The Cigarette and Tobacco Products Tax Law imposes a tax on distributors of cigarettes at the rate of $0.87 per package of 20 cigarettes. That law requires that tax be paid through the use of stamps or meter impressions, and requires that these stamps or meter impressions be affixed to each package of cigarettes distributed. That law also imposes a fine of up to $50,000, as specified, or imprisonment not to exceed one year in county jail, or both, for possessing, selling, or buying false or fraudulent cigarette tax stamps or meter impressions, and requires the destruction by the State Board of Equalization of any stamps seized. Existing law requires any fines assessed to be deposited in the Cigarette and Tobacco Products Compliance Fund, amounts in which are available for specified expenditure upon appropriation by the Legislature.

This bill would extend those penalties for possessing, selling, or buying unaffixed cigarette tax stamps, and would require any fines assessed to be deposited in the Cigarette and Tobacco Products Compliance Fund. This bill would require the board to destroy any unaffixed cigarette tax stamps.

By expanding the scope of existing crimes, this bill imposes a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

The Cigarette and Tobacco Products Tax Law imposes a tax on distributors of cigarettes at the rate of $0.87 per package of 20 cigarettes. That law requires that tax be paid through the use of stamps or meter impressions, and requires that these stamps or meter impressions be affixed to each package of cigarettes distributed. That law also imposes a fine of up to $50,000, as specified, or imprisonment not to exceed one year in county jail, or both, for possessing, selling, or buying false or fraudulent cigarette tax stamps or meter impressions, and requires the destruction by the State Board of Equalization of any stamps seized. Existing law requires any fines assessed to be deposited in the Cigarette and Tobacco Products Compliance Fund, amounts in which are available for specified expenditure upon appropriation by the Legislature.

This bill would extend those penalties for possessing, selling, or buying unaffixed cigarette tax stamps, and would require any fines assessed to be deposited in the Cigarette and Tobacco Products Compliance Fund. This bill would require the board to destroy any unaffixed cigarette tax stamps.

By expanding the scope of existing crimes, this bill imposes a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

The Cigarette and Tobacco Products Tax Law imposes a tax on distributors of cigarettes at the rate of $0.87 per package of 20 cigarettes. That law requires that tax be paid through the use of stamps or meter impressions, and requires that these stamps or meter impressions be affixed to each package of cigarettes distributed. That law also imposes a fine of up to $50,000, as specified, or imprisonment not to exceed one year in county jail, or both, for possessing, selling, or buying false or fraudulent cigarette tax stamps or meter impressions, and requires the destruction by the State Board of Equalization of any stamps seized. Existing law requires any fines assessed to be deposited in the Cigarette and Tobacco Products Compliance Fund, amounts in which are available for specified expenditure upon appropriation by the Legislature.

This bill would extend those penalties for possessing, selling, or buying unaffixed cigarette tax stamps, and would require any fines assessed to be deposited in the Cigarette and Tobacco Products Compliance Fund. This bill would require the board to destroy any unaffixed cigarette tax stamps.

By expanding the scope of existing crimes, this bill imposes a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

The Cigarette and Tobacco Products Tax Law imposes a tax on distributors of cigarettes at the rate of $0.87 per package of 20 cigarettes. That law requires that tax be paid through the use of stamps or meter impressions, and requires that these stamps or meter impressions be affixed to each package of cigarettes distributed. That law also imposes a fine of up to $50,000, as specified, or imprisonment not to exceed one year in county jail, or both, for possessing, selling, or buying false or fraudulent cigarette tax stamps or meter impressions, and requires the destruction by the State Board of Equalization of any stamps seized. Existing law requires any fines assessed to be deposited in the Cigarette and Tobacco Products Compliance Fund, amounts in which are available for specified expenditure upon appropriation by the Legislature.

This bill would extend those penalties for possessing, selling, or buying unaffixed cigarette tax stamps, and would require any fines assessed to be deposited in the Cigarette and Tobacco Products Compliance Fund. This bill would require the board to destroy any unaffixed cigarette tax stamps.

By expanding the scope of existing crimes, this bill imposes a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

The Cigarette and Tobacco Products Tax Law imposes a tax on distributors of cigarettes at the rate of $0.87 per package of 20 cigarettes. That law requires that tax be paid through the use of stamps or meter impressions, and requires that these stamps or meter impressions be affixed to each package of cigarettes distributed. That law also imposes a fine of up to $50,000, as specified, or imprisonment not to exceed one year in county jail, or both, for possessing, selling, or buying false or fraudulent cigarette tax stamps or meter impressions, and requires the destruction by the State Board of Equalization of any stamps seized. Existing law requires any fines assessed to be deposited in the Cigarette and Tobacco Products Compliance Fund, amounts in which are available for specified expenditure upon appropriation by the Legislature.

This bill would extend those penalties for possessing, selling, or buying unaffixed cigarette tax stamps, and would require any fines assessed to be deposited in the Cigarette and Tobacco Products Compliance Fund. This bill would require the board to destroy any unaffixed cigarette tax stamps.

By expanding the scope of existing crimes, this bill imposes a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1901

Author:(Quirk)

As Amended Ver:August 1, 2016

Majority vote

Original Committee Reference: G.O.

SUMMARY: Extends the penalties for possessing, selling, or buying false or fraudulent cigarette tax stamps to "unaffixed stamps". Specifically, this bill:

1. Imposes a fine of up to $5,000, or imprisonment not to exceed one year in county jail, or both, for possessing, selling, or buying unaffixed stamps in a quantity less than 2,000.
2. Imposes a fine of up to $50,000, or imprisonment not to exceed one year in county jail, or both, for possessing, selling, or buying unaffixed stamps in a quantity of 2,000 or greater.
3. Defines "unaffixed stamps" as stamps for which the tax has previously been paid by a licensed distributor and previously affixed to a package.
4. Clarifies that "unnafixed stamps" do not include any unused and unapplied rolls of stamps or loose stamps acquired from the board or its authorized agent and in the possession of a licensed distributor.
5. Requires the Board of Equalization (BOE) to destroy any stamps seized under this section.
6. Makes legislative findings and declarations regarding "unaffixed stamps."

The Senate amendments make various technical legislative findings and declarations regarding the use and enforcement of "unaffixed stamps".

