Laws, Regulations and Annotations

Search

BTLG Table of Contents > Cigarette and Tobacco Products Licensing Act Regulations > all

Cigarette and Tobacco Products Licensing Act Regulations

Title 18. Public Revenues
Division 2. California Department of Tax and Fee Administration — Business Taxes (State Board of Equalization — Business Taxes — See Chapters 6 and 9.9)
Chapter 9.5. Cigarette and Tobacco Products Licensing Act of 2003

---

Article 1. Definitions and Citations

---

Regulation 4500. Definitions.

Authority cited: Section 22971.2, Business and Professions Code.

Reference: Sections 22970, 22971, 22974.5, 22978.7, and 22979.7, Business and Professions Code; Section 30010, Revenue and Taxation Code.

In addition to the definitions in Business and Professions Code section 22971, the following definitions shall apply to this chapter:

(a) "Act" means the Cigarette and Tobacco Products Licensing Act of 2003, set forth in division 8.6 of the Business and Professions Code.

(b) "Appeals Division staff" means an employee or employees of the State Board of Equalization assigned to the Appeals Division of the Legal Department.

(c) "Applicant" means a retailer, wholesaler, distributor, importer or manufacturer who has applied for a license pursuant to the Act, and, if the retailer, wholesaler, distributor, importer or manufacturer is not an individual, the term includes any person controlling such entity.

(d) "Arm's length transaction" means a sale in good faith and for valuable consideration that reflects the fair market value in the open market between two informed and willing parties, neither under any compulsion to participate in the transaction.

(e) "Board" means the Board Members of the State Board of Equalization meeting as a body or the agency created by article XIII, section 17, of the California Constitution, as the context indicates.

(f) "Board Proceedings Division staff" means an employee or employees of the State Board of Equalization assigned to the Board Proceedings Division of the Legal Department.

(g) "Business" means a business operated by a licensee and/or the property upon which or location at which such licensed business is operated.

(h) "Citation" means a civil notice of violation(s) or a criminal misdemeanor notice to appear.

(i) "Control" or "controlling" means control or controlling as defined in Business and Professions Code section 22971, subdivision (d).

(j) "Conviction" means a judgment of guilt of a criminal offense.

(k) "Finding" or "Findings" means a determination that a violation of the Act has occurred. This can occur by default if no appeal is made from a Notice of Violation or Warning Notice, or by a final decision made pursuant to Regulations 4700, 4701, or 4702.

(l) "Fine" means any fine imposed by the Board pursuant to the Act.

(m) "Investigations Division staff" means an employee or employees of the State Board of Equalization assigned to the Investigations Division of the Legal Department.

(n) "Licensee" means a licensee as defined in Business and Professions Code section 22971, subdivision (k).

(o) "License subject to a civil or criminal citation" means a license as to which a citation has been issued but no final determination of violation has yet been entered into the licensee's or unlicensed person's permanent record.

(p) "Notice of Violation" means the document sent to a licensee or unlicensed person referring to the citation issued, the charged violation(s), the penalty or penalties to be imposed, and the licensee's or unlicensed person's appeal rights.

(q) "Offense" means a criminal conviction of violations of the Act and/or civil findings of violations of the Act.

(r) "Person" means a person as defined in Revenue and Taxation Code section 30010.

(s) "Regulation" means a section of Title 18 of the California Code of Regulations.

(t) "Special Taxes and Fees Division" means the Special Taxes and Fees Division of the State Board of Equalization's Property and Special Taxes Department.

(u) "Unlicensed Person" means any person not holding a valid license issued by the Board pursuant to the Act.

(v) "Warning Notice" means the document advising a licensee or unlicensed person that the stated violation(s) of the Act will be entered into the licensee's or unlicensed person's permanent record as a first offense and that future violations will result in civil penalties.

History—Adopted December 12, 2006, effective April 21, 2007.

Amended January 27, 2010, effective March 30, 2010. Replaced "9" with "17" following "section" in subdivision (e). Replaced "22971(n)" with "30010" in the reference note.

Amended August 23, 2011, effective October 10, 2011. Replaced the reference to Business and Professions Code section 22971, subdivision (p), with a reference to Business and Professions Code section 22971, subdivision (d), in subdivision (i), deleted subdivision (k) defining "Excise Taxes Division staff," renumbered subdivisions (l) through (t) as (k) through (s), respectively, replaced the reference to Business and Professions Code section 22971, subdivision (j), with a reference to Business and Professions Code section 22971, subdivision (k), in renumbered subdivision (n), and added new subdivision (t) defining "Special Taxes and Fees Division."

---

Regulation 4501. Citations.

Reference: Sections 22973(a)(5), 22974, 22974.3, 22974.4, 22974.5, 22974.7, 22974.8, 22978.1, 22978.2, 22978.4, 22978.5, 22978.6, 22978.7, 22979, 22979.4, 22979.5, 22979.6, 22979.7, 22980, 22980.1, 22980.2, 22980.3, and 22981, Business and Professions Code; and Section 853.6, Penal Code.

(a) Issuance of a Civil or Criminal Citation. The Investigations Division may issue a citation to a licensee or unlicensed person if the licensee or unlicensed person is determined to be in violation of any provision of the Act.

