SB 330– As proposed to be amended -- Page 1

SENATE GOVERNANCE & FINANCE COMMITTEE

Senator Lois Wolk, Chair

BILL NO: SB 330HEARING: 1/11/12

AUTHOR: PadillaFISCAL: Yes

VERSION: As proposed to be amended (mock-up)TAX LEVY: Yes

CONSULTANT: Lui

TOBACCO LICENSE QUERY SYSTEM

Requires Department of Public Health to establishthe Tobacco License Query System. Assesses a $100 annual fee for retailers located within 600 feet of schools.

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 annually for California.

II. STAKE Act

In 1994, the Legislature enacted Stop Tobacco Access to Kids Enforcement (STAKE) Act (Hayden, SB 1927, 1994) 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 (DPH) enforces certain provisions of the STAKE Act, such as conducting compliance checks, using teenage decoys, serving legal notices, administering penalty appeal hearings, and assessing and collecting penalties. Many cities and counties have also adopted local tobacco retail licensing ordinances to further reduce the sales of tobacco products to minors.

If any person, firm or corporation sells or furnishes minors with any tobacco paraphernalia, tobacco, cigarette, or cigarette papers, an enforcing agency may assess the following civil penalties:

  • For the first violation, a $400 to $600 fine.
  • For the second violation within 5 years, a $900 to $1,000 fine.
  • For the third violation within 5 years, a $1,200 to $1,800 fine.
  • For the fourth violation within 5 years, a $3,000 to $4,000 fine.
  • For a fifth or subsequent violation within 5 years, a $5,000 to $6,000 fine.

If a retailer or person who sells or deals tobacco fails to conspicuously post a notice that serving minors is illegal, the enforcing agency may assess a $200 fine for the first offense, $500 fine for the second. 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

To stem the tide of untaxed distributions and illegal sales of cigarettes and tobacco products, the Cigarette and Tobacco Products Licensing Act requires the Board of Equalization (BOE) to license manufacturers, distributors, wholesalers, importers and retailers of cigarette or tobacco products who are engaged in business in California(AB 71, Horton, 2003). A retailer must have and maintain a license to sell cigarettes or tobacco products. Any 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 with a license fee of one hundred dollars ($100) per location. Retailers must annually renew their license. A "retail location" is defined as any building from which cigarettes or tobacco products are sold at retail or a vending machine.

All persons and firms engaged in the retail sale of cigarettes and tobacco products must check the identification of tobacco purchasers. The 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.

The application requirements for the Licensing Act are as follows:

  • Applicant’s name, address, and telephone number.
  • Affirmation that the applicant has not been convicted of a felony; the applicant must also affirm that he or she will to violate any rule pertaining to the manufacture, sale, or distribution of cigarettes or tobacco products.
  • The license or permit number of any license or permits issued by the Department of Alcoholic Beverage Control.

The applicant must sign a statement affirming the accuracy and truthfulness of the application contents. If the applicant falsifies any information, the applicant is guilty of a misdemeanor punishable by imprisonment of up to one year in county jail, and/or a fine of not more than $1,000.

The penalty structure is:

  • 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 2 years, BOE must revoke the retailer's license to sell cigarette and tobacco products.

IV. California Penal Code

BOE can take action if a retailer is convicted of either 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. BOE may issue a $200 fine for the first offense, a $500 fine for the second offense, and a $1,000 fine for the third offense.

Existing law also requires every person, firm, or corporation which sells, deals in tobacco or any tobacco product to post a conspicuous 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 and each subsequent offense, a $500 fine or imprisonment in a county jail for no more than 30 days.

However, BOE can only use this enforcement action when the Youth Purchase Survey is 13% 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. Proposition 26. In November 2010, California voters approved Proposition 26, which changed how fees and taxes are defined (Article XIII (3)(b)). A tax is any levy, charge, or exaction imposed by the State, except for:

  • A charge imposed for a specific benefit conferred, or privilege granted directly to the payor that is not provided to those not charged;
  • A charge imposed for a specific government service or product;
  • A charge imposed for the reasonable regulatory costs to the State, like issuing licenses and permits, performing investigations or inspections, enforcing agricultural marketing orders;
  • A charge imposed for the entrance to or use of state property, or the purchase, rental, or lease of state property; and
  • A charge fine, penalty, or other monetary charge imposed by the judicial branch, for violating the law.