EXISTING LAW:

1) The California Cigarette and Tobacco Products Licensing Act (Act) of 2003 provides for the licensure, by BOE, of manufacturers, distributors, wholesalers, importers, and retailers of cigarette or tobacco products that are engaged in business in California and prohibits retailers, manufacturers, distributors, and wholesalers from distributing or selling those cigarette and tobacco products unless they are in compliance with those licensure requirements.

2) The Cigarette and Tobacco Products Tax Law (Law) imposes a tax on the distribution of tobacco products and on the distribution of cigarettes, which are paid through the use of stamps or meter impressions that are required to be affixed to each package of cigarettes sold. The Law requires that certain cigarette and tobacco products be forfeited to the state under specified circumstances, upon seizure by BOE.

3) Defines "Stamps and meter impressions" as indicia of payment of tax, and include, but are not limited to, stamps, meter impressions, or any other indicia developed using current technology.

4) Requires the BOE to prescribe and approve the types of stamps and meter impressions, and the methods of applying stamps and meter impressions to packages of cigarettes.

5) Imposes a fine of up to $5,000, or imprisonment not to exceed one year in county jail, or both, for possessing, selling, or buying false or fraudulent cigarette tax stamps or meter impressions in a quantity less than 2,000.

6) Imposes a fine of up to $50,000, or imprisonment not to exceed one year in county jail, or both, for possessing, selling, or buying false or fraudulent cigarette tax stamps or meter impressions in a quantity of 2,000 or greater.

7) Requires the destruction by the State Board of Equalization of any stamps seized.

8) Requires any fines assessed to be deposited in the Cigarette and Tobacco Products Compliance Fund, amounts in which are available for specified expenditure upon appropriation by the Legislature.

FISCAL EFFECT: According to Assembly Appropriations Committee, this bill will have:

1. Minor and absorbable costs related to inspections and enforcements. This bill would not lead to any additional inspections on top of which are already being done.
2. Likely minor cost savings because of deterred tax evasion.

COMMENTS:

Purpose of the Bill: According to the author, under existing law, cigarette distributors are required to pay an $0.87 excise tax on each pack of cigarettes by purchasing a tax stamp which is affixed on each pack of cigarettes prior to distribution. The BOE's inspection teams have recently identified cigarette tax evasion schemes where used tax stamps were re-used and affixed to another cigarette pack to evade the $0.87 per cigarette pack excise tax. BOE inspectors have also found large collections of used stamps that are intended for reuse. Current law is ambiguous whether BOE inspection teams have the authority to seize and destroy the collection of used stamps, even though it is clear that the used stamps have been collected for the purpose of re-using the stamp to evade the stamp tax.

This bill clarifies that it is a misdemeanor for anyone to possess, buy, sell, or offer to buy or sell any used cigarette tax stamps. It also authorizes the BOE to seize and destroy used cigarette tax stamps aggregated for reuse purposes. Unlike postage stamps or trading cards that are collectibles with value, cigarette tax stamp collections have value solely related to tax evasion. During one enforcement operation alone, BOE staff found a storage unit containing nearly 206,000 unaffixed, used stamps with a tax value of about $179,000 placed on transfer sheets and prepared for affixation to cigarette packs.

The author states that this bill serves to combat this tax evasion scheme, minimize tax evasion opportunities, and assist in making the marketplace fair and equitable for those that are legitimately paying the excise tax.

Background: Cigarettes are subject to both the cigarette tax and the cigarette and tobacco products surtax, collectively referred to as taxes. The taxes are assessed on each cigarette distributed in California. The current tax rate is $0.0435 cents per cigarette, which is $0.87 per pack of 20 cigarettes. Distributors pay the taxes by purchasing cigarette tax stamps from the BOE. Distributors are required to affix the tax stamp to each package of cigarettes before distribution. Distributors pass the excise taxes on to their customer, and the taxes become part of the retail selling price of the cigarettes. The cost of the cigarette tax stamp includes both taxes.

Other forms of tobacco products are taxed at the same rate, but in a different manner. Under current law, "tobacco products" include, but are not limited to, all forms of cigars (except "little cigars"), smoking tobacco, chewing tobacco and snuff, and any other articles or products made of or containing at least 50% tobacco. The tax, which is a component of the cigarette and tobacco products surtax, is paid by tobacco products distributors. The tobacco products tax is imposed upon the first distribution of tobacco products at a rate determined annually by the BOE. The tobacco products tax rate is equivalent to the combined rate of the taxes applied to cigarettes. The rate is applied to the wholesale cost of the tobacco products.

BOE Licensing Act: In 2003, AB 71 (Jerome Horton), Chapter 890, enacted the Cigarette and Tobacco Products Licensing Act (Licensing Act), which established a statewide licensure program administered by BOE to help stem the tide of untaxed distributions and illegal sales of cigarettes and tobacco products. Prior to the bill, BOE's Investigations Division had been encountering a large number of cigarettes and tobacco product distributors who were unlicensed. The purpose for being unlicensed is to conceal the nature of their business and to evade the tax. These unlicensed distributors normally maintain minimal assets and are typically transient, which hinders BOE's ability to collect the taxes due and payable.

The Act requires every retailer, distributor, wholesaler, manufacturer and importer to obtain and maintain a license to engage in the sale of cigarettes or tobacco products. Currently, BOE has approximately 38,000 retailers and 1,000 distributors and wholesalers licensed to engage in the sale of cigarettes and tobacco products in California. A distributor and wholesaler license is valid for a calendar year upon payment of a fee of $1,000 per location, unless surrendered, suspended, or revoked prior to the end of the calendar year, and may be renewed each year upon payment of such fee.

Violations of the Act include, in part, the following: 1) Possession, storing, owning, or has made sales of an unstamped package of cigarettes bearing a counterfeit California tax stamp or tobacco products on which tax is due but has not been paid; 2) Sales of cigarettes or tobacco products to any distributor, wholesaler, importer, retailer, or any other person who is not licensed or whose license has been suspended or revoked; 3) Retailer and wholesaler purchases of cigarette or tobacco products from any person who is not licensed or whose license has been suspended or revoked; 4) Distributor purchases of cigarettes or tobacco products from any person who is required to be licensed pursuant to the Act but who is not licensed or whose license has been suspended or revoked; 5) Failure to maintain records or make such records available to BOE and law enforcement agency, as specified; 6) A person or entity that engages in the business of selling cigarettes or tobacco products in this state without a license or after a license has been suspended or revoked; and 7) Failure to allow an inspection.