(b) Contents and Service of a Civil Citation. The citation shall be in writing and shall describe the nature and facts of the violation, including a reference to the statute(s) violated. The citation shall state that the Board will mail a notice regarding the citation and information about any penalties, if applicable, and appeal rights. The citation shall be placed in a sealed envelope, with postage paid, addressed to the owner of record at the owner's last known address as it appears in the records of the Board. The giving of notice shall be deemed complete at the time of deposit of the notice at a United States Post Office, mailbox, sub-post office, substation, mail chute, or other facility regularly maintained or provided by the United States Postal Service, without extension of time for any reason. In lieu of mailing, notice may be served personally by delivery to the person to be served and service shall be deemed complete at the time of such delivery. Personal delivery to a corporation may be made by delivery of a notice to any person designated to be served for the corporation with summons and complaint in a civil action, pursuant to the Code of Civil Procedure.

(c) Contents and Service of a Criminal Citation. A criminal citation shall state the appearance date and the appropriate jurisdiction. The citation shall be served in accordance with Penal Code section 853.6.

History—Adopted December 12, 2006, effective April 21, 2007.

---

Article 2. Licenses—Issuance, Transfer and Denial

---

Regulation 4502. Denial of License.

Reference: Sections 22971, 22973.1, 22977.2 and 22979, Business and Professions Code.

A new license shall not be issued to an applicant when any of the following apply: (1) a license subject to civil or criminal citation has been issued for the same location; (2) a license for the same location is suspended; (3) a license for the same location has been revoked any time within the preceding five years; or (4) any person controlling the applicant has been convicted of a felony pursuant to Revenue and Taxation Code section 30473 or 30480.

History—Adopted December 12, 2006, effective April 21, 2007.

---

Regulation 4503. Issuance of License—Transfer of Business.

Reference: Sections 22973.1, 22977.2, and 22979, Business and Professions Code.

Notwithstanding the provisions of Regulation 4502 and if all other statutory requirements are met, a new license will be issued for a business with a license subject to a civil or criminal citation, if the applicant acquired the business pursuant to an arm's length transaction after the violations contained in the citation were committed.

History—Adopted December 12, 2006, effective April 21, 2007.

---

Regulation 4504. Determination of Arm's Length Transaction.

Authority cited: Section 22971.2, Business and Professions Code.

Reference: Sections 22973.1, 22977.2 and 22979, Business and Professions Code.

The Special Taxes and Fees Division shall determine whether the transfer of a business was pursuant to an arm's length transaction, utilizing the criteria set forth in Regulations 4505 and 4506.

History—Adopted December 12, 2006, effective April 21, 2007.

Amended August 23, 2011, effective October 10, 2011. Replaced "Excise Taxes Division" with "Special Taxes and Fees Division".

---

Regulation 4505. Transfers or Sales Between Related Parties.

Reference: Sections 22973.1, 22977.2, and 22979, Business and Professions Code.

(a) Presumption—Not Arm’s Length. When a violation or violations of the Act have occurred at a licensed location, the sale of the business between and among relatives (by blood or marriage, which relationships include, but are not limited to, spouses, parents, children and siblings), a partnership and its partners, a limited liability company or association and its members, a corporation and its shareholders, and persons and entities under their control, is presumed to be a sale for the primary purpose of avoiding the effects of violations of the Act and not at arm's length.

(b) This presumption may be rebutted only by clear and convincing evidence to the contrary.

(c) The purchaser has the burden of proving that the transaction was an arm's length transaction.

History—Adopted December 12, 2006, effective April 21, 2007.

---

Regulation 4506. Evidence of a Non-Arm's Length Transaction.

Reference: Sections 22973.1, 22977.2 and 22979, Business and Professions Code.

Evidence that a sale is a non-arm's length transaction, includes, but is not limited to, the following:

(a) Inadequate consideration was paid for the assets of the prior licensee (former owner).

(b) No bill of sale, sales contract or escrow account was prepared or executed for the sale of the business.

(c) The former owner holds an equity interest in the inventory of products for sale, fixtures or equipment.

(d) The purchaser was or is an employee, co-owner or independent contractor with the former owner.

(e) The ownership of the real property at which the business is located, or a master leasehold interest therein, remains with the former owner, with no lease, sublease or lease assignment having been executed with the purchaser providing for the payment of reasonable rentals, subrentals, or other consideration to the former owner.

(f) The business license for the business remains in the name of the former owner.

(g) The purchaser holds itself out as being the same business as that operated by the former owner or as being affiliated with the former owner in the business; and the former owner:

(1) Is present at the business on a regular basis;

(2) Continues to contract with suppliers to purchase products for use at the business;

(3) Assumes personal liability for services, supplies or inventory for the business;

(4) Continues to sign checks on one or more of the business's bank accounts; or

(5) Maintains the authority to hire and fire business employees.

History—Adopted December 12, 2006, effective April 21, 2007.

---

Regulation 4507. Request for Information and Records.

Authority cited: Section 22971.2, Business and Professions Code.

Reference: Sections 22973.1, 22977.2 and 22979, Business and Professions Code.

When a business's license is suspended, revoked, or is subject to civil or criminal citation, then the parties to a proposed or completed transfer or sale of the business must, at the Board's request, provide all relevant information on the transfer or sale to the Special Taxes and Fees Division, including, but not limited to, the purchase agreement, all escrow documents and proof of payment or tender of the purchase consideration.

History—Adopted December 12, 2006, effective April 21, 2007.

Amended August 23, 2011, effective October 10, 2011. Replaced "Excise Taxes Division" with "Special Taxes and Fees Division".

---

Regulation 4508. Appeal—Denial of License.

[Repealed March 19, 2018, effective March 19, 2018. Replaced by Regulation 35057, division 5.]

---

Article 3. Notices of Violations or Warning Notices

---

Regulation 4509. Non-Arm's Length Transfer—Sales.