Proposed Law

I. Tobacco License Query System. Senate Bill 330 requires the California Department of Public Health (DPH) to establish, and maintain quarterly, the Tobacco License Query System, an electronic database of any retailer’s federal, state, or local infractions in selling tobacco to minors. The Tobacco License Query system shall include, but is not limited to all penalties assessed pursuant to:

  • The STAKE Act;
  • Penal Code Section 308 by any city attorney, county counsel, or district attorney; and
  • The Board of Equalization’s Tobacco Licensing Act.

The enforcing agency will submit information to DPH, regarding any penalties assessed against retailers pursuant to any law intended to prevent illegal tobacco sales to minors. DPH will create and provide a form for enforcing agencies to submit information.

II. License renewal fee. For retail locations located within 600 feet of a public or private elementary or secondary school, or retail location which have not affirmed that the location is located outside the 600-foot radius, SB 330 requires DPH to collect an annual $100 administrative surcharge fee, after an applicant renews its license with the Board of Equalization. Revenue generated by the $100 fee shall be deposited into the Tobacco License Query System fund, which shall only be used for the system’s operations.

III. Department of Public Health. SB 330 encourages DPH to coordinate with the U.S. Food and Drug Administration to include information regarding all penalties assessed in California, pursuant to the federal Family Smoking Prevention and Tobacco Control Act.

IV. Findings and declarations. SB 330 makes several legislative findings and declarations to support the bill’s purpose.

State Revenue Impact

The Department of Public Health estimates a one-time cost of $3,398,893 and an annual cost of $980,988 to create and maintain the Tobacco Query License System.

Comments

1. Purpose of the bill. According to the California Department of Public Health (DPH), more than 35,000 Californians die each year from smoking-related illnesses. According to the Centers for Disease Control and Prevention (CDC) over 80% of adult smokers started before they turned 18. Despite existing laws that prohibit the sale of tobacco products to minors and public media efforts aimed at deglamorizing tobacco use, retailers may still sell tobacco products to youth and market increasingly to younger audiences. Not only does early tobacco use pose significant health problems for young people, but early tobacco engagement increases the likelihood of lifelong tobacco addiction. A study conducted by the Tobacco-Related Disease Research Program found that nearly 33% of tobacco sales to minors take place within 1,000 feet of schools. Reducing the number of tobacco retailers by schools will decrease youth access to tobacco and in turn, provide California with a healthier future. Federal, state, and local agencies enforce tobacco laws that prohibit selling tobacco products to minors. Because local agencies and DPH conducts separate sting operations, information about possible mutual repeat offenders may not be shared. The author proposes synthesizingretail locations’ violations information in an accessible way to better serve the public.

2. A fee by any other name would smell as sweet. In a previous form, SB 330, a state-mandate, sought toimpose an additional tax on the distribution of cigarettes at the rate of ($0.075) or 75 mills for each cigarette distributed. After a gut-and-amend, the bill proposes another complicated fee system, aimed to further restrict retailers’ ability to sell tobacco. In hopes to offset fiscal concerns of implementing the Tobacco License Query System, the author amended the bill to include a $100 annual surcharge feeonretailers located within 600-feet of schools. However, it is questionable if the bill’s “fee” is a fee at all. According to the state Constitution, including the recently passed Proposition 26 (2010), any levy, charge, or exaction is a tax unless it meets certain exception criteria. The bill’s proposed fee fails to meet any of the exceptions, thereby creating a new tax. Moreover, imposing a $100 fee on a small subset of retailers is wrought with additional flaws.