Tax Evasion Schemes: The BOE's Investigation Division actively investigates and makes seizures of unstamped or counterfeit stamped cigarettes and imports of domestic labeled cigarettes or export type cigarettes stamped in violation of the law. According to a BOE report in 2014, they estimate that cigarette and tobacco products excise tax revenue evasion was about $214 million in fiscal year 2012-13. This estimate is comprised of $198 million by retailers who purchase and sell untaxed cigarettes and tobacco products and $16 million in casual evasion by consumers. These estimates include all forms of tax evasion schemes, including the use of unnafixed stamps.

Cigarette and tobacco product tax evasion schemes can be perpetrated in several ways. The most commonly known scheme is what is punishable under current law—affixing fraudulent stamps or meter impressions on non-multi-source agreement (MSA) compliant and/or out-of-state diverted cigarettes and reselling them on the black market. As stated above, the BOE's inspection teams have recently identified cigarette tax evasion schemes where used tax stamps were re-used (aka "unnafixed" stamps) and affixed to a different cigarette pack. Rather than using fraudulent stamps, perpetrators—often actual retailers—collect the removed cellophane wrapper on a legal pack of cigarettes containing a legitimate stamp, and give them to people known as "aggregators." The aggregators then remove the stamps from the wrapper and affix them to non-MSA compliant or out-of-state diverted cigarettes, thus evading the $0.87 California tax. Current law does not account for and, thus, does not punish the use, collection or sell of re-used stamps. The picture below is from an undisclosed retailer who was collecting stamps for an "unnafixed stamp" tax evasion scheme.

Cigarette and Tobacco Products Taxes Revenues: The revenues from excise taxes on cigarettes and tobacco products are deposited into four funds, which are all affected by tax evasion schemes. The allocation of funds is as follows: of the total $0.87 tax per package of 20 cigarettes, $0.10 is deposited into the Cigarette Tax Fund, and $0.02 goes into the Breast Cancer Fund. Twenty-five cents is deposited into the Cigarette and Tobacco Products Surtax Fund and may only be used for the following purposes:

1. Tobacco-related health education programs and disease research.
2. Medical and hospital care and treatment of patients who cannot afford those services, and for whom payment will not be made by any private coverage or federal program.
3. Programs for fire prevention; environmental conservation; protection, restoration, enhancement, and maintenance of fish, waterfowl, and wildlife habitat areas; and enhancement of state and local parks and recreation.

Fifty cents is deposited into the California Children and Families Trust Fund and is used for programs that encourage proper childhood development, including the development of professional and parental education and training, informed selection of childcare, development and education of childcare providers, and research into the best practices and standards for all programs and services relating to early childhood development.

Prior/Related legislation: SB 5 X2 (Leno), Chapter 7, Statutes of 2015-16 Second Extraordinary Session. Expands the definition of tobacco products to include e-cigarettes and extends current restrictions and prohibitions against the use of tobacco products to e-cigarettes. The bill also establishes an annual e-cigarette retailer licensing fee of $265 per location.

AB 11 X2 (Nazarian), Chapter 6, Statutes of 2015-16 Second Extraordinary Session. Revises the Cigarette and Tobacco Products Licensing Act of 2003 to change the retailer license fee from a $100 one-time fee to a $265 annual fee, and increase the distributor and wholesaler license fee from $1,000 to $1,200.

AB 2496 (Nava), Chapter 265, Statutes of 2010. Amends the California Cigarette and Tobacco Products Licensing Act of 2003 in governing the financial and other obligations of non-participating tobacco manufacturers (NPMs) as part of its diligence obligation.

AB 2733 (Ruskin), Chapter 607, Statutes of 2010. Amends the Licensing Act to prohibit a licensee whose license has been suspended or revoked from giving cigarette and tobacco products away or displaying those products during the period of license suspension or revocation, as specified.

SB 624 (Padilla), Chapter 653, Statutes of 2007. Increases the civil penalties under the Stop Tobacco Access to Kids Enforcement (STAKE) Act and expands the role of agencies that are permitted to carry out investigations of illegal tobacco sales to minors under the STAKE Act from the Department of Public Health to include the Attorney General and other state and local agencies.

AB 71 (Jerome Horton), Chapter 890, Statutes of 2003. Enacted the Cigarette and Tobacco Products Licensing Act of 2003. This bill was a comprehensive attempt to reduce illegal sales of cigarette and other tobacco products within California. This bill created a statewide licensing program for retailers, enhancing the powers of BOE's tobacco compliance and enforcement division, expanding DOJ's tobacco compliance and enforcement responsibilities, and enacting and increasing criminal and civil penalties for sales of counterfeit cigarettes and other tobacco products.

Analysis Prepared by: Kenton Stanhope / G.O. / (916) 319-2531 FN: 0003781

 THIRD READING  

Bill No: AB 1901

Author:

:

Vote:

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 6/29/16

AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach, Pavley

SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/1/16

AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen

ASSEMBLY FLOOR: 79-0, 5/5/16 (Consent) - See last page for vote

SUBJECT:

SOURCE: Author

DIGEST: This bill makes it a misdemeanor to buy, sell, or possess unaffixed cigarette stamps.

ANALYSIS:

Existing law:

1. Imposes a tax on cigarette distributors at the rate of $0.87 per package of 20 cigarettes.
2. Requires that the cigarette tax is paid through the use of stamps or meter impressions. Specifically, these stamps or meter impressions must be affixed to each package of cigarettes distributed.
3. Imposes a fine of up to $50,000, or imprisonment not to exceed one year in county jail, or both, for possessing, selling, or buying false or fraudulent cigarette tax stamps or meter impressions, and requires the state Board of Equalization (BOE) to destroy any stamps seized. Any fines assessed are deposited in the Cigarette and Tobacco Products Compliance Fund.

This bill:

1. Provides that any person who possesses, sells, or offers to sell, or who buys or offers to buy, "unaffixed stamps" is guilty of a misdemeanor, punishable by a fine or imprisonment in county jail for up to a year, or both.
2. Requires the BOE to seize and destroy these stamps aggregated for reuse purposes.
3. Defines "unaffixed stamps" as cigarette stamps for which the tax has previously been paid by a licensed distributor and previously affixed to a package. The term does not include any unused and unapplied rolls of stamps or loose stamps acquired from BOE or its authorized agent and in the possession of a licensed distributor.