Authority cited: Section 22971.2, Business and Professions Code.

Reference: Sections 22973.1, 22977.2, 22979 and 22980.2, Business and Professions Code.

The Special Taxes and Fees Division's determination that a licensee's transfer of a business with a suspended or revoked license was not at arm's length may establish grounds for an additional violation of the Act. The Investigations Division may issue a citation for a violation of Business and Professions Code section 22980.2, subdivision (c), if the business is found selling cigarettes or tobacco products without a license or after a notification of suspension or revocation of a license.

History—Adopted December 12, 2006, effective April 21, 2007.

Amended August 23, 2011, effective October 10, 2011. Replaced "Excise Taxes Division" with "Special Taxes and Fees Division".

---

Regulation 4600. Issuance and Contents of a Notice of Violation or Warning Notice.

Reference: Sections 22974.7, 22978.7, and 22979.7, Business and Professions Code.

The Investigations Division shall forward a copy of a citation issued to a licensee or unlicensed person to the Special Taxes and Fees Division, which shall prepare and mail a Notice of Violation or Warning Notice to the cited licensee or unlicensed person.

History—Adopted December 12, 2006, effective April 21, 2007.

Amended August 23, 2011, effective October 10, 2011. Replaced "Excise Taxes Division" with "Special Taxes and Fees Division".

---

Regulation 4601. Service of a Notice.

Reference: Section 22971.5, Business and Professions Code.

Any notice issued under the Cigarette and Tobacco Products Licensing Act may be served personally or by mail in the manner prescribed for service of a notice under Business and Professions Code section 22971.5.

History—Adopted December 12, 2006, effective April 21, 2007.

Amended June 11, 2013, effective October 1, 2013. Deleted “of Violation or Warning Notice” from the end of the regulation’s title, replaced all of the regulation’s text with new text, added a reference to Business and Professions Code section 22971.5 to the regulation’s reference note, and deleted the references to Business and Professions Code sections 22974.7, 22978.7, and 22979.7 from the regulation’s reference note.

---

Regulation 4602. Finality.

Reference: Sections 22974.7, 22974.8 and 22979.7, Business and Professions Code.

The penalty or penalties stated in the Notice of Violation or Warning Notice shall become final as provided in Regulations 4700 and 4701, unless an appeal is filed with the Board within the applicable time periods provided therein.

History—Adopted December 12, 2006, effective April 21, 2007.

---

Article 4. Penalties and Fines

---

Regulation 4603. Penalties for Licensed or Unlicensed Retailers.

Reference: Sections 22973(a)(5), 22974, 22974.3, 22974.4, 22974.7, 22980(b), 22980.1(c), (d), (e), and (g), 22980.2(a), and 22980.3(a)(2) and (d), Business and Professions Code.

w

The following penalties shall be assessed in addition to any other civil or criminal penalty provided by law upon a finding that a retailer has violated any provision of the Act:

(a) A first offense of a violation of any of the following provisions shall result in the issuance of a Warning Notice to the licensee or unlicensed person:

(1) Business and Professions Code section 22974 (retailer's failure to retain purchase invoices).

(2) Business and Professions Code section 22980.1, subdivision (c), (d) or (e) (purchase from unlicensed person or person with suspended or revoked license).

(3) Business and Professions Code section 22980.1, subdivision (g) (purchase of cigarettes to which a stamp may not be affixed in accordance with Revenue and Taxation Code section 30163, subdivision (b)).

(4) Business and Professions Code section 22980.2, subdivision (a) (sales of cigarettes or tobacco products by an unlicensed person or person with suspended or revoked license).

(b) A first offense of a violation of any of the following provisions shall result in the issuance of a 20-day suspension:

(1) Business and Professions Code section 22973, subdivision (a)(5) (retailer's false statement on application).

(2) Business and Professions Code section 22980, subdivision (b) (any person's refusal to allow inspection).

(c) A second or subsequent offense for a violation of the provisions listed in subdivision (a) or (b) above, shall result in both a 30-day suspension or revocation and a fine. The fine shall be determined in accordance with Regulation 4607.

(d) A violation of Business and Profession Code section 22974.3 (possession of unstamped cigarettes or untaxed tobacco products) shall result in the following:

(1) Notwithstanding paragraphs (2) and (3) below, a Warning Notice for a first offense when the licensee has been in business for less than one month and there has been no purchase of new cigarette or tobacco product inventory during that period.

(2) A 10-day suspension for a first offense for a seizure of less than 20 packages of cigarettes, or the equivalent amount of tobacco products based on wholesale cost.

(3) A 20-day suspension for a first offense for a seizure of 20 packages of cigarettes or more, or the equivalent amount of tobacco products based on wholesale cost.

(4) Both a 30-day suspension or revocation and a fine for a second or subsequent offense. The fine shall be determined in accordance with Regulation 4607.

(e) In cases involving multiple violations, the violation punishable by the most severe penalty will be used for purposes of determining the penalty assessed.

(f) Notwithstanding subdivisions (b) through (e) above, a reduction in the length of a suspension period may be warranted if mitigating circumstances are present, as set forth in Regulation 4606. If any suspension period is reduced, the redetermined period of suspension shall be 0 days, 5 days, 10 days, or 20 days. The existence of mitigating circumstances may also warrant reducing a revocation penalty to a 30-day suspension, unless revocation is mandated pursuant to Business and Professions Code section 22974.3, subdivision (a)(2) or subdivision (a)(4), 22974.4, or 22980.3, subdivision (a)(2) or subdivision (d).

