Cigarettes sold in California are subject to two excise taxes: the cigarette tax and the cigarette and tobacco products surtaxes. Currently, the rate is 12 cents for the cigarette tax and 75 cents for the combined surtaxes, amounting to 87 cents per pack. Other tobacco projects, not including cigarettes, are only subject to the surtaxes. Excise taxes raise approximately $1.1 billion a year in California.
These taxes are distributed to various funds and programs. Ten cents of the cigarette tax goes into the General Fund and two cents goes to the Breast Cancer Research Fund.
Additional taxes have been mandated by voter approval of two initiatives in recent years.
Proposition 10, passed by voters in 1998, was created to provide funding for community health care programs, child care and education programs for young children and families, early childhood development programs, and programs to educate the public about the negative effects of smoking.Fifty cents of the cigarette surtax goes to Proposition 10 programs.
Proposition 99, a ballot initiative passed by voters in the November 1988 election, imposed a 25-cent per pack tax on cigarettes (and equivalent excise taxes on other tobacco products).
Cigarette tax revenue distribution (summary):
50 cents: early childhood development programs mandated by Proposition 10 (1998).
25 cents: tobacco prevention education programs, health care services for the poor, tobacco related illness programs and environmental protection programs, mandated by Proposition 99 (1988).
10 cents: state’s General Fund.
2 cents: breast cancer research and programs aimed at breast cancer detection in uninsured women.
Sales of cigarettes and other tobacco products are also subject to use taxes imposed by state and local governments. The federal government also imposes an excise tax on each pack of cigarettes and other tobacco products. In 2009, the tax increased by 62 cents per pack to partially fund the fund the Children’s Health Insurance Program, which provides subsidized health insurance coverage to children from low-income families.
The most recent tobacco-tax initiative, Proposition 86 was placed on the November 2006 ballot. It would have amended the state constitution by raising the tax on cigarettes in California an additional $2.60 per pack. As the Board of Equalization is required by law to increase taxes on other tobacco products in an amount equivalent to any increase in the tax on cigarettes, the excise tax on other tobacco products would have increased as well. Experts predicted the measure would have increased excise tax revenues by about $2.1 billion in 2007-08. The measure was defeated 51.7% to 48.3%.
Proposition 29 would increase the existing state excise tax by $1 per pack making the total excise tax $1.87 per pack. Proposition 29 would introduce a "floor tax" on the majority of cigarettes which are stored by businesses when a new excise tax is passed, in order to encourage businesses not to stockpile products before the tax goes into effect. Cigars and other tobacco products are currently subject to a tax set by the Board of Equalization. The BOE annually sets the tax in an amount equivalent to the tax on cigarettes. With Proposition 29's tax increases on cigarettes, other tobacco products would therefore also increase when the measure takes effect.
Revenues from the new tax would be deposited into a newly created fund: The California Cancer Research Life Sciences Innovation Trust Fund. This fund administers the revenues to the support of research on cancer and tobacco-related diseases. Existing tobacco tax programs that experiences losses by the effects of the new program would be reimbursed after the tax is imposed.
The remaining funds would be distributed among five separate funds:
Sixty percent of the funds would be used to provide grants and loans to support tobacco prevention, health treatment, and cures for cancer and tobacco-related diseases. Qualified researchers would be able to compete for these funds.
Twenty percent would be used to fund smoking prevention and treatment programs directed by the California Department of Health and the California Department of Education.
Fifteen percent of the funds would be used to provide grants and loans to build and rent facilities and equipment for research and development related to cancer and tobacco-related diseases. In the event of a surplus in this fund, the Cancer Research Citizen's Oversight Committee (see below) could transfer revenues to any of the other funds.
Three percent would be used to fund law enforcement efforts to combat cigarette smuggling, illegal sales of tobaccos to minors and tax evasion related to tobacco sales.
Two percent would be used for administrative costs.
The trust fund would be supervised by a nine-member committee called the Cancer Research Citizen’s Oversight Committee. Members would be appointed by the governor, the director of the state Department of Health, and three chancellors from UC campuses that are members of the California Institute for Quantitative Biosciences Research. The committee would have the authority to develop financial plans, create and establish a process for awarding grants and loans, appoint employees to administer the fund, and develop policies related to intellectual property rights over research findings. The committee would be required to issue an annual report which would detail administrative expenses, research accomplishments, and a list of grants provided. The committee would undergo an annual financial audit.
The measure is expected to raise approximately $615 million in 2012-13 (affecting a portion of the year) and approximately $810 million in 2013-14 minus the amount needed to reimburse other tobacco tax programs for financial losses.