Background

BOE’s inspection teams have recently identified tax evasion schemes involving reused cigarette tax stamps. For example, an inspector's scan revealed that a stamp affixed to a pack of Marlboros had originally been applied to a pack of Camels. In these situations, it is obvious that the original stamp was subsequently reused and affixed to another cigarette pack. These used stamps can be acquired by rummaging through trash bins or retailers may acquire them by offering to unwrap cigarette packages for their customers. By applying used stamps to an untaxed cigarette pack, taxpayers may evade the tax and disguise duty free, counterfeit, stolen, smuggled, and otherwise untaxed cigarettes as legitimate. The majority of these used stamps appear to be affixed to counterfeit and duty free cigarettes.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Senate Appropriations Committee, BOE estimates that based on current trends, enactment of this bill could deter tax evasion of about $400,000 annually (special funds). BOE would incur absorbable administrative costs to notify affected retailers, amend appropriate publications, and answer inquiries.

SUPPORT: (Verified 8/3/16)

American Cancer Society Cancer Action Network

American Lung Association

California Distributors Association

Fiona Ma, State Board of Equalization Member

State Board of Equalization

OPPOSITION: (Verified 8/3/16)

None received

ARGUMENTS IN SUPPORT: According to the author, “Under existing law, cigarette distributors are required to pay an 87-cents excise tax on each pack of cigarettes by purchasing a tax stamp which is affixed on each pack of cigarettes prior to distribution. The BOE's inspection teams have recently identified cigarette tax evasion schemes where used tax stamps were re-used and affixed to another cigarette pack to evade the 87-cents per cigarette pack excise tax. BOE inspectors have also found large collections of used stamps that are intended for reuse. Current law is ambiguous whether BOE inspection teams have the authority to seize and destroy the collection of used stamps, even though it is clear that the used stamps have been collected for the purpose of re-using the stamp to evade the stamp tax. AB 1901 clarifies that it is a misdemeanor for anyone to possess, buy, sell, or offer to buy or sell any used cigarette tax stamps. It also authorizes the BOE to seize and destroy used cigarette tax stamps aggregated for reuse purposes. Unlike postage stamps or trading cards that are collectibles with value, cigarette tax stamp collections have value solely related to tax evasion. During one enforcement operation alone, BOE staff found a storage unit containing nearly 206,000 unaffixed, used stamps with a tax value of about $179,000 placed on transfer sheets and prepared for affixation to cigarette packs. AB 1901 serves to combat this tax evasion scheme, minimize tax evasion opportunities, and assist in making the marketplace fair and equitable for those that are legitimately paying the excise tax.”

ASSEMBLY FLOOR: 79-0, 5/5/16

AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon

NO VOTE RECORDED: Beth Gaines

Prepared by:

8/3/16 18:09:05

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

AB 1901 (Quirk) - Taxation: cigarettes: unaffixed stamps

This bill does not meet the criteria for referral to the Suspense File.

Bill Summary:

AB 1901 would (1) make it a misdemeanor to buy, sell, or possess unaffixed cigarette stamps, and (2) authorize the Board of Equalization (BOE) to seize and destroy these stamps aggregated for reuse purposes.

Fiscal Impact:

BOE estimates that based on current trends, enactment of this bill could deter tax evasion of about $400,000 annually (special funds). BOE would incur absorbable administrative costs to notify affected retailers, amend appropriate publications, and answer inquiries.

Background:

Current law imposes a tax on cigarette distributors at the rate of $0.87 per package of 20 cigarettes. The cigarette tax must be paid through the use of stamps or meter impressions. Specifically, these stamps or meter impressions must be affixed to each package of cigarettes distributed.

State law (1) imposes a fine of up to $50,000, or imprisonment not to exceed one year in county jail, or both, for possessing, selling, or buying false or fraudulent cigarette tax stamps or meter impressions, and (2) requires BOE to destroy any stamps seized. Any fines assessed are deposited in the Cigarette and Tobacco Products Compliance Fund.

Proposed Law:

This bill would provide that any person who possesses, sells, or offers to sell, or who buys or offers to buy, "unaffixed stamps" is guilty of a misdemeanor, punishable by a fine or imprisonment in county jail for up to a year, or both. The bill would require BOE to destroy any unaffixed stamps.

The bill defines "unaffixed stamps" as cigarette stamps for which the tax has previously been paid by a licensed distributor and previously affixed to a package. The term does not include any unused and unapplied rolls of stamps or loose stamps acquired from BOE or its authorized agent and in the possession of a licensed distributor.

Staff Comments:

BOE notes that in one enforcement operation alone, staff found a storage unit containing nearly 206,000 unaffixed used stamps with a tax value of about $179,000 placed on transfer sheets and prepared for affixation to cigarette packs.

Any local government costs resulting from the mandate in this measure are not state-reimbursable because the mandate only involves the definition of a crime or the penalty for conviction of a crime.

-- END --

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Robert M. Hertzberg, Chair

2015 - 2016 Regular

Taxation: cigarettes: unaffixed stamps

Makes it a misdemeanor to buy, sell, or possess unaffixed cigarette stamps.

Background

The Cigarette and Tobacco Products Tax Law imposes a tax on cigarette distributors at the rate of $0.87 per package of 20 cigarettes. The cigarette tax must be paid through the use of stamps or meter impressions. Specifically, these stamps or meter impressions must be affixed to each package of cigarettes distributed.

State law imposes a fine of up to $50,000, or imprisonment not to exceed one year in county jail, or both, for possessing, selling, or buying false or fraudulent cigarette tax stamps or meter impressions, and requires the state Board of Equalization (BOE) to destroy any stamps seized. Any fines assessed are deposited in the Cigarette and Tobacco Products Compliance Fund.

Proposed Law

Assembly Bill 1901 provides that any person who possesses, sells, or offers to sell, or who buys or offers to buy, "unaffixed stamps" is guilty of a misdemeanor, punishable by a fine or imprisonment in county jail for up to a year, or both. The bill requires BOE to destroy any unaffixed stamps.

