COVID-19 Workplace Rules AB 685: Requires employers to notify workers of potential worksite COVID-19 exposures, report outbreaks to public health departments and gives Cal/OSHA more teeth to enforce pandemic safety Revenue Would Go to New Special Fund. Additional Cost to Add Tax to Information Technology (IT) System. The administration has not presented a compelling argument in favor of its proposed tax rate. Daily E‑Cigarette Users Disproportionately Young, but Most Are Adults. At one end of the spectrum, the Legislature could take a very flexible approach, depositing the revenue into the General Fund and appropriating it through the annual budget process along with other General Fund revenue. California income tax withholding in December to date is up 19 percent from 2019, and collections since March 23 are up 5 percent. For over 80 years, our goal has remained the same: to improve lives through tax policies that lead to greater economic growth and opportunity. As the Legislature considers what tax rate to set on e‑cigarettes, it faces six key questions: Future Tax Rates. California laws coming in 2021. The bill, which banned flavored tobacco, added Article 5 (commencing with Section 104559.5) to Chapter 1 of Part 3 of Division 103 of the Health and Safety Code. The effects on youth cigarette smoking are unclear. Key sources of uncertainty include: Useful Data Could Be Available Soon. In particular, it has not made a case that e‑cigarettes and cigarettes are equally harmful, nor that the current cigarette tax is set at the right rate. Cantrell, Jennifer, Jidong Huang, Marisa S. Greenberg, Haijuan Xiao, Elizabeth C. Hair, and Donna Vallone (2019). Some e‑cigarettes create aerosols that are unflavored or tobacco‑flavored, while others taste like fruit, candy, menthol, or mint. In principle, careful implementation could overcome these challenges. The fund would be available for three purposes: administration and enforcement of the new tax, tobacco youth prevention programs, and health care programs. Connection Between Proposed Language and Enforcement Proposal Unclear. California currently taxes vapor products at 59.27 percent of wholesale value, but the proposal would impose an additional tax at a rate of $2 for each 40 milligrams of nicotine in the product. State Taxes Cigarettes and E‑Cigarettes. The impetus for this proposal is increased youth vaping in the state. By edhat staff There are a ton of new laws on the books in California for 2021. California levies an excise tax on non‑cigarette tobacco products. The administration estimates that the proposed e‑cigarette tax rate of $ 1 p er 20 m illigrams of nicotine, combined with the existing tax rate of 59 p ercent of the wholesale price, would bring the state’s overall tax rate on e‑cigarettes roughly in line with its tax rate on conventional cigarettes. Researchers and public officials have raised a variety of health concerns related to e‑cigarettes and to vaping more generally. Funded by Proposition 56 Tobacco Tax Funds Allocated for the 2019-2021 State Fiscal Year Frequently Asked Questions (FAQ) This document is a compilation of Proposition 56 (Prop 56) tobacco tax funds FAQ and responses about the supplemental payments for certain dental services. Once the Legislature has chosen a rate, we recommend indexing the rate to inflation and revisiting it frequently to assess whether further adjustments are warranted. In other words, the governor’s proposal does not target the harmful behavior. How would the tax rate affect compliance with the tax? Current Cigarette and E‑Cigarette Policies. We find that a tax based on nicotine content has some advantages. If the Legislature chooses to enact a new tax on e‑cigarettes, we recommend that it take an approach to revenue allocation that prioritizes flexibility. When Governor Gavin Newsom (D) submits his revised budget proposal on Thursday, it will include a vapor tax increase. State. Tax Likely Would Raise Tens of Millions of Dollars Annually. Code, § 30165.1, subd. The Superior Court for the County of Sacramento approved an agreement between the parties in its case which will suspend the Jan. 1, 2021 date of enforcement until, at the very least, after the signatures are verified for a ballot measure proposal that seeks to repeal the law. Our review of available evidence suggests that the proposed tax likely would reduce both youth and adult e‑cigarette use substantially. An excise tax is supposed to internalize the externalities related to consumption of a product. As shown in Figure 1, youth e‑cigarette use has grown rapidly in the U.S. over the last few years. California collects a state income tax at a maximum marginal tax rate of %, spread across tax brackets. The exact amount of tax on each item would be determined in two steps: (1) rounding up the total amount of nicotine to the next‑highest multiple of 20 milligrams, and (2) assessing a $1 tax per 20 milligrams, For example, the tax on an item containing 92 milligrams of nicotine—roughly the amount in a four‑pack of 3 percent nicotine JUUL pods—would be $5. The annual certification and other required forms are available online on our Directory Forms web page. 1325 G St NW Given