History—Adopted December 12, 2006, effective April 21, 2007.

Amended June 11, 2013, effective October 1, 2013. Inserted “5 days,” into the second sentence in subdivision (f); inserted the reference to Business and Professions Code section 22974.3, subdivision (a) (2) or subdivision (a) (4) into, deleted the reference to Business and Professions Code section 22978.6 from, and added “or subdivision (d)” to the last sentence in subdivision (f); and added a reference to subdivision (d) of Business and Professions Code section 22980.3 to the regulation’s reference note.

---

Regulation 4604. Penalties for Licensed or Unlicensed Wholesalers and Distributors.

Reference: Sections 22974.7, 22977(a)(5), 22978.1, 22978.2, 22978.4 (a) and (b) 22978.5(a), 22978.7, 22979.7, 22980(b), 22980.1(b), (c), (d), (e), (f), and (g), 22980.2(a), and 22980.3(a)(2) and (d), Business and Professions Code.

The following penalties shall be assessed in addition to any other civil or criminal penalty provided by law upon a finding that a wholesaler or distributor has violated any provision of the Act:

(a) A first offense of a violation of any of the following provisions will result in the issuance of a Warning Notice to the licensee or unlicensed person:

(1) Business and Professions Code section 22978.1 (distributor's or wholesaler's failure to retain purchase invoices).

(2) Business and Professions Code section 22978.4, subdivisions (a) or (b) (distributor's or wholesaler's failure to comply with invoice requirements).

(3) Business and Professions Code section 22978.5, subdivision (a) (distributor's or wholesaler's failure to retain sales records).

(4) Business and Professions Code section 22980.1, subdivision (b), (c), (d), (e) (sales to or purchases from unlicensed person or person with suspended or revoked license) or (f) (sales of cigarettes or tobacco products to retailer or wholesaler revoked or suspended until debts are clear).

(5) Business and Professions Code section 22980.2, subdivision (a) (sales of cigarettes or tobacco products by unlicensed person or person with suspended or revoked license).

(b) A first offense of a violation of any of the following provisions will result in the issuance of a 20-day suspension:

(1) Business and Professions Code section 22977, subdivision (a)(5) (distributor's or wholesaler's false statement on application).

(2) Business and Professions Code section 22980, subdivision (b) (any person's refusal to allow inspection).

(3) Business and Professions Code section 22980.1, subdivision (g) (purchase of cigarettes to which a stamp may not be affixed in accordance with Rev. and Tax. Code section 30163, subd. (b)).

(c) A second or subsequent offense for a violation of the provisions listed in subdivision (a) or (b) above shall result in both a 30-day suspension or revocation, and a fine. The fine shall be determined in accordance with Regulation 4607.

(d) A violation of Business and Profession Code section 22978.2 (possession of counterfeit stamped cigarettes by distributors, unstamped cigarettes by wholesalers or untaxed tobacco products) shall result in the following:

(1) Notwithstanding paragraphs (2) and (3) below, a Warning Notice for a first offense when the licensee or unlicensed person has been in business for less than one month and there has been no purchase of new cigarette or tobacco product inventory during the month.

(2) A 10-day suspension for a first offense for a seizure of less than 20 packages of cigarettes, or the equivalent amount of tobacco products based on wholesale cost.

(3) A 20-day suspension for a first offense for a seizure of 20 packages of cigarettes or more, or the equivalent amount of tobacco products based on wholesale cost.

(4) Both a 30-day suspension or revocation and a fine for a second or subsequent offense. The fine will be determined in accordance with Regulation 4607.

(e) In cases involving multiple violations, the violation punishable by the most severe penalty will be used for purposes of determining the penalty assessed.

(f) Notwithstanding subdivisions (b) through (e) above, a reduction in the length of a suspension period may be warranted if mitigating circumstances are present, as set forth in Regulation 4606. If any suspension period is reduced, the redetermined period of suspension shall be 0 days, 5 days, 10 days, or 20 days. The existence of mitigating circumstances may also warrant reducing a revocation penalty to a 30-day suspension, unless revocation is mandated pursuant to Business and Professions Code section 22978.2, subdivision (a)(2) or subdivision (a)(4), 22978.6, or 22980.3, subdivision (a)(2) or subdivision (d).

History—Adopted December 12, 2006, effective April 21, 2007.

Amended June 11, 2013, effective October 1, 2013. Inserted "5 days," into the second sentence in subdivision (f); inserted the reference to Business and Professions Code section 22978.2, subdivision (a)(2) or subdivision (a)(4) into, deleted the reference to Business and Professions Code section 22974.4 from, and added "or subdivision (d)" to the last sentence in subdivision (f); and moved the reference to Business and Professions Code section 22978.7 in and added a reference to Business and Professions Code sections 22980.3, subdivisions (a)(2) and (d) to the regulation’s reference note.

Amended September 23, 2014, effective December 1, 2014. Changes without regulatory effect to replace the reference to Business and Professions Code (BPC) section 22978.4, "subdivision (c)" with a reference to BPC section 22978.4, "subdivisions (a) or (b)," in subdivision (a)(2), and add a reference to BPC section 22978.4, subdivisions (a) and (b) to the regulation's reference note; replace the references to BPC section 22978.5, subdivision "(b)" with references to BPC section 22978.5, subdivision "(a)" in subdivision (a)(3) and the regulation's reference note; and replace the reference to "section" 4607 with a reference to "Regulation" 4607 in subdivision (d)(4).

---

Regulation 4605. Penalties for Licensed or Unlicensed Manufacturers and Importers.

Reference: Sections 22974.7, 22979(b)(1), 22979.4, 22979.5(a), 22979.6(a) and (b), 22979.7, 22980.1(a), (e), and (f), and 22980.2(a), 22980.3 (a)(2) and (d) , Business and Professions Code.

The following penalties shall be assessed in addition to any other civil or criminal penalty provided by law upon a finding that a manufacturer or importer has violated any provision of the Act:

(a) A first offense of a violation of any of the following provisions will result in the issuance of a Warning Notice to the licensee or unlicensed person:

(1) Business and Professions Code section 22979.4 (importer's failure to retain purchase invoices on premises).

(2) Business and Professions Code section 22979, subdivision (b)(1) (participating manufacturer's false statement on certification to the Board).

(3) Business and Professions Code section 22979.5, subdivision (a) (manufacturer's or importer's failure to retain sales records on premises).

(4) Business and Professions Code section 22980.1, subdivision (a), (e) or (f) (purchases or sales from or to an unlicensed person or person with suspended or revoked license).

(5) Business and Professions Code section 22980.2, subdivision (a) (sales of cigarettes or tobacco products by unlicensed person or person with suspended or revoked license).

(6) Business and Professions Code section 22979.6, subdivisions (a) or (b) (manufacturer's or importer's failure to comply with invoice requirements).

(b) A first offense of a violation of Business and Professions Code section 22980.1, subdivision (g) (purchase of cigarettes to which a stamp may not be affixed in accordance with Rev. and Tax. Code, section 30163, subd.(b)) shall result in a 20-day suspension.

(c) A second or subsequent offense for a violation of the provisions listed in subdivision (a) or (b) above shall result in both a 30-day suspension or revocation and a fine.

(d) In cases involving multiple violations, the violation punishable by the most severe penalty will be used for purposes of determining the penalty assessed.

(e) Notwithstanding subdivisions (b) through (d) above, a reduction in the length of a suspension period may be warranted if mitigating circumstances are present, as set forth in Regulation 4606. If any suspension period is reduced, the redetermined period of suspension shall be 0 days, 5 days, 10 days, or 20 days. The existence of mitigating circumstances may also warrant reducing a revocation penalty to a 30-day suspension, unless revocation is mandated pursuant to Business and Professions Code section 22980.3, subdivision (a)(2) or subdivision (d).

History—Adopted December 12, 2006, effective April 21, 2007.

Amended June 11, 2013, effective October 1, 2013. Inserted “5 days,” into the second sentence in subdivision (e); deleted the references to Business and Professions Code sections 22974.4 and 22978.6 from and added “or subdivision (d)” to the last sentence in subdivision (e); and deleted the reference to Business Professions Code section 22978.7 from, moved the references to Business Professions Code sections 22979.4, and 22979.6, subdivision (c) in, and added a reference to Business and Professions Code section 22980.3, subdivisions (a)(2) and (d) to the regulation’s reference note.

Amended September 23, 2014, effective December 1, 2014. Changes without regulatory effect to replace the references to Business and Professions Code (BPC) section 22979.5, subdivision “(b)” with references to BPC section 22979.5, subdivision “(a)” in subdivision (a)(3) and the regulation’s reference note; replace the reference to BPC section 22979.6, subdivision “(c)” with a reference to BPC section 22979.6, “subdivisions (a) or (b),” in subdivision (a)(6); and replace the reference to BPC section 22979.6, subdivision “(c)” with a reference to BPC section 22979.6, “subdivisions (a) and (b)” in the regulation's reference note.

---

Regulation 4606. Mitigating Circumstances.

Reference: Sections 22974.7, 22978.7, and 22979.7, Business and Professions Code.

Factors including, but not limited to, the following may be considered for purposes of determining whether mitigating circumstances exist pursuant to Regulations 4603, 4604 and 4605:

(a) How recently the licensee purchased the business or began operations and acquired inventory of cigarettes and/or tobacco products.

(b) The amount of cigarettes without tax stamps and with counterfeit tax stamps in relation to the size of the licensee's overall inventory.

(c) The size of the licensee's cigarette and/or tobacco product business.

(d) The retail value of any cigarettes or tobacco products seized.

(e) An absence of prior seizures.

History—Adopted December 12, 2006, effective April 21, 2007.

---

Regulation 4607. Determination of Fine.

Reference: Sections 22973(a)(5), 22974, 22974.3, 22974.7, 22977(a)(5), 22978.1, 22978.2, 22978.4(c), 22978.5(b), 22978.7, 22979(b)(1), 22979.4, 22979.5(b), 22979.6(c), 22979.7, 22980(b), 22980.1, and 22980.2(a), Business and Professions Code.

(a) The fine for Business and Professions Code section 22974.5 (retailer's failure to display a license) is $500.

(b) The fine for all other violations of the Act shall be determined as follows:

(1) Any second or subsequent offense of a violation of any of the following provisions shall result in a fine of $1,000:

(A) Business and Professions Code section 22973, subdivision (a)(5) (retailer's false statement on application).

(B) Business and Professions Code section 22977, subdivision (a)(5) (distributor's or wholesaler's false statement on application).

(C) Business and Professions Code section 22979, subdivision (b)(1) (participating manufacturer's false statement on certification to the Board).

(2) A second offense of a violation of any of the following provisions shall result in a $1,000 fine, and each subsequent offense shall increase the fine by an increment of $1,000, up to a maximum fine of $5,000:

(A) Business and Professions Code section 22974 (retailer's failure to retain purchase invoices).