AB 1901 defines "unaffixed stamps" as cigarette stamps for which the tax has previously been paid by a licensed distributor and previously affixed to a package. The term does not include any unused and unapplied rolls of stamps or loose stamps acquired from the State Board of Equalization (BOE) or its authorized agent and in the possession of a licensed distributor.

The bill provides that no reimbursement is required under Section Six of Article XIIIB of the California Constitution for specified reasons.

State Revenue Impact

BOE estimates that this bill could potentially deter tax evasion of approximately $400,000 annually.

Comments

1. Purpose of the bill. According to the author, “Under existing law, cigarette distributors are required to pay an 87-cents excise tax on each pack of cigarettes by purchasing a tax stamp which is affixed on each pack of cigarettes prior to distribution. The BOE's inspection teams have recently identified cigarette tax evasion schemes where used tax stamps were re-used and affixed to another cigarette pack to evade the 87-cents per cigarette pack excise tax. BOE inspectors have also found large collections of used stamps that are intended for reuse. Current law is ambiguous whether BOE inspection teams have the authority to seize and destroy the collection of used stamps, even though it is clear that the used stamps have been collected for the purpose of re-using the stamp to evade the stamp tax. AB 1901 clarifies that it is a misdemeanor for anyone to possess, buy, sell, or offer to buy or sell any used cigarette tax stamps. It also authorizes the BOE to seize and destroy used cigarette tax stamps aggregated for reuse purposes. Unlike postage stamps or trading cards that are collectibles with value, cigarette tax stamp collections have value solely related to tax evasion. During one enforcement operation alone, BOE staff found a storage unit containing nearly 206,000 unaffixed, used stamps with a tax value of about $179,000 placed on transfer sheets and prepared for affixation to cigarette packs. AB 1901 serves to combat this tax evasion scheme, minimize tax evasion opportunities, and assist in making the marketplace fair and equitable for those that are legitimately paying the excise tax.”

2. Cigarette tax evasion. BOE’s inspection teams have recently identified tax evasion schemes involving reused cigarette tax stamps. For example, an inspector's scan revealed that a stamp affixed to a pack of Marlboros had originally been applied to a pack of Camels. In these situations, it is obvious that the original stamp was subsequently reused and affixed to another cigarette pack. These used stamps can be acquired by rummaging through trash bins or retailers may acquire them by offering to unwrap cigarette packages for their customers. By applying used stamps to an untaxed cigarette pack, taxpayers may evade the tax and disguise duty free, counterfeit, stolen, smuggled, and otherwise untaxed cigarettes as legitimate. The majority of these used stamps appear to be affixed to counterfeit and duty free cigarettes.

3. Strict liability. This bill establishes a strict liability offense, meaning that the very act of possessing, buying, or selling unaffixed stamps would be illegal. A prosecutor would not need to prove that the person in possession of the stamps intended to defraud the state or evade proper taxation. BOE notes that there is no reason anyone would possess these stamps for legitimate purposes. Unlike postage stamps or trading cards, they have no value as collectables. Thus, used cigarette tax stamps are only collected for tax evasion purposes.

Assembly Actions

Assembly Governmental Organization 18-0

Assembly Revenue and Taxation 9-0

Assembly Appropriations 19-0

Assembly Floor 79-0

Support and Opposition

(6/22/16)

Support: American Cancer Society Cancer Action Network; American Lung Association; California Distributors Association; Fiona Ma, State Board of Equalization Member; State Board of Equalization.

Opposition: Unknown.

-- END --

Date of Hearing: April 27, 2016

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 1901

Author:(Quirk) – As Amended Ver:March 14, 2016

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill makes it a misdemeanor to buy, sell, or possess unaffixed cigarette stamps. Specifically, this bill:

1. Defines “unaffixed stamps” as cigarette stamps for which the tax has previously been paid by a licensed distributor and previously affixed to a package. The term does not include any unused or unapplied rolls of stamps or loose stamps acquired from the State Board of Equalization (BOE) or its authorized agent and in the possession of a licensed distributor.
2. Provides that any person who possesses, sells, or offers to sell, or who buys or offers to buy, unaffixed stamps is guilty of a misdemeanor, punishable by a fine or imprisonment in county jail for up to a year, or both.
3. Requires that BOE destroy unaffixed stamps.

FISCAL EFFECT:

1. Minor and absorbable costs related to inspections and enforcements. This bill would not lead to any additional inspections on top of which are already being done.
2. Likely minor cost savings because of deterred tax evasion.

COMMENTS:

1. Purpose. This bill is intended to combat the “used stamp scheme,” which is a tax evasion scheme that involves reused cigarette tax stamps.

1. Background. Existing law requires the cigarette tax to be paid through the use of stamps or meter impressions, which must be affixed to each package of cigarettes distributed. Cigarette stamps resemble stickers and are encrypted with the date, distributor information, and the cigarette brand. BOE inspection teams authenticate tax stamps with scanning devices, and under existing law it is a misdemeanor to sell, by, or possess fraudulent or false stamps.
2. Used stamp scheme. According to BOE, the sponsor of AB 1901, inspection teams have identified a tax evasion scheme that involves reusing legitimate cigarette tax stamps. In these cases, the stamp is removed but reaffixed to another cigarette pack. By applying used stamps to an untaxed cigarette pack, taxpayers can avoid paying the tax and also disguise duty free, counterfeit, stolen, or smuggled cigarettes.
3. Examples. The BOE notes that in one enforcement operation alone, BOE staff found a storage unit containing nearly 206,000 unaffixed used stamps with a tax value of about $179,000 placed on transfer sheets and prepared for affixation to cigarette packs. In total, the BOE hopes that by making possessing, selling, or buying unaffixed stamps a misdemeanor can help prevent tax evasion in the range of $400,000 annually.

Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081

Date of Hearing: April 18, 2016

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Sebastian Ridley-Thomas, Chair

ABPCA Bill Id:AB 1901 (

Author:Quirk) – As Amended Ver:March 14, 2016

Majority vote. Fiscal committee.