potential substitution between cigarettes and e‑cigarettes, we suggest considering the two tax rates in relation to each other. Flexibility allows budgeting to focus on key issues like the costs and benefits of different proposals. Ballot measures have enacted $2.75 of this rate, while the Legislature has enacted the other $0.12. Explore our weekly European tax maps to see how countries rank on tax rates, structure, and more. Black market liquids and cigarettes have the problem of being extremely unsafe and cost governments billions in lost taxes. The administration argues that adjusting the new tax for inflation would not be consistent with its goal of aligning the state’s tax on e‑cigarettes with its tax on cigarettes, which is not subject to an inflation adjustment. E‑Cigarette Health Concerns. In November 2019, the Attorney General and local officials sued JUUL, a leading e‑cigarette manufacturer, for allegedly marketing its products to youth and failing to provide required health warnings. At the other end, the Legislature could take a very restrictive approach, depositing the revenue into a special fund and directing the administration to appropriate it continuously to specific departments or programs based on a detailed formula. Cigarette Price / Tax Map for 2021 . Cigarettes are also subject to California sales tax of approximately $0.43 per pack, which adds up to a total tax per pack of $1.30. Initial Tax Rate. Due to this inflation, the real economic value of any fixed amount of money—such as one dollar per 20 milligrams of nicotine—diminishes over time. If the Legislature wishes to enact a new tax on e‑cigarettes, the proposed nicotine‑based tax structure is reasonable. As shown in Figure 2, e‑cigarettes were roughly five to six times as popular as conventional cigarettes among California high school students during the 2017‑18 school year. The administration, however, has not presented a compelling argument for this rate. Even if the Legislature shares the administration’s intent of taxing e‑cigarettes and cigarettes at the same rate, a key question remains: what should that rate be? Nicotine‑Based Tax Reasonable. On one hand, to the extent that the tax reduces the number of people who become addicted to nicotine, it could reduce cigarette smoking. New Tax on E‑Cigarettes. This focus on nicotine—rather than some other measure of the chemical composition of e‑cigarette liquid—is reasonable for two reasons: (1) many e‑cigarette health concerns are nicotine‑related; and (2) information about e‑cigarettes’ nicotine content generally is readily available. The tax would take effect January 1, 2021 and is forecasted to raise $32 million in FY 2021. Tax policy is not conducted in a vacuum and limiting access to vapor products with high taxes could hurt tobacco-related public health priorities. For example, in January 2020, the Food and Drug Administration (FDA) banned the sale of certain types of flavored e‑cigarettes. Stay up on the tax news and analysis that matters to you. Two of the key tools used to enforce this tax include: State Taxes E‑Cigarettes. Considering that cigarettes are taxed at $2.87 per pack of 20, the proposal means that nicotine users could lower their tax liability by switching from vaping to smoking. At this time, the scope and timing of further FDA actions are unclear, but the agency appears to be taking a more active role in e‑cigarette regulation than it had in the past. The Legislature would appropriate the monies in this fund during the annual budget process. Cigarettes are already being smuggled into and around the country in large quantities, and nicotine-containing liquid is coming into the U.S. from questionable sources. In this interactive map, SalesTaxHandbook has … The proposal does not include an inflation adjustment. 1. The intent of this proposal is to create a system of tax stamps analogous to the ones used in the state’s cigarette tax program. “The Effects of E‑Cigarette Taxes on E‑Cigarette Prices and Tobacco Product Sales: Evidence From Retail Panel Data.” National Bureau of Economic Research Working Paper 26724. That said, the size of these effects is uncertain. We recommend that the Legislature take an approach to revenue allocation that prioritizes flexibility. Including the additional administrative costs described below, we expect the administration’s overall 2020‑21 expenditure plan for e‑cigarette tax revenues to total roughly $24 million. Currently available answers to these questions likely do not provide clear guidance on the tax rate. Policymakers should not lose sight of these unintended consequences as they set tax rates for nicotine products—especially in light of the strain businesses are already under due to the coronavirus pandemic. In this report, we have discussed many issues for the Legislature to consider as it decides whether to change the state’s approach to taxing e‑cigarettes. “The Relationship Between Cigarettes and Electronic Cigarettes: Evidence From Household Panel Data.” Journal of Health Economics 61:205‑219. The proposed CHP‑led enforcement task force, however, would not focus on e‑cigarettes specifically. The cost of implementing the proposed e‑cigarette tax