(B) Business and Professions Code section 22974.3, subdivision (b) (retailer's sale or possession of untaxed tobacco products).

(C) Business and Professions Code section 22978.1 (distributor's or wholesaler's failure to retain purchase invoices).

(D) Business and Professions Code section 22978.2, subdivision (b) (distributor's or wholesaler's sale or possession of untaxed tobacco products).

(E) Business and Professions Code section 22978.4, subdivision (c) (distributor's or wholesaler's failure to comply with invoice requirements).

(F) Business and Professions Code section 22978.5, subdivision (b) (distributor's or wholesaler's failure to retain sales records).

(G) Business and Professions Code section 22979.4 (importer's failure to retain purchase invoices on premises).

(H) Business and Professions Code section 22979.5, subdivision (b) (manufacturer's or importer's failure to retain sales records on premises).

(I) Business and Professions Code section 22979.6, subdivision (c) (manufacturer's or importer's failure to comply with invoice requirements).

(J) Business and Professions Code section 22980, subdivision (b) (any person's refusal to allow inspection).

(K) Business and Professions Code sections 22980.1, subdivisions (a), (b), (c), (d), (e), (f), and (g) (sales or purchases of cigarettes or tobacco products to or from an unlicensed person or person with suspended or revoked license).

(l) Business and Professions Code section 22980.2, subdivision (a) (sales of cigarettes or tobacco products by unlicensed person or person with suspended or revoked license).

(3) A second offense of any of the following provisions shall result in a $2,000 fine, and each subsequent offense shall increase the fine by $1,000, up to a maximum of $5,000 per offense:

(A) Business and Professions Code section 22974.3, subdivision (a)(2) (second seizure from retailer within five years of less than 20 packs of untaxed cigarettes).

(B) Business and Professions Code section 22978.2, subdivision (a)(2) (second seizure from a distributor or wholesaler within five years of less than 20 packs of untaxed cigarettes).

(4) A second offense of any of the following provisions shall result in a fine of $5,000 or five times the retail value of any cigarettes or tobacco products seized, whichever is greater, and the $5,000 fine shall be increased to $10,000 for the third offense, $15,000 for the fourth offense, $20,000 for the fifth offense, and $50,000 for the sixth and subsequent offenses:

(A) Business and Professions Code section 22974.3, subdivision (a)(4) (second seizure within five years from retailer or any other person of 20 or more packs of untaxed cigarettes).

(B) Business and Professions Code section 22978.2, subdivision (a)(4) (second seizure within five years from a distributor or wholesaler of 20 or more packs of untaxed cigarettes).

(5) Fines are reduced by the amount of any fine imposed as a result of a misdemeanor citation issued for the same violation of the Act.

History—Adopted December 12, 2006, effective April 21, 2007.

---

Regulation 4608. Collection of Fines.

Reference: Sections 22974.7, 22978.7 and 22979.7, Business and Professions Code; Sections 55121, 55122, 55141, 55142, 55161, 55162, 55163, 55181, 55182, 55183, 55184, 55201, 55202, 55203, 55204, 55205, 55205.5, 55206, 55207, 55208, 55209 and 55209.5, Revenue and Taxation Code.

The Board shall collect fees, fines and penalties in compliance with Revenue and Taxation Code, division 2, part 30, chapter 4, commencing with section 55121.

History—Adopted December 12, 2006, effective April 21, 2007.

---

Article 5. Appeal Procedures

---

Regulation 4609. Right to Appeal.

[Repealed March 19, 2018, effective March 19, 2018. Replaced by Regulation 35057, division 5.]

---

Regulation 4700. Appeal—Special Taxes and Fees Division.

[Repealed March 19, 2018, effective March 19, 2018. Replaced by Regulation 35057, division 5.]

---

Regulation 4701. Appeal—Appeals Division.

[Repealed March 19, 2018, effective March 19, 2018. Replaced by Regulation 35057, division 5.]

---

Regulation 4702. Appeal—Board Hearing.

[Repealed March 19, 2018, effective March 19, 2018. Replaced by Regulation 35057, division 5.]

---

Article 6. Seizure and Forfeiture

---

Regulation 4703. Seizures and Forfeitures.

Reference: Sections 22971 (l) and (m), 22974.3(a) and (b), 22978.2 (a) and (b) and 22980.2(c), Business and Professions Code; Sections 30102, 30102.5, 30103, 30103.5, 30104, 30105, 30105.5, 30106, 30109, 30163, 30431, 30435, 30436, 30438, 30473 and 30474.1, Revenue and Taxation Code.

(a) Seizures. The seizure of cigarette and tobacco products is authorized under the Cigarette and Tobacco Products Licensing Act Law and the Cigarette and Tobacco Products Tax Law.

(b) Seizure of Untaxed Products.

(1) In the absence of an applicable exemption from tax or other lawful possession of unstamped product under Revenue and Taxation Code (e.g., Revenue and Taxation Code sections 30102 through 30106 or 30431), the Board or a law enforcement agency shall be authorized to seize cigarettes and tobacco products that cannot be sold legally in California, including, but not limited to the following:

(A) Cigarette packages without any cigarette tax stamp that are possessed, stored, owned or for sale by a retailer, wholesaler, or any other person except when possessed by a licensed distributor.

(B) Cigarette packages with another state's tax stamp or the stamp of another taxing jurisdiction that are possessed, stored, owned or for sale by a retailer, wholesaler, or any other person except when possessed by a licensed distributor.