SUBJECT: Taxation: cigarettes: unaffixed stamps

SUMMARY: Makes it a misdemeanor to buy, sell, or possess unaffixed cigarette stamps. Specifically, this bill:

1. Provides that any person who possesses, sells, or offers to sell, or who buys or offers to buy, "unaffixed stamps" is guilty of a misdemeanor, punishable by a fine or imprisonment in county jail for up to a year, or both.
2. Defines "unaffixed stamps" as cigarette stamps for which the tax has previously been paid by a licensed distributor and previously affixed to a package. The term does not include any unused and unapplied rolls of stamps or loose stamps acquired from the State Board of Equalization (BOE) or its authorized agent and in the possession of a licensed distributor.
3. Requires the BOE to destroy any such stamps.
4. Provides that no reimbursement is required under Section 6 of Article XIIIB of the California Constitution for specified reasons.

EXISTING LAW:

1. Imposes a tax, under the Cigarette and Tobacco Products Tax Law, on cigarette distributors at the rate of $0.87 per package of 20 cigarettes.
2. Requires the cigarette tax be paid through the use of stamps or meter impressions. Specifically, these stamps or meter impressions must be affixed to each package of cigarettes distributed.
3. Imposes a fine of up to $50,000, as specified, or imprisonment not to exceed one year in county jail, or both, for possessing, selling, or buying false or fraudulent cigarette tax stamps or meter impressions, and requires the BOE to destroy any stamps seized.
4. Requires any fines assessed to be deposited in the Cigarette and Tobacco Products Compliance Fund.

FISCAL EFFECT: The BOE estimates that this bill could potentially deter tax evasion of roughly $400,000 annually.

COMMENTS:

1. The author has provided the following statement in support of this bill:

Under existing law, cigarette distributors are required to pay an 87-cents excise tax on each pack of cigarettes by purchasing a tax stamp which is affixed on each pack of cigarettes prior to distribution. The BOE's inspection teams have recently identified cigarette tax evasion schemes where used tax stamps were re-used and affixed to another cigarette pack to evade the 87-cents per cigarette pack excise tax. BOE inspectors have also found large collections of used stamps that are intended for reuse. Current law is ambiguous whether BOE inspection teams have the authority to seize and destroy the collection of used stamps, even though it is clear that the used stamps have been collected for the purpose of re-using the stamp to evade the stamp tax.

AB 1901 clarifies that it is a misdemeanor for anyone to possess, buy, sell, or offer to buy or sell any used cigarette tax stamps. It also authorizes the BOE to seize and destroy used cigarette tax stamps aggregated for reuse purposes.

Unlike postage stamps or trading cards that are collectibles with value, cigarette tax stamp collections have value solely related to tax evasion. During one enforcement operation alone, BOE staff found a storage unit containing nearly 206,000 unaffixed, used stamps with a tax value of about $179,000 placed on transfer sheets and prepared for affixation to cigarette packs.

AB 1901 serves to combat this tax evasion scheme, minimize tax evasion opportunities, and assist in making the marketplace fair and equitable for those that are legitimately paying the excise tax.

1. This bill is sponsored by the BOE, which notes the following:

This bill serves to combat this used tax stamp scheme, minimize tax evasion opportunities, and assist in making the marketplace fair and equitable for those who are legitimately paying the excise tax.

1. The BOE notes the following in its staff analysis of this bill:

During inspections and joint operations with other law enforcement agents, staff has found retail shops accumulating a significant number of used stamps and storing them in places such as trash bags located behind the storefront counter or drawers behind the register area.

In a more sophisticated scheme discovered during an enforcement operation, staff found a storage unit containing 205,694 unaffixed used stamps with a tax value of $178,954 placed on transfer sheets and prepared for affixation to cigarette packs. In this instance, the used stamps were also labeled by the cigarette brand to which they had been affixed originally. As a result, the unsuspecting consumer would receive a counterfeit pack of cigarettes and the tax would be evaded. Within the past year, staff also found an additional, larger collection of used stamps in a separate scheme, as well as numerous smaller collections at retail stores.

1. Committee Staff Comments
   1. General background: Existing law requires the cigarette tax be paid through the use of stamps or meter impressions, which must be affixed to each package of cigarettes distributed. Cigarette stamps resemble stickers and are encrypted with the date, distributor information, and the cigarette brand. The BOE notes that its inspection teams authenticate tax stamps with scanning devices. For obvious reasons, existing law makes it a misdemeanor to sell, buy, or possess a false or fraudulent stamp or meter impression. In addition, the BOE is required to destroy any such fraudulent stamps.
   2. Cigarette tax evasion: The BOE notes that its inspection teams have recently identified tax evasion schemes involving reused cigarette tax stamps. For example, an inspector's scan revealed that a stamp affixed to a pack of Marlboros had originally been applied to a pack of Camels. In these situations, it is obvious that the original stamp was subsequently reused and affixed to another cigarette pack. The BOE notes that these used stamps can be acquired simply by rummaging through trash bins. Alternatively, retailers may acquire them by offering to unwrap cigarette packages for their customers. The BOE notes:

By applying used stamps to an untaxed cigarette pack, taxpayers may evade the tax and disguise duty free, counterfeit, stolen, smuggled, and otherwise untaxed cigarettes as legitimate. The majority of these used stamps appear to be affixed to counterfeit and duty free cigarettes.

• 1. This proposal: This bill, sponsored by the BOE, seeks to address these cigarette tax evasion schemes by making it illegal to buy, sell, or possess unaffixed cigarette stamps. Currently, the law makes it illegal to buy, sell, or possess fraudulent stamps, but makes no reference to legitimate stamps that were removed from a package and stored for subsequent re-use to avoid proper taxation.
  2. Strick liability: It should be noted that this bill establishes a strict liability offense. Put simply, this means that the very act of possessing, buying, or selling unaffixed stamps would be illegal. A prosecutor would not need to prove that the person in possession of the stamps intended to defraud the state or evade proper taxation. The BOE notes, however, that there is simply no reason anyone would possess these stamps for legitimate purposes. Unlike postage stamps or trading cards, they have no value as collectables. Thus, used cigarette tax stamps have no value to the person collecting them, except for tax evasion purposes.
  3. Double referral: This bill was double referred with the Assembly Committee on Governmental Organization and passed out of that Committee by a vote of 18 to 0 on April 6, 2016. For additional discussion of this bill's provisions, please refer to that Committee's analysis.