includes some items that are not included in the Governor’s January budget proposals. Year. When, or if it takes effect remains to be seen. Is the Cigarette Tax Currently Set at the Right Rate? Washington, DC 20005, Tax Expenditures, Credits, and Deductions, Small Business, Pass-throughs, and Non-profits, Research & Analysis of Digital Tax Policies, Sources of Government Revenue in the OECD, Opportunities for Pro-Growth Tax Reform in Austria, Tax Proposals, Comparisons, and the Economy. In our view, the best available evidence suggests that the proposed tax likely would increase cigarette smoking among adults, at least over the first few years. The feasibility and effectiveness of cigarette tax stamps is due, in part, to the high degree of consistency in the size, shape, and amount of tax due on a pack of cigarettes. “E‑Cigarettes and Cigarettes: Complements or Substitutes?” Mimeo, University of California, Berkeley. The budget summary also stipulates that the governor supports a statewide ban on all flavored nicotine products (including menthol cigarettes). Suite 950 California’s flavored tobacco ban will not take effect on Jan. 1, 2021. Examples include: The Legislature currently is considering further actions, including a bill that would ban flavored tobacco products (including flavored e‑cigarettes) and the tax proposal discussed in this report. Tax Likely Would Reduce E‑Cigarette Use Substantially. California $2.87 12th Michigan $2.00 18th South Carolina $0.57 46th Colorado $1 ... Table shows all cigarette tax rates effective January 1, 2021 (CO, OR on 1/1/2021). California levies a $2.87 per pack excise tax on cigarettes. Governor’s Revenue Estimates. Income Tax Withholding Tracker: December 1 - December 23 December 23, 2020. The Governor proposes that revenue from the proposed e‑cigarette tax be deposited into a new special fund. Stamps Could Aid Enforcement, But Cost and Feasibility Unclear. tax directly levied on certain goods by a state or federal government Cotti, Chad, Charles Courtemanche, Johanna Catherine Maclean, Erik Nesson, Michael Pesko, and Nathan Tefft (2020). Effects on Vaping and Smoking. State Has Taken Other Actions. As a result, the state did not collect any administrative data on e‑cigarette sales. Explore our weekly state tax maps to see how your state ranks on tax rates, collections, and more. New Tax on E‑Cigarettes. On one hand, the proposal would place some restrictions on the use of the new revenue by depositing it into a special fund set aside for designated purposes. As shown in Figure 5, these taxes come in four forms: 13% of wholesale price or $0.50 per cartridge. The administration’s comparison also does not account for federal taxes. (For example, this is the current approach for allocating most tobacco tax revenues.). This report uses the term “e‑cigarettes” to refer to devices that create aerosols containing nicotine—the substance that makes tobacco products addictive. As it considers what tax rate to set, the Legislature faces six key questions: Recommend Revisiting Rate Frequently. The federal government currently taxes cigarettes at $1.01 per pack but does not levy a tax on e‑cigarettes. The proposal also includes a one‑time tax on e‑cigarette inventories to deter businesses from stockpiling untaxed products in advance of the tax increase. Tobacco Grant 2020-2021 grantees, pdf Proposition 56, pdf Rev. The “tobacco products” definition was amended (Proposition 56, November 2016) under the California Cigarette and Tobacco Products Tax Law (Revenue and Taxation Code section 30121) to include additional tobacco products (identified as “New!” below).Beginning April 1, 2017, the distribution of these newly classified tobacco products are subject to the tobacco products tax. Help us continue our work by making a tax-deductible gift today. Consequently, depositing the revenues into the General Fund would allow the Legislature to provide some insurance against this revenue uncertainty by pooling the risk across many areas of the budget. In California, cigarettes are subject to a state excise tax of $0.87 per pack of 20. The administration, however, has not presented an argument that they should be considered equally harmful. We recommend that the Legislature take an approach to revenue allocation that prioritizes flexibility. The information provided to date, however, does not suggest that the administration has considered them carefully enough to justify the requested appropriation. The administration estimates that its proposal would result in roughly the same state tax rate on nicotine intake, whether that intake comes from e‑cigarettes or conventional cigarettes. With excise tax policy, increases or decreases in tax rates of certain goods can affect consumption of other goods that might be substitutes. Instead, it would conduct enforcement activities related to the illicit vaping market broadly, including devices that deliver nicotine, tetrahydrocannabinol (THC), and other substances. Taxing based on nicotine content would favor low-nicotine liquids and could encourage increased consumption in the quantity of liquid. Below is a recap of some of the most noteworthy laws, courtesy of Cap Radio. Newsom’s