BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 331 HEARING: 5/4/11
AUTHOR: Padilla FISCAL: Yes
VERSION: 4/27/11 TAX LEVY: No
CONSULTANT: Lui
RETAIL TOBACCO LICENSES
Changes the retail licenses program at the Board of
Equalization (BOE).
Background and Existing Law
I. Synar Amendment
In 1992, Congress passed the Synar Amendment, which aimed
to decrease minors' access to tobacco. The Synar Amendment
requires states to adopt and enforce laws prohibiting any
manufacturer, retailer, or distributor from selling or
distributing tobacco products to minors. If the state's
youth purchase survey-a state compliance check using
underage decoys to purchase cigarettes at random site
inspections-is above 20 percent, the federal government may
reduce each state's alcohol and substance abuse block grant
funding. This federal block grant amounts to nearly $100
million for California.
II. STAKE Act
In 2004, the Stop Tobacco Access to Kids Enforcement
(STAKE) Act was adopted to meet the requirements of the
Synar Amendment. The STAKE Act created a new statewide
enforcement program to take regulatory action against
businesses that sold tobacco to minors. The California
Department of Public Health (CDPH) enforces certain
provisions of the STAKE Act, such as conducting compliance
checks, using teenage operatives, serving legal notices,
administering penalty appeal hearing, and assessing and
collecting penalties. The CDPH Food and Drug Branch also
conducts compliance checks and manages a toll-free number
to report illegal tobacco sales to minors.
III. Cigarette and Tobacco Products Licensing Act
Since 2003, the Cigarette and Tobacco Products Licensing
Act (AB 71, Horton, 2003) requires the Board of
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Equalization (BOE) to license manufacturers, distributors,
wholesalers, importers and retailers of cigarette or
tobacco products who are engaged in business in California.
Existing law 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 must 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 as 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 to check the
identification of tobacco purchasers and 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.
IV. California Penal Code
Currently, BOE can take action if a retailer is convicted
of either a selling cigarettes or tobacco products to any
person who is under the age of 18 years or violating the
provisions of the STAKE Act. Any person who provides
tobacco to a minor may be convicted of a misdemeanor, or to
a civil action brought by a city attorney, a county
counsel, or a district attorney. Also, BOE may issue a
$200 fine for the first offense, a $500 for the second
offense, and a $1,000 fine for the third offense.
Existing law also requires every person, firm, or
corporation which sells, or deals in tobacco, or any
tobacco product, to post a notice, at the point of
purchase, that selling tobacco products to anyone under 18
years of age is illegal. Any person convicted of failing to
post conspicuously a notice is punished by:
For the first offense, a $50 fine.
For the second offense, a $100 fine.
For the third offense, a $250 fine.
For the fourth offense, a $500 fine.
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For two hundred fifty dollars ($250) for the third
offense
five hundred dollars ($500) for the fourth offense
for each succeeding violation, or by imprisonment
for not more than 30 days.
However, BOE can only use this 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. If the youth purchase survey is under 13 percent,
this authority remains inoperative. In 2006-2007, the
National Survey on Drug Use and Health found that 6.9% of
youth aged 12 to 17 years smoked a cigarette in the past
month.
V. Penalty Structure
The law outlines a range of penalties 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.
First conviction of a violation, BOE sends the
retailer a warning letter that delineates the
circumstances under which BOE may suspend or revoke
the license, and the amount of time BOE can suspend or
revoke the license. The retailer and its employees
must receive training on tobacco control laws from the
Department of Health Services upon a first conviction.
Second conviction of a violation within 12 months
the retailer is subject to a fine of five hundred
dollars ($500).
Third conviction of a violation within 12 months
the retailer is subject to a fine of one thousand
dollars ($1,000).
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.
Eighth conviction of a violation within 24 months
BOE must revoke the retailer's license to sell
cigarette and tobacco products.
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VI. Local Ordinances
Some agencies require tobacco retailers to obtain a license
for the retail sales of cigarettes and tobacco products.
In some jurisdictions, cigarette and tobacco product
retailers must comply with specific provisions of the
jurisdiction's land use and zoning ordinances, including
provisions that regulate the location of these retailers.
Currently, BOE licenses 37,000 retailers and 1,000
distributors and wholesalers to sell cigarettes and tobacco
products in California. The author argues that the density
of tobacco retailers in proximity to schools increases the
likelihood for minors to engage early in tobacco and for
retailers to sell tobacco to underage individuals.
Proposed Law
I. 600 feet. Senate Bill 331 requires BOE to deny a new
tobacco retailer permit, if the retailer is located within
600 feet of a public or private elementary or secondary
school. This prohibition would not be applicable for
retail locations that seek to renew or transfer a license
for a retail location within 600 feet of any school.
II. New Penalty Structure. Senate Bill 331 repeals the
existing eight-strike conviction penalty schedule. SB 331
proposes a three-strike penalty schedule for retailers who
sell to minors. If any retailer violates the STAKE Act or
Section 308 of the Penal Code, they are subject to the
following:
First violation: the retailer receives a warning
letter from BOE that delineates the circumstances
under which a retailer's license may by suspended or
revoked. The retailer and its employees must receive
training on tobacco control laws from the Department
of Health Services. The retailer may receive a $750
fine.
Second violation: The bill increases the fine from
$500 to $1,500. In addition, BOE may suspend the
retailer's license for 25 days.
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Third violation: BOE must revoke the retailer's
license to sell cigarettes and tobacco products.
III. Trigger language. SB 331 removes the 13% trigger
language under the STAKE Act that makes the section
operative or inoperative based on the results from the
Youth Tobacco Survey.
IV. Updates. SB 331 amends previous language that
referred to a reference to "on or before April 15, 2004,
on," which was the initial application due date for
retailers.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . SB 331 is needed to reduce the
availability and accessibility of tobacco products for
minors. Despite existing laws that prohibit the sale of
tobacco products to minors and media efforts aimed at
deglamorizing tobacco use, children are still sold tobacco
products by a variety of retailers and commercials are
marketed increasingly to younger audiences. According to
the U.S. Center for Disease Control and Prevention (CDC),
nearly 90% of adults who are regular smokers started at or
before age 19. The CDC also reported in 2007 that 21% of
high school students were tobacco users, while in 2006,
six percent of middle school students used tobacco. In
California, youth smoking rates among 9-12 graders is
14.6%. The CDC also reports that around 3,600 young people
between the ages of 12 and 17 initiate cigarette smoking;
an estimated 1, 100 young people become daily smokers.
Not only does early tobacco use pose significant health
problems for young people, but early tobacco use increases
the likelihood of lifelong tobacco addiction. The Centers
for Disease Control and Prevention attributes the alarming
trend of tobacco use among youth, in part, to access and
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availability. SB 331 is a necessary step to further
strengthen California's tobacco laws and preventing youth
from tobacco use.
2. Who's the boss ? The mission of BOE is to serve the
public through fair, effective, and efficient tax
administration. Certain provisions in this bill represent
a departure from their traditional "tax collection"
functions, although they do issue and enforce tobacco
licenses currently. In general, 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." 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. BOE
expresses concerns that the bill's proposed licensing
restrictions appear to be related to health, public safety,
or other non-tax purposes. The Committee may wish to
consider explicitly outlining programmatic procedures that
would coordinate efforts between BOE and the CDPH,
eliminating duplication while ensuring that each agency has
oversight over its technical specialties.
3. Point A to Point B . SB 331 doesn't offer procedures
for how BOE will enforce the 600 feet restriction. There
are two possible processes:
1) The author's office has considered modeling their
approach to how Alcoholic Beverage Control (ABC) determines
licensures for retailers within 600 feet of a schools,
public playgrounds, and nonprofit youth facilities. The
author also proposes licensing retailers that have alcohol
licenses. However, ABC can still license locations within
600 feet of schools because proximity is not sufficient to
deny the license. Thus, this option directly overlooks
licensed alcohol locations that are within 600 feet of
schools. As a result, BOE would still be required to
conduct its own investigation of each of the approximately
6,300 new retail license applications. The investigation
would incur costs, requiring additional staff time and
cause a delay in processing the license.