REGISTERED SUPPORT / OPPOSITION:

Support

State Board of Equalization (sponsor)

Opposition

None on file

Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098

Date of Hearing: April 6, 2016

ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION

Adam Gray, Chair

ABPCA Bill Id:AB 1901 (

Author:Quirk) – As Amended Ver:March 14, 2016

SUBJECT: Taxation: cigarettes: unaffixed stamps

SUMMARY: Extends the penalties for possessing, selling, or buying false or fraudulent cigarette tax stamps to “unaffixed stamps”. Specifically, this bill:

1. Imposes a fine of up to $5,000, or imprisonment not to exceed one year in county jail, or both, for possessing, selling, or buying unaffixed stamps in a quantity less than 2,000.
2. Imposes a fine of up to $50,000, or imprisonment not to exceed one year in county jail, or both, for possessing, selling, or buying unaffixed stamps in a quantity of 2,000 or greater.
3. Defines “unaffixed stamps” as stamps for which the tax has previously been paid by a licensed distributor and previously affixed to a package.
4. Clarifies that “unnafixed stamps” do not include any unused and unapplied rolls of stamps or loose stamps acquired from the board or its authorized agent and in the possession of a licensed distributor.
5. Requires the Board of Equalization (BOE) to destroy any stamps seized under this section.

EXISTING LAW:

1) The California Cigarette and Tobacco Products Licensing Act (Act) of 2003 provides for the licensure, by BOE, of manufacturers, distributors, wholesalers, importers, and retailers of cigarette or tobacco products that are engaged in business in California and prohibits retailers, manufacturers, distributors, and wholesalers from distributing or selling those cigarette and tobacco products unless they are in compliance with those licensure requirements.

2) The Cigarette and Tobacco Products Tax Law (Law) imposes a tax on the distribution of tobacco products and on the distribution of cigarettes, which are paid through the use of stamps or meter impressions that are required to be affixed to each package of cigarettes sold. The Law requires that certain cigarette and tobacco products be forfeited to the state under specified circumstances, upon seizure by BOE.

3) Defines “Stamps and meter impressions” as indicia of payment of tax, and include, but are not limited to, stamps, meter impressions, or any other indicia developed using current technology.

4) Requires the BOE to prescribe and approve the types of stamps and meter impressions, and the methods of applying stamps and meter impressions to packages of cigarettes.

5) Imposes a fine of up to $5,000, or imprisonment not to exceed one year in county jail, or both, for possessing, selling, or buying false or fraudulent cigarette tax stamps or meter impressions in a quantity less than 2,000.

6) Imposes a fine of up to $50,000, or imprisonment not to exceed one year in county jail, or both, for possessing, selling, or buying false or fraudulent cigarette tax stamps or meter impressions in a quantity of 2,000 or greater.

7) Requires the destruction by the State Board of Equalization of any stamps seized.

8) Requires any fines assessed to be deposited in the Cigarette and Tobacco Products Compliance Fund, amounts in which are available for specified expenditure upon appropriation by the Legislature.

FISCAL EFFECT: Unknown

COMMENTS:

Purpose of the Bill: According to the author, under existing law, cigarette distributors are required to pay an 87-cents excise tax on each pack of cigarettes by purchasing a tax stamp which is affixed on each pack of cigarettes prior to distribution. The BOE’s inspection teams have recently identified cigarette tax evasion schemes where used tax stamps were re-used and affixed to another cigarette pack to evade the 87-cents per cigarette pack excise tax. BOE inspectors have also found large collections of used stamps that are intended for reuse. Current law is ambiguous whether BOE inspection teams have the authority to seize and destroy the collection of used stamps, even though it is clear that the used stamps have been collected for the purpose of re-using the stamp to evade the stamp tax.

AB 1901 clarifies that it is a misdemeanor for anyone to possess, buy, sell, or offer to buy or sell any used cigarette tax stamps. It also authorizes the BOE to seize and destroy used cigarette tax stamps aggregated for reuse purposes. Unlike postage stamps or trading cards that are collectibles with value, cigarette tax stamp collections have value solely related to tax evasion. During one enforcement operation alone, BOE staff found a storage unit containing nearly 206,000 unaffixed, used stamps with a tax value of about $179,000 placed on transfer sheets and prepared for affixation to cigarette packs.

The author states that AB 1901 serves to combat this tax evasion scheme, minimize tax evasion opportunities, and assist in making the marketplace fair and equitable for those that are legitimately paying the excise tax.

Background: Cigarettes are subject to both the cigarette tax and the cigarette and tobacco products surtax, collectively referred to as taxes. The taxes are assessed on each cigarette distributed in California. The current tax rate is $0.0435 cents per cigarette, which is $0.87 per pack of twenty 20 cigarettes. Distributors pay the taxes by purchasing cigarette tax stamps from the BOE. Distributors are required to affix the tax stamp to each package of cigarettes before distribution. Distributors pass the excise taxes on to their customer, and the taxes become part of the retail selling price of the cigarettes. The cost of the cigarette tax stamp includes both taxes.

Other forms of tobacco products are taxed at the same rate, but in a different manner. Under current law, “tobacco products” include, but are not limited to, all forms of cigars (except “little cigars”), smoking tobacco, chewing tobacco and snuff, and any other articles or products made of or containing at least 50 percent tobacco. The tax, which is a component of the cigarette and tobacco products surtax, is paid by tobacco products distributors. The tobacco products tax is imposed upon the first distribution of tobacco products at a rate determined annually by the BOE. The tobacco products tax rate is equivalent to the combined rate of the taxes applied to cigarettes. The rate is applied to the wholesale cost of the tobacco products.

BOE Licensing Act:  In 2003, AB 71 (J. Horton, Chapter 890) enacted the Cigarette and Tobacco Products Licensing Act (Licensing Act), which established a statewide licensure program administered by BOE to help stem the tide of untaxed distributions and illegal sales of cigarettes and tobacco products. Prior to the bill, BOE's Investigations Division had been encountering a large number of cigarettes and tobacco product distributors who were unlicensed. The purpose for being unlicensed is to conceal the nature of their business and to evade the tax. These unlicensed distributors normally maintain minimal assets and are typically transient, which hinders BOE’s ability to collect the taxes due and payable.

The Act requires every retailer, distributor, wholesaler, manufacturer and importer to obtain and maintain a license to engage in the sale of cigarettes or tobacco products.   Currently, BOE has approximately 38,000 retailers and 1,000 distributors and wholesalers licensed to engage in the sale of cigarettes and tobacco products in California. A distributor and wholesaler license is valid for a calendar year upon payment of a fee of $1,000 per location, unless surrendered, suspended, or revoked prior to the end of the calendar year, and may be renewed each year upon payment of such fee.