(C) Cigarette packages with a California tax stamp affixed and marked "Not for sale in the United States," "For Export Only" or similar wording indicating the manufacturer did not intend the product to be sold in the United States, that are possessed, stored, owned by a retailer, wholesaler, distributor, manufacturer importer, or any other person.

(D) Tobacco products for which the California excise tax is due but has not been paid that are possessed, stored, owned, or for sale by a retailer, wholesaler or any other person except when possessed by a licensed distributor.

(2) Forfeiture. Cigarettes or tobacco products as described in subsection (b) for which the California excise tax has not been paid that are seized by the Board or seized and delivered to the Board by a law enforcement agency shall be forfeited to the state.

(3) Petition Procedure. The Board's seizure of such products as described under subsection (b) shall comply with the procedures set forth in Revenue and Taxation Code, Division 2, Part 13, Chapter 7.5, commencing with section 30435.

(A) An owner or any person owning an interest in the seized property may file a petition with the Board to request recovery of the seized property as permitted by Revenue and Taxation Code section 30438.

(B) The petitioner has the burden of proving in the petition that the seized cigarette and cigarettes and/or tobacco products are legal to possess, store, own or sell and that taxes have been paid to obtain the recovery of the seized product(s).

(c) Seizure of Product from Persons Without a Valid License. The Board or a law enforcement agency shall be authorized to seize cigarettes and tobacco products, whether or not the California excise taxes have been paid, when the owner does not have a valid license under the Cigarette and Tobacco Products Licensing Act Law. Seizures shall include, but are not limited to the following:

(1) Unlicensed Persons.

(A) Stamped cigarettes that are possessed, stored, owned or for sale by an unlicensed retailer, distributor, wholesaler, manufacturer, importer, or any other person after notice by the Board or a law enforcement agency.

(B) Tobacco products for which the California excise tax has been paid, that are possessed, stored, owned or for sale by an unlicensed retailer, distributor, wholesaler, or any other person after notice by the Board or a law enforcement agency.

(2) Persons with Suspended or Revoked Licenses.

(A) Stamped or unstamped cigarettes offered for sale at the time of seizure by a retailer, distributor, wholesaler, manufacturer or importer with a suspended or revoked license after notice by the Board of the suspension or revocation.

(B) Tobacco products, regardless of whether the California excise taxes have been paid, that are offered for sale at the time of seizure by a retailer, distributor or wholesaler with a suspended or revoked license after notice by the Board of the suspension or revocation.

(3) Forfeiture. Any cigarettes and tobacco products seized by the Board or a law enforcement agency as described under subsection (c) shall be deemed forfeited to the state.

(4) Petition Procedure. The petitioner may file a petition to contest the citation(s) resulting in the suspension or revocation of the license issued under the Cigarette and Tobacco Products Licensing Act Law pursuant to Article 6 of Chapter 1 of Division 5.

(d) Evidence Relevant to Recovery of Product. Depending on the circumstances, evidence that may be relevant to the issue of whether or not the cigarettes or tobacco products were erroneously or illegally seized, includes, but is not limited to the following:

(1) The cigarette packages had valid California tax stamps affixed and the petitioner held a valid license under the Cigarette and Tobacco Products Licensing Act Law at the time of seizure.

(2) The cigarette packages had valid California tax stamps affixed and the petitioner was not operating at the time of seizure with a suspended or revoked license after notice by the Board of the suspension or revocation.

(3) The cigarette packages without California tax stamps affixed were in the possession of a cigarette distributor, manufacturer or importer with a valid license under the Cigarette and Tobacco Products Licensing Act Law at the time of seizure.

(4) Cigarette packages that bear another state's tax stamp or the stamp of another taxing jurisdiction were in the possession of a cigarette distributor, manufacturer or importer with a valid license under the Cigarette and Tobacco Products Licensing Act Law at the time of seizure.

(5) Cigarette packages without a California tax stamp affixed and marked "Not for sale in the United States" or similar wording indicating that the manufacturer did not intend the product to be sold in the United States were in the possession of a distributor, manufacturer or importer with a valid license under the Cigarette and Tobacco Products Licensing Act Law and intended for sale outside of California at the time of seizure.

(6) The petitioner held a valid license under the Cigarette and Tobacco Products Licensing Act Law and the tax was paid for the seized tobacco products at the time of seizure.

(7) The petitioner was not operating with a suspended or revoked license after notice by the Board of the suspension or revocation and the tax was paid for the seized tobacco products at the time of seizure.

(8) The untaxed tobacco products were in the possession of a tobacco products distributor with a valid license under the Cigarette and Tobacco Products Licensing Act Law at the time of seizure.

(e) Counterfeit Products. Counterfeit cigarette and tobacco products are defined as those with false manufacturing labels or false or fraudulent stamps, or both false labels and false stamps.

(1) The Board shall be authorized to seize counterfeit cigarette and tobacco products that are possessed, stored, owned or for sale by a retailer, distributor, wholesaler, manufacturer, importer, or any other person.

(2) The Board is not authorized to return seized counterfeit cigarettes and tobacco products as defined in this part as such products are illegal under California law.

(f) Additional Grounds for Seizure. The California Cigarette and Tobacco Products Tax Law at Revenue and Taxation Code section 30436 sets forth additional circumstances under which cigarettes or tobacco products may be seized by the Board and forfeited to the state.

History—Adopted December 12, 2006, effective April 21, 2007.

