GAVIN NEWSOM, GOVERNOR OFFICE OF ADMINISTRATIVE LAW REGISTER 2019, NUMBER 33−Z PUBLISHED WEEKLY BY THE OFFICE OF ADMINISTRATIVE LAW AUGUST 16, 2019 PROPOSED ACTION ON REGULATIONS TITLE 2. DEPARTMENT OF TECHNOLOGY Conflict−of−Interest Code — Notice File Number Z2019−0805−02 ...................................... 1125 TITLE 2.

FAIR POLITICAL PRACTICES COMMISSION Conflict−of−Interest Code — Notice File Number Z2019−0806−02 ...................................... 1125 Amendment State Agency: Department of Justice Sacramento San Joaquin Delta Conservancy Multi−County: Marin Clean Energy Dublin San Ramon Services District Peninsula Corridor Joint Powers Board TITLE 2. FAIR POLITICAL PRACTICES COMMISSION Multipurpose Organizations — Notice File Number Z2019−0806−03 .................................... 1126 TITLE 8.

WORKERS’ COMPENSATION APPEALS BOARD Rules of Practice and Procedure — Notice File Number Z2019−0805−05 ................................. 1128 TITLE 16. BOARD OF BEHA VIORAL SCIENCES Substantial Relationship and Rehabilitation Criteria — Notice File Number Z2019−0801−01 ................ 1130 TITLE 16. BOARD OF PHARMACY Duty to Consult — Notice File Number Z2019−0802−01 .............................................. 1133 TITLE 18. CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION Wholesale Cost of Tobacco Products — Notice File Number Z2019−0806−01 ............................. 1136 TITLE 20.

CALIFORNIA ENERGY COMMISSION Appliance Efficiency Regulations — Notice File Number Z2019−0806−04 ................................ 1149 (Continued on next page) Time- Dated Material

GENERAL PUBLIC INTEREST DEPARTMENT OF FISH AND WILDLIFE California Endangered Species Act (CESA) Consistency Determination Request for Green Diamond Resource Company Forest Habitat Conservation Plan 2080−2019−008−01, Del Norte and Humboldt Counties ............................... 1154 DEPARTMENT OF FISH AND WILDLIFE Habitat Restoration and Enhancement Act Consistency Determination Number 1653−2019−044−01−R3, Calistoga Elementary Biotechnical Streambank Stabilization Project, Napