California State Auditor Report Number : 2015-119

State Board of Equalization
Its Tobacco Tax Enforcement Efforts Are Effective and Properly Funded, but Other Funding Options and Cost Savings Are Possible

Appendix

Expenditures and Funding For the Cigarette and Tobacco Products Tax and Licensing Programs During the Past Five Years

This appendix provides information on the expenditures and funding sources for the Cigarette and Tobacco Products Tax Program (tax program) and the Cigarette and Tobacco Products Licensing Program (licensing program). The State Board of Equalization (board) administers both programs. For fiscal year 2014–15 the tax program’s expenditures totaled $22.5 million. Of that amount, $10.5 million was for specific program administrative costs, such as processing tax returns. The remaining $12.0 million was for the board’s overhead costs, costs distributed statewide, and the cost of encrypted cigarette tax stamps. In fiscal year 2014–15 the licensing program’s expenditures totaled $9.8 million. Of this total, $7.8 million was for specific program administrative costs, such as those for license inspections. The remaining $2 million included costs for the board’s overhead and for its share of costs apportioned statewide. The board did not start charging some of the tobacco tax fund’s apportioned costs to the licensing program until fiscal year 2013–14. These and other program costs for the past five years appear in Table A1.

Table A1
Expenditures by Task for the Cigarette and Tobacco Products Tax and Licensing Programs During Fiscal Years 2010–11 Through 2014–15
(in Thousands)

	Fiscal Year
	2010–11	2011–12	2012–13	2013–14	2014–15
CIGARETTE AND TOBACCO PRODUCTS TAX PROGRAM (tax program)
Processing tax registrations	$892	$578	$569	$453	$687
Processing tax returns	1,257	1,078	1,092	1,157	1,302
Auditing tax returns	3,848	4,423	6,166	6,559	5,728
Collecting taxes	2,574	2,975	3,099	2,900	2,749
Subtotals	$8,571	$9,054	$10,926	$11,069	$10,466
Overhead for the State Board of Equalization (board)	$1,586	$2,313	$1,827	$2,178	$2,297
Costs distributed statewide*	1,959	2,209	2,676	1,901	1,608
Subtotals	$3,545	$ 4,522	$4,503	$4,079	$3,905
Cost of cigarette tax stamps	$7,624	$8,500	$8,257	$7,877	$8,081
Totals	$19,740	$22,076	$23,686	$23,025	$22,452
CIGARETTE AND TOBACCO PRODUCTS LICENSING PROGRAM (licensing program)
Processing license registrations	$1,399	$1,596	$1,497	$1,536	$1,953
Licensing inspections and investigations	5,599	4,961	5,725	5,647	5,560
Collecting license violation penalties	453	268	130	264	240
Subtotals	$7,451	$6,825	$7,352	$7,447	$7,753
Overhead for the board	$1,011	$940	$1,105	$1,279	$1,241
Costs distributed statewide*	–	–	33	879	854
Subtotals	$1,011	$940	$1,138	$2,158	$2,095
Totals	$8,462	$7,765	$8,490	$9,605	$9,848
PROGRAMS COMBINED
Totals	$28,202	$29,841	$32,176	$32,630	$32,300

Table A2 shows the funding sources for tax and licensing programs for fiscal year 2014–15. The board funded the tax program’s costs from the four funds that receive cigarette and tobacco products tax revenue generally in proportion to each fund’s share of cigarette and tobacco tax products revenue that it received. The board funded the licensing program in the same manner and also used licensing fees and license violation fines and penalties collected. For example, the licensing program collects a one-time fee from retailers that sell cigarette and tobacco products and from entities that manufacture and import cigarette and tobacco products, while it also collects an annual fee from wholesalers and distributors of those same products. As shown in Table A2, the Cigarette and Tobacco Products Compliance Fund provided only $1.9 million—which is comprised of $1.8 million in licensing fees and fines and $100,000 from the fund balance—of the more than $9.8 million that licensing program spent in fiscal year 2014–15. The shortfall of $7.9 million shown in Table A2 was funded with revenue from taxes on cigarette and tobacco products.

Table A2
Funding Sources for the Cigarette and Tobacco Products Tax and Licensing Programs During Fiscal Years 2010–11 Through 2014–15
(in Thousands)

	Fiscal Year
	2010–11	2011–12	2012–13	2013–14	2014–15
CIGARETTE AND TOBACCO PRODUCTS TAX PROGRAM (tax program)
Taxes from cigarette and other tobacco products:
Cigarette Tax Fund*	$3,566	$2,698	$4,056	$3,415	$3,362
Breast Cancer Fund	475	562	574	572	556
Cigarette and Tobacco Products Surtax Fund	5,886	6,991	7,113	7,074	6,881
California Children and Families Trust Fund	9,813	11,825	11,943	11,964	11,653
Total funding for the tax program	$19,740	$22,076	$23,686	$23,025	$22,452
CIGARETTE AND TOBACCO PRODUCTS LICENSING PROGRAM (licensing program)
License fees, fines, and penalties:
Cigarette and Tobacco Products Compliance Fund†	$777	$846	$1,189	$1,559	$1,912
Taxes from cigarette and other tobacco products:
Cigarette Tax Fund*	$884	$933	$1,313	$925	$913
Breast Cancer Fund	176	155	155	185	182
Cigarette and Tobacco Products Surtax Fund	2,208	1,944	1,945	2,312	2,280
California Children and Families Trust Fund	4,417	3,887	3,888	4,624	4,561
Total funds from cigarette and tobacco taxes	$7,685	$6,919	$7,301	$8,046	$7,936
Total funding for the licensing program	$8,462	$7,765	$8,490	$9,605	$9,848
PROGRAMS COMBINED
Funding from cigarette and tobacco products taxes	$27,425	$28,995	$30,987	$31,071	$30,388
Funding from license fees, fines, and penalties	777	846	1,189	1,559	1,912
Total funding	$28,202	$29,841	$32,176	$32,630	$32,300

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