Amended November 21, 2007, effective December 21, 2007. In subdivision (b)(1), added "In the absence of an applicable exemption from tax or other lawful possession of unstamped product under Revenue and Taxation Code (e.g., Revenue and Taxation Code sections 30102 through 30106 or 30431) before "The Board." In subdivision (b)(1)(A), replaced "when an exemption from tax is provided under Revenue and Taxation Code section 30102 through section 30106" with "when possessed by a licensed distributor." In subdivision (b)(1)(C), added "For Export Only" ahead of "or similar wording." In subdivision (b)(1)(D), replaced "when an exemption from tax is provided under Revenue and Taxation Code section 30102 through section 30106" with "when possessed by a licensed distributor."

Amended January 27, 2010, effective March 30, 2010. Replaced "Investigations Division" with "Board" in paragraph (2) of subdivision (b); added a comma after "paid" in the first sentence of, and replaced "board" with "Board" in paragraph (3) of subdivision (c). Replaced "Required for" with "Relevant to" in the heading for subdivision (d).

Amendments filed March 19, 2018, as an emergency; effective and operative March 19, 2018. Amendments refiled September 17, 2018, as an emergency; effective and operative September 17, 2018. Amendments refiled December 17, 2018, as an emergency; effective and operative December 17, 2018. Certificate of Compliance transmitted to OAL on February 20, 2019, and filed March 19, 2019. The amendment replaced the reference to article "5 of these regulations" with a reference to article "6 of Chapter 1 of Division 5" in subdivision (c)(4).

---

Article 7. Records

---

Regulation 4801. Records.

Reference: Sections 22971, 22972, 22974, 22974.3 and 22980, Business and Professions Code.

(a) In General. A retailer shall retain purchase invoices for all cigarettes or tobacco products the retailer purchased for a period of four years from the date of purchase. The invoices shall be kept at the retail location to which the cigarettes or tobacco products were sold for at least one year after the purchase. Invoices shall be made available upon request during normal business hours for review, inspection, and copying by the California Department of Tax and Fee Administration (Department).

(b) Transfers. A licensed retailer of cigarettes or tobacco products may transfer portions of their tax-paid inventory from one retail location to another retail location provided that:

(1)The retailer is the licensee that holds a license issued by the Department for each of the retail locations;

(2) The retailer prepares a transfer log or similar document that satisfies the requirements of subdivision (d) at the time each transfer occurs;

(3) The retailer keeps the original transfer log or similar document for a period of four years from the date the retailer purchased the transferred inventory;

(4) The retailer keeps copies of the transfer log or similar document and purchase invoices for the transferred inventory at the transferring and receiving retail locations for at least one year from the date of transfer; and

(5) The retailer provides copies of the transfer log or similar document and purchase invoices for the transferred inventory upon request at the time the inspection has commenced.

A retail location under inspection cannot establish that its inventory of cigarettes and tobacco products was purchased tax paid solely by providing a purchase invoice showing that the same type of product was sold tax paid to a different retail location, even if the different retail location is owned by the same licensee. A transfer log is also required to establish that the tax-paid product sold to a different retail location is the same product being inspected.

(c) Prohibited Transfers. A licensee may not transfer portions of its tax-paid inventory under subdivision (b), unless the licensee holds a license issued by the Department for the transferring and receiving retail locations. For example, if a partnership holds the license for retail location A and a partner in the partnership holds the license for retail location B, then the partnership may not transfer its tax-paid inventory from retail location A to retail location B because the partnership does not hold the license for retail location B. Similarly, if a parent corporation holds the license for retail location 1 and its wholly owned subsidiary corporation holds the license for retail location 2, the parent corporation may not transfer its tax-paid inventory from retail location 1 to retail location 2 because the parent corporation does not hold the license for retail location 2.

(d) Transfer Log. A transfer log or similar document shall contain the following information:

(1) The date of the transfer;

(2) The name, address, and license number of the transferring retail location;

(3) The name, address, and license number of the receiving retail location;v

(4) A legible itemized list, separated by supplier, date of purchase, and purchase invoice number, of the transferred cigarettes or tobacco products that uses the same descriptions used on the original purchase invoices for the cigarettes or tobacco products; including packaging (e.g., 20 5-packs; 60-ct boxes; 30 ml bottle), tobacco flavor and/or style, nicotine strength, and quantity transferred; and

(5) The names and license numbers of each of the suppliers that sold the retailer the transferred cigarettes or tobacco products.

Appendix A contains an example transfer log that satisfies the requirements of this subdivision.

(e) Alternative Storage Media. If a retailer complies with the requirements of California Code of Regulations, title 18, section 4901, subdivision (h), the retailer may convert hardcopy documents, including purchase invoices and transfer logs or similar documents, required to be retained under this regulation to storage-only imaging media, such as PDF files or other media used in electronic imaging, and may discard the original hardcopy documents.

(f) Inspections, Citations, and Seizures. Purchase invoices and transfer logs or similar documents must be provided upon request at the time of inspection. Failure to provide such documentation when requested may result in the issuance of a citation and the seizure of cigarettes or tobacco products. The Department will not accept a transfer log or similar document that was not prepared at the time a transfer occurred or was not provided upon request at the time of inspection, and such a transfer log cannot be used to establish that cigarettes or tobacco products were erroneously or illegally seized, as grounds for the dismissal of a citation for any violation of the Cigarette and Tobacco Products Licensing Act of 2003 (Act), or for the reduction of penalties imposed under the Act.

Appendix A

Example transfer log

History—New article 7 (Regulation 4801) and Regulation 4801 filed December 27, 2021; effective and operative December 27, 2021.