proposal would, if the tax is passed on to the consumer, increase the price of a JUUL 4-pack by $8.25 (JUUL is the most popular vapor product)—not including the existing wholesale tax. The fund would be available for three purposes: administration and enforcement of the new tax, tobacco youth prevention programs, and health care programs. Key sources of uncertainty include recent changes in the e‑cigarette market, potential major state and federal policy changes besides the proposed tax, and the novelty of the proposed tax structure. This would impact not only the large number of small business owners operating vape shops around the state but also convenience stores and gas stations relying heavily on vapers as well as tobacco sales. The remaining three‑fifths are 25 or older. Federal Government Has Taken Actions. Alternatively, the Legislature may want to consider how it will fund the planned expenditures if revenues fall below $24 million. As noted above, the revenues raised by the new tax are highly uncertain. Tax Stamps. The rate currently is 59 percent of the wholesale price. In particular, the state could levy a relatively high tax rate on products that tend to encourage or enable youth use, and a relatively low tax rate on other products. Accordingly, if the Legislature chooses to deposit the new e‑cigarette tax revenue into a special fund, appropriating less than $24 million from this fund in 2020‑21 would be prudent. The Governor’s recent executive order directed CDTFA to require taxpayers to list e‑cigarette sales separately from other tobacco sales starting in January 2020. This administrative change could yield data that could help us refine our revenue estimates in the coming months. Separately from the issues related to the high rates proposed by Gov. Until recently, the state did not require tobacco taxpayers to distinguish e‑cigarettes from other types of tobacco products (such as cigars or chewing tobacco) on their tax returns. Nationwide, the share of high school seniors who report using e‑cigarettes at least once in the past month rose from 11 percent in 2017 to 25 percent in 2019. This would make the proposed tax structure more effective at discouraging nicotine consumption than the alternative tax structures. This year, Kentucky, Utah, Virginia, and Wyoming have already passed increases to vapor taxes, which means 25 states and the District of Columbia now tax vapor products. The 2020‑21 Governor’s Budget includes two specific proposals for spending the revenue raised by the new tax. (For example, this is the current method for allocating alcoholic beverage tax revenues.) The following legislative update was contributed by the Cigar Association of America (CAA) The California Department of Tax and Fee Administration (CDTFA) announced today that it is withdrawing Special Notice L‑698 [], Clarifying the Wholesale Cost Basis for Out‑of‑State Licensed Tobacco Products Distributors – Effective Oct. 1, 2019, effective immediately. Vaping products are electronic devices that heat liquid to create an aerosol inhaled, or “vaped,” by the user. Justin Garosi; Brian Uhler On top of the dangers to consumers, the legal market would suffer, as untaxed and unregulated products have significant competitive advantages over a limited selection of high-priced legal products. Designing a tax for vapor is challenging because  of the variety of vapor products. The obvious choice is taxing the liquid by volume (that is, per ml). However, cigarette prices tend to grow over time, so the tax rate as a share of the overall price tends to decline over time. Recommend Inflation Adjustments. Governor’s Proposal Does Not Include Inflation Adjustments. Nicotine is the addictive substance in the products, but not the main harmful ingredient. Questions regarding the application process may be directed to the California Department of Justice at TobaccoGrantRFP@doj.ca.gov. Consequently, we suggest that the Legislature consider a wide range of possible rates. The 2020‑21 Governor’s Budget assumes that the proposed e‑cigarette tax would raise $34 million in 2020‑21 and $55 million in 2021‑22. It is the administratively simplest and most straightforward way for the state government to tax a good, as it does not require valuation and as such does not require expensive administration. The Governor’s proposed trailer bill language designates the monies in the new fund for youth tobacco prevention programs, health care programs, and administration and enforcement of the new e‑cigarette tax. If, however, the Legislature prefers to deposit the revenue into a special fund, we view the Governor’s relatively flexible approach much more favorably than a restrictive, formulaic approach. The Tax Foundation works hard to provide insightful tax policy analysis. With smoking and vaping, these externalities are the health risks connected to frequent use. SACRAMENTO, Calif. — California state officials have agreed to delay the effective date of what state lawmakers intended as a Jan. 1 ban on flavored tobacco products. The administration estimates that the proposed e‑cigarette tax rate of $1 per 20 milligrams of nicotine, combined with the existing tax rate of 