2) Another alternative would be amending the STAKE Act to
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prohibit a retail location from being located within
600-feet of any school. Amending the STAKE Act would allow
for public health priorities to integrate with BOE's tax
administration. For instance, if the Tobacco Control
Section of the CDPH found a retail location within 600 feet
of any school, BOE would be required to revoke the license,
rather than BOE initially investigating all claims and
potentially backing up license issuance. The Committee may
wish to consider an amendment that would incorporate the
ability to deny a license in a retailer, within the
immediate vicinity of hospitals, as the ABC does.
Both procedures require further program development and
coordination among state and local agencies. The Committee
may wish to consider the efficacy of a bill that fails to
address issues of implementation.
4. In a haze . Should the bill receive the votes, the
Committee may wish to refer the SB 331 to Rules Committee
for a referral to Senate Health Committee.
5. Size matters . The larger scale retailers and grocers
are at a disproportionate disadvantage under the proposed
3-strike penalty structure. Larger retailers and grocers
conduct thousands more transactions than small businesses.
With more transactions and more employees, there is a
greater opportunity for the retailer to pay the penalty for
only three mistakes. The Committee may wish to consider an
amendment that would specify how grocers and retailers
train their employees for the STAKE Act, as well as modify
the penalty scheme for larger or chain retailers.
6. I'll make you a proposition . As of November 2010,
under Proposition 26, a "tax" means any levy, charge, or
exaction of any kind imposed by a local government, except
the following charges for:
A specific benefit.
A specific government service or product.
Issuing licenses and permits, performing
investigations, inspections, and audits, enforcing
agricultural marketing orders, and the administrative
enforcement.
Entrance to or use of local government property, or
the purchase, rental, or lease of local government
property.
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A fine, penalty, or other monetary charge imposed
by the judicial branch of government or a local
government, as a result of a violation of law.
A condition of property development.
Assessments and property-related fees.
Because SB 331 amends the penalty structure, it would not
be subject to the 2/3-voter approval as required by
Proposition 26.
7. 3 strikes, you're out ? There is evidence to suggest
that the best way to change behavior, such as eliminating
tobacco sales to minors, is to increase the penalty regime
associated with the behavior. This bill does change the
penalty regime as well as the requirement for when licenses
can be revoked. The Department of Alcohol and Beverage
Control (ABC) only allows for three violations before
license revocation. Higher penalties for the first and
second offenses should stop the behavior (selling
cigarettes to minors) from occurring in the first place.
8. Up in smoke . Opposition states that SB 331 would
negatively impact the potential on new jobs, future
business growth, and state revenues. Since the licensing
program was established in 2003, the rate of illegal sales
has been below 14%. However, the bill doesn't affect
existing retailers that are grandfathered in. Instead, SB
331 focuses on licensing to new retailers. Given the
declining use of tobacco among youth and California's
stringent anti-smoking climate in public parks and beaches,
presumably, the number of new tobacco retailers may be
smaller than estimated. The Committee may wish to consider
if this bill is indeed necessary.
9. A conviction, by any other name . The Licensing Act
requires BOE to take action against a retailer convicted of
violating specified laws relating to sales of cigarettes or
tobacco products to persons under 18 years of age. BOE's
authority to enforce the Licensing Act depends on the
results from the youth purchase survey.
When youth tobacco purchase survey results are above
13 percent. BOE can only take action against retailers
on the date when the youth tobacco purchase survey
results finds that 13 percent or more of youth were
able to purchase cigarettes.
When youth tobacco purchase survey results are less
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than 13 percent. BOE's authorization cannot enforce
the Licensing Act. Since the Licensing Act was
enacted in 2003, this provision has only become
operative twice: after the release of results from the
2004 survey (14 percent) and 2006 survey (13.2
percent). During the periods of operation, BOE did
not receive any conviction information.