Violations of the Act include, in part, the following: 1) Possession, storing, owning, or has made sales of an unstamped package of cigarettes bearing a counterfeit California tax stamp or tobacco products on which tax is due but has not been paid; 2) Sales of cigarettes or tobacco products to any distributor, wholesaler, importer, retailer, or any other person who is not licensed or whose license has been suspended or revoked; 3) Retailer and wholesaler purchases of cigarette or tobacco products from any person who is not licensed or whose license has been suspended or revoked; 4) Distributor purchases of cigarettes or tobacco products from any person who is required to be licensed pursuant to the Act but who is not licensed or whose license has been suspended or revoked; 5) Failure to maintain records or make such records available to BOE and law enforcement agency, as specified; 6) A person or entity that engages in the business of selling cigarettes or tobacco products in this state without a license or after a license has been suspended or revoked; and 7) Failure to allow an inspection.

Tax Evasion Schemes: The BOE's Investigation Division actively investigates and makes seizures of unstamped or counterfeit stamped cigarettes and imports of domestic labeled cigarettes or export type cigarettes stamped in violation of the law. According to a BOE report in 2014, they estimate that cigarette and tobacco products excise tax revenue evasion was about $214 million in fiscal year 2012-13. This estimate is comprised of $198 million by retailers who purchase and sell untaxed cigarettes and tobacco products and $16 million in casual evasion by consumers. These estimates include all forms of tax evasion schemes, including the use of unnafixed stamps.

Cigarette and tobacco product tax evasion schemes can be perpetrated in several ways. The most commonly known scheme is what is punishable under current law—affixing fraudulent stamps or meter impressions on non-MSA compliant and/or out-of-state diverted cigarettes and reselling them on the black market. As stated above, the BOE’s inspection teams have recently identified cigarette tax evasion schemes where used tax stamps were re-used (aka “unnafixed” stamps) and affixed to a different cigarette pack. Rather than using fraudulent stamps, perpetrators—often actual retailers—collect the removed cellophane wrapper on a legal pack of cigarettes containing a legitimate stamp, and give them to people known as “aggregators.” The aggregators then remove the stamps from the wrapper and affix them to non-MSA compliant or out-of-state diverted cigarettes, thus evading the $0.87 California tax. Current law does not account for and, thus, does not punish the use, collection or sell of re-used stamps. The picture below is from an undisclosed retailer who was collecting stamps for an “unnafixed stamp” tax evasion scheme.

Cigarette and Tobacco Products Taxes Revenues: The revenues from excise taxes on cigarettes and tobacco products are deposited into four funds, which are all affected by tax evasion schemes. The allocation of funds is as follows: of the total eighty-seven cents ($0.87) tax per package of twenty (20) cigarettes, ten cents ($0.10) is deposited into the Cigarette Tax Fund, and two cents ($0.02) goes into the Breast Cancer Fund. Twenty-five cents ($0.25) is deposited into the Cigarette and Tobacco Products Surtax Fund and may only be used for the following purposes:

• Tobacco-related health education programs and disease research.
• Medical and hospital care and treatment of patients who cannot afford those services, and for whom payment will not be made by any private coverage or federal program.
• Programs for fire prevention; environmental conservation; protection, restoration, enhancement, and maintenance of fish, waterfowl, and wildlife habitat areas; and enhancement of state and local parks and recreation.

Fifty cents ($0.50) is deposited into the California Children and Families Trust Fund and is used for programs that encourage proper childhood development, including the development of professional and parental education and training, informed selection of childcare, development and education of childcare providers, and research into the best practices and standards for all programs and services relating to early childhood development.

Double referral: Should AB 1901 pass the Assembly Committee on Governmental Organization on Wednesday, April 6, 2016, this bill will be referred to the Assembly Committee on Revenue and Taxation for further consideration.

Prior/Related legislation: SBX2-5 (Leno) of 2015/2016 Second Extraordinary Session. Expands the definition of tobacco products to include e-cigarettes and extends current restrictions and prohibitions against the use of tobacco products to e-cigarettes. The bill also establishes an annual e-cigarette retailer licensing fee of $265 per location. (3/10/16 – Ordered to Engrossing and Enrolling).

ABX2-11 (Nazarian) of 2015/2016 Second Extraordinary Session. Revises the Cigarette and Tobacco Products Licensing Act of 2003 to change the retailer license fee from a $100 one-time fee to a $265 annual fee, and increase the distributor and wholesaler license fee from $1,000 to $1,200. (3/16/16 – Ordered to Engrossing and Enrolling).

AB 2496 (Nava), Chapter 265, Statutes of 2010. Amends the California Cigarette and Tobacco Products Licensing Act of 2003 in governing the financial and other obligations of non-participating tobacco manufacturers (NPMs) as part of its diligence obligation.

AB 2733 (Ruskin), Chapter 607, Statutes of 2010. Amends the Licensing Act to prohibit a licensee whose license has been suspended or revoked from giving cigarette and tobacco products away or displaying those products during the period of license suspension or revocation, as specified.

624 (Padilla, Chapter 653, Statutes of 2007. Increases the civil penalties under the Stop Tobacco Access to Kids Enforcement (STAKE) Act and expands the role of agencies that are permitted to carry out investigations of illegal tobacco sales to minors under the STAKE Act from the Department of Public Health to include the Attorney General and other state and local agencies.

AB 71 (Jerome Horton, Chapter 890, Statutes of 2003. Enacted the Cigarette and Tobacco Products Licensing Act of 2003. This bill was a comprehensive attempt to reduce illegal sales of cigarette and other tobacco products within California. This bill created a statewide licensing program for retailers, enhancing the powers of BOE's tobacco compliance and enforcement division, expanding DOJ's tobacco compliance and enforcement responsibilities, and enacting and increasing criminal and civil penalties for sales of counterfeit cigarettes and other tobacco products.

REGISTERED SUPPORT / OPPOSITION:

Support

California State Board of Equalization (Sponsor)

American Cancer Society-Cancer Action Network

The American Lung Association in California

California Distributors Association

Fiona Ma, Chairwoman, California State Board of Equalization

Opposition

None on file

Analysis Prepared by: Kenton Stanhope / G.O. / (916) 319-2531