59 percent of the wholesale price, would bring the state’s overall tax rate on e‑cigarettes roughly in line with its tax rate on conventional cigarettes. We also suggest that the Legislature consider a wide range of possible tax rates. Oregon’s measure increases tobacco taxes $2 per pack, from $1.33 to $3.33, as well as creates a new tax for e-cigarettes. Collections would be allocated to administration, enforcement, youth prevention, and health care workforce programs. Section 1 of the bill added Article 5, which is titled, “Tobacco Sale Prohibition.” California is one of 18 states that currently levy statewide excise taxes on e‑cigarettes. Although the federal government levies excise taxes on conventional cigarettes and most other tobacco products, it does not levy such a tax on e‑cigarettes. (In particular, the rate is equal to this ratio multiplied by roughly 117 percent.) For example, in addition to the existing cigarette tax, the Legislature could create a new cigarette tax that starts at zero dollars per pack and increases annually by the amount required for the combined rate to keep pace with inflation. Inflation Can Reduce Real Tax Rates Over Time. That said, the administration has emphasized that the amount of revenue raised is highly uncertain at this time. More generally, the evidence we reviewed does not indicate any “sweet spot” that would make one specific tax rate preferable to others. Instead, absent policy changes, they tend to decline over time. If the Legislature chooses to enact a new tax on e‑cigarettes, it has a range of options for allocating the resulting revenue. Tax Structure. “The Effect of Prices and Taxes on Youth Cigarette and E‑Cigarette Use: Economic Substitutes or Complements?” Mimeo, Georgia State University. “E‑Cigarettes and Adult Smoking: Evidence from Minnesota.” National Bureau of Economic Research Working Paper 26589. As shown in Figure 6, for example, tax rates set in fixed dollar terms—such as the state’s taxes on cigarettes and distilled spirits—do not remain fixed in economic terms. The Governor proposes that revenue from the proposed e‑cigarette tax be deposited into a new special fund. Accordingly, we recommend that the Legislature revisit the e‑cigarette tax rate at least once every two years to assess the need for changes. How would the tax rate affect e‑cigarette use? The state currently taxes other tobacco products—including e‑cigarettes—at 59 percent of the wholesale price. If the Legislature chooses to enact a nicotine‑based e‑cigarette tax, we recommend that it direct the administration to adjust the tax rate for inflation. As a result, staff The tax would take effect January 1, 2021 and is forecasted to raise $32 million in FY 2021. The current tax is $1.33 per pack. Pesko, Michael and Casey Warman (2019). Packs typically contain 20 cigarettes and thus require a $2.87 tax stamp. Consider Wide Range of Rates. California currently taxes vapor products at 59.27 percent of wholesale value, but the proposal would impose an additional tax at a rate of $2 for each 40 milligrams of nicotine in the product. Even in the best‑case scenario, however, many of the uncertainties described above will remain. Zhao, Juliana (2019). If, however, the Legislature prefers to deposit the revenue into a special fund, the Governor’s proposed approach is better than a restrictive, formulaic approach. Required Adjustments Reduce Tax Rate Over Time. If the Legislature views cigarettes and e‑cigarettes as equally harmful, then taxing them at the same rate could make sense. (Rev. “Estimating the Effects of Electronic Cigarette Excise Taxes on the Demand for Tobacco Products.” Mimeo, University of Kentucky. 2020‑21 Spending Proposals. As a result, the vendor needs to produce just two denominations of stamps, and taxpayers can comply with the tax by affixing just one stamp to each pack. Would you consider contributing to our work? A nationwide survey of high schoolers, published in the fall of 2019, found that 27.5 percent of students had vaped at least once in the prior 30 days, though only 10 percent of students were considered regular users (defined as vaping 20 days out the prior 30). & Tax Code §§ 30130.50 – 30130.58, pdf. To what extent do vapers’ choices account for these harms? For example, the Legislature could levy a higher tax rate on types of e‑cigarettes that are smaller or easier to use, and a lower tax rate on other types. State Taxes Cigarettes. Whether the current rate appropriately balances the trade‑offs discussed above is unclear. Deng, Xueting and Yuqing Zheng (2019). Also: The pandemic surges in Los Angeles. E‑cigarettes come in a variety of forms, and the mix of available products has changed rapidly in recent years. As discussed in The 2020‑21 Budget: Transportation, for example, the Legislature could consider a variety of options for funding the proposed enforcement task force, rather than relying exclusively on the new e‑cigarette fund. Choices account for federal taxes this report uses the term “ e‑cigarettes and to vaping generally... Can affect consumption of a Product widely accessible—and vice versa $ 24 million are up percent! 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