$1.1 million, while BOE's costs to administer and enforce the
Licensing Act were
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approximately $10.2 million. The difference between revenues
and costs are currently offset with $1.1 million General Fund
and other tobacco tax revenues: $209,000 Breast Cancer Fund;
$2.6 million Cigarette and Tobacco Products Surtax Fund
(Proposition 99); and $5.2 million from the California Children
and Families First Trust Fund (Proposition 10).
Beginning on January 1, 2010, this bill would generate
approximately $3.8 million in fee revenue, which would be
deposited into the Compliance Fund. Staff notes that this bill
would allow the redirection of an equivalent amount of revenues
to the General Fund and other cigarette and tobacco products tax
funds, which are currently allocated for administration and
enforcement of the Licensing Act.
Staff estimates that BOE's costs related to the implementation
of this provision would likely be in the range of $180,000
annually, beginning on January 1, 2010, to handle the processing
of annual payments and associated compliance activities, and
one-time programming costs of up to $200,000 split between
2009-10 and 2010-11. The ongoing administrative costs would be
offset by the increased fee revenues, but the programming costs
would likely come from the General Fund.
Staff notes that AB 2344 (Beall), which was vetoed by the
Governor last year, would have imposed an annual fee of $185 on
retailers of cigarette and tobacco products licensed by the
Board of Equalization (BOE) and increased the license
reinstatement fee from $100 to $185, beginning on January 1,
2010. The veto message stated:
This bill would increase license fees on retailers that
sell tobacco. I do not believe it is fair to the thousands
of small retailers impacted by this bill to increase fees
at this time. There is a significant surplus of funds from
Proposition 10 available to cover the enforcement costs of
this program.
Tobacco retailer license restriction: population-based
This provision is intended to reduce the availability of
cigarette and tobacco products in hopes of preventing tobacco
use among minors.
SB 603 would cap the total number of cigarette and tobacco
retailer licenses issued in a county to one for every 2,500
adults residing in that county, unless public convenience or
necessity would be served by the issuance. The bill would
prohibit BOE from issuing additional licenses in that county,
except renewals and transfers, and would require applications to
be considered in the order they are received. A license
transfer would only be allowed for the continued use at the same
location upon the sale or transfer of the business.
SB 603 would place a number of implementation challenges on BOE,
which could result in significant administrative costs.
Specifically, BOE would be required to develop procedures to
determine the number of licenses in a county, perform
demographic analysis to break out the population of adults in
each county, provide for additional staff time to investigate
applications and license transfers, and develop a database for
data
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SB 603 (Padilla)
compilation to keep a priority list for each county since
applications must be considered in the order they are received.
At the time of this analysis, BOE had not finalized a detailed
estimate, but unabsorbable annual costs associated with the
current version of the bill would likely be in the range of
$600,000 to $1 million.
This bill explicitly authorizes the transfer of a license when
the local cap has been reached and the license remains at the
same location upon sale or transfer of the business. However,
existing law explicitly prohibits the transfer of a tobacco
retailer license. Staff recommends that the bill be amended to
specify that this provision is an explicit exception to Business
and Professions Code Section 22972 (c).
SB 603 provides an exception to the restriction on issuance of
new a tobacco retailer licenses in areas of over concentration
if a local governing body determines within 90 days of
notification of a completed application that "public convenience
or necessity" would be served by the issuance. This exception
would presumably be most applicable to smaller communities and
rural areas with limited retail space. The bill also allows BOE
to issue a license under this exception after the 90-day period
if the applicant demonstrates "public convenience or necessity."
BOE would incur one-time costs to develop procedures to make
such a determination and ongoing administrative costs to
coordinate with applicable local agencies.
To the extent that SB 603 results in fewer overall licenses and
less convenience for consumers, there would be a net loss in
excise tax and license fee revenues.