BOE staff recognizes that technical wording in existing law
prevents them from taking action against a retailer. In
existing law, action can be taken against a retailer,
convicted of a violation of either the STAKE Act or Section
308 of the Penal Code. However, because STAKE Act
violations are subject to civil penalties assessed by the
California Department of Public Health, STAKE Act
violations do not result in a conviction.
Also, violations of Penal Code Section 308 are subject to
either a criminal action or a civil action that may result
in a conviction of the person making the illegal sale.
Typically, retailers hire clerks to make sales of products.
In most cases, it's the clerk who's subject to the
violation conviction, not the retailer, for making a sale
of cigarettes to a minor. As such, violation convictions
against a clerk would not be considered a "retailer"
convicted of the Penal Code for purposes of BOE authorized
actions pursuant to proposed Section 22974.8.
Though SB 331 removes "trigger" language of the 13%
threshold for the youth survey, the amendments don't
address the problematic language-violation vs.
conviction-and make the current provisions unworkable. The
Committee may wish to consider amending the bill to remedy
the problematic language.
10. Thank you for smoking . For purposes of the 600 foot
requirement for ABC licensure, the distance is measured by
direct line from the closest edge of the facility structure
to the closest edge of the businesses' structure. The 100
foot rule for a premises proximity to a residence, Rule
61.4 provides that distances "shall be measured by airline
from the closest edge of any residential structure to the
closest edge of the premises or the closest edge of the
parking lot or parking area, as defined herein above,
whichever distance is shorter." The 600 foot threshold
could also be interpreted to mean driving or walking
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distance. To avoid any ambiguity, the Committee may wish
to clarify the method of measurement.
11. A blunt instrument . 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
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? How would the proposed limitations on licensing
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conflict with local health regulations? 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.
The Committee may wish to consider this requirement.
12. Smokestacks . Some research has shown that underage
use of cigarettes is related to the retail tobacco outlet
density. This research finds that the access to tobacco
and proximity to youth increases the amount of underage
smoking. Other research has yielded contradictory results
that find that density does not affect 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 may not address the concentration of tobacco retailers.
13. If at first you don't succeed . SB 433 (Ortiz, 2004)
and SB 400 (Kuehl, 2005) would have made various changes to
the penalties imposed for a conviction of a violation by a
retailer for minors. Both bills died in the Senate
Appropriations Committee suspense file. In 2009, Senator
Padilla introduced a tobacco reform package.
SB 601 would have added provisions to the Licensing
Act, prohibiting the issuance of a retail license for
a location within 1,000 feet of a school, and limited
retail licenses to "traditional retail locations,"
like grocery stores, convenience stores, pharmacies,
liquor stores, or tobacco or cigar stores. SB 601
(Padilla, 2009) was held in the Senate Appropriations
Committee suspense file.
Before being amended, SB 602 (Padilla) would have
added provisions to the Licensing Act to prohibit the
issuance of a new license to a retailer in an "area of
overconcentration," and made reporting requirement
changes related to sales to minors. When SB 602
(Padilla, 2009) was chaptered, it transformed into a
bill about food safety.
SB 603 (Padilla, 2009) would have imposed an annual
retailer fee, limited the total number of retailer licenses
issued in a county, and provided for the transfer of a
license under specified conditions. SB 603 was referred to
the Assembly Governmental Organization Committee, but was
never heard.
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14. Similar bill . AB 1301 (Hill, 2011) also seeks to
reduce tobacco sales to minors. AB 1301 proposes to:
Removes the 13% youth purchase survey threshold
that would trigger BOE to inspect retailers.
Create a different penalty structure: a retailer's
license can be revoked if a retailer sells to minors
five times within five years.
Extends the time frame for when youth tobacco sales
remain on a retailer's record, from the current two
years to five years.
The Assembly Governmental Organization Committee will hear
AB 1301 on May 4.
Support and Opposition (4/28/11)
Support : Latino Coalition for a Health California.
Opposition : California Grocers Association; California
Independent Oil Marketers Association; California Retailers
Association; California Manufacturers & Technology
Association; California Taxpayers Association.