BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
603 (Padilla)
Hearing Date: 05/28/2009 Amended: 05/18/2009
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.
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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
BOE: determination of Unknown administrative costs, likely in
the Special*/
license applicant eligibiltiy range of $300 annually
General
License transfer fees Unknown, likely minor fee revenue
gainsSpecial*
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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: SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
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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SB 603 (Padilla)
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. (proposed amendments would delete these
provisions)
Tobacco retail license restriction
This provision is intended to prevent further proliferation of
tobacco retailers by requiring denial of new tobacco retail
licenses in areas of overconcentration.
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. 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.
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SB 603 (Padilla)
SB 603 would place unabsorbable administrative burdens on BOE,
primarily due to the requirements to determine whether an
applicant retail location is in an area of overconcentration,
and revise existing processes and procedures for tobacco
retailer licensure. At the time of this analysis, BOE had not
finalized a detailed estimate, but unabsorbable annual costs
associated with this provision of the bill would likely be in
the range of $300,000 annually.
The bill requires BOE, the State Department of Public Health
(DPH), and the Department of Alcoholic Beverages Control (ABC)
to share all information with respect to retailers'
implementation of the Licensing Act. The restriction on
issuance of a tobacco retailer license in an area of
overconcentration is modeled after a similar restriction on
ABC's issuance of a liquor license, which prohibits issuance if
it would result in "undue concentration," as specified. Current
law also authorizes BOE to issue a license without further
investigation of an applicant for a retail location if the
applicant holds a valid license issued by ABC for that same
location. Since both the ABC restriction and the restriction in
this bill use the same basis for determining concentration of
licenses in a specific census tract, information sharing could
create efficiencies. SB 603 would at a minimum require BOE to
develop procedures to define and identify "areas of
overconcentration." This provision would also require permanent
staffing for BOE to determine compliance with this restriction
for each of the 6,000 annual new applicants.
SB 603 provides an exception to the restriction of issuing a
tobacco retailer license in an area of overconcentration 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 deems the
application denied if the local jurisdiction does not make a
determination within 90 days. Since BOE would not be required
to make the determination, administrative costs would be
minimal.
Proposed amendments would:
Delete provisions that limit the number of retail licenses
issued by BOE to 1 per every 2,500 adults in a county.
Insert provisions that prohibit BOE from issuing a new
cigarette and tobacco products license for a retail location
in an "area of overconcentration."
Specify the amount of the fee for a license transfer to be
$100.