  • First, punishing retailers on their location to schools assumes a causal relationship between the existence of a tobacco retail location and sales to minors. However, this may certainly not be the case. There could be retailers that have never have sold to a minor subject to the same fee as retailers who have sold to minors. If the author is interested in preventing youth tobacco access, the bill should distinguish good and bad actors. The Committee may wish to ask if whether the fee would be better constructed as a penalty instead of on all retailers.
  • Second, the bill fails to recognize that certain retailers that may have existed long before schools were even built. The Committee may wish to refine the heavy-handed fee, so that retailers are not punished for city and county decisions that occurred after their retail location’s establishment date.
  • Third, while the author may not have intended the bill to be a $100 license renewal fee, the fee is assessed annually after a retail location renews its license. For small business owners that sell tobacco, the inequitable application of the $100 fee, compounded with additional local and state and fees, may be enough to squeeze businessesout of the market, creating significant competition issues between stores. The Committee may wish to ask if the fee should be commensurate with business volume and revenue.
  • Fourth, the bill is silent on BOE’s coordination process with DPH about retail locations within 600 feet of schools. For example, if a retail location is within 600 feet of a school and its license renewal date is forthcoming. Will BOE simply notify DPH when to levy the $100 fee? Will BOE have to create another database that filters for retailers’ locations within 600 feet of schools? What does DPH’s $100 fee collection process look like? How will the state notify existing retailers that they are now subject to an additional fee? The Committee may wish to resolve these pending questions.

Due to the substantive questions the fee raises, the Committee may wish to ask why a two-year bill with substantive implementation and constitutionality concerns is being rushed to meet the Senate Rules House of Origins deadline, rather thanthe policy being introduced as a new bill.

3. Hester Prynne and the Scarlet Letter. The author suggests that compiling state and local enforcement agencies’ findings about retailers that have sold tobacco to minors is in the public’s best interest. It appears, however, that the creation of a tobacco registry would simply employ the shame game tactic, where a list of retail violators is named, and an infuriated public presses for change. Yet, the shame game assumes that a) the population wants to be informed of wrongdoing and b) believes that that shame is the best waychange an individual’s behavior. It is unclear if either of these assumptions exists for the registry. While there may be bureaucratic frustrations about the perceived lack of information sharing, it is unknown if the public is clamoring for this registry at all. This bill creates a database of retailers that violated the law, in the hopes that this notice will deter bad behavior-- similar to how Hester Prynne was branded with the scarlet letter A to discourage adultery in 17th century Puritan Boston. However, the Committee may wish to consider if public shaming is the appropriate mechanism to achieve the author’s intent of reducing tobacco retail sales to youth.

4. Some say. A registry system that only shows violations instead of successes may be biased. Some grocers currently expend significant amounts of time and money training employees. If one location, out of human error, sells to a minor, that violation would be documented in the registry, in spite of the chain’s other locations’ successes. The Committee may wish to weigh the benefits of only documenting retailers’ failures rather than provide the whole perspective on how several chains may be faring. The Committee may wish to amend the bill to track best practices around tobacco sales to minors.

5. Wrapping wads. According to the author, the revenue generated by the $100 annual license renewal fee for retailers located within 600 feet of schools may be enough to offset the costs of the creating and maintaining the Tobacco Query System. However, if the bill only imposes the fee on those located within 600 feet, presumably, retailers, who may not be able to absorb the additional annual fee, will move outside the 600 feet radius. If all retailers move out of a 600 foot radius, how will the Tobacco License Query System be funded? The Committee may wish to consider that the registry is written to be funded by a possible declining revenue source.

6. All astir for naught? In 1989, California was the first in the nation to implement a comprehensive statewide tobacco control program. Undoubtedly, the state’s longstanding commitment to change smoking behavior through public education, increased cigarette excise taxes, and the creation of smoke-free public and workplaces has resulted with reduced rates of tobacco users and a transformation of social norms. According to the Department of Public Health, California ranks second, behind Utah, for the lowest number of adult tobacco users -- 11.9% of the population. DPH conducts annual STAKE Act sting operations. The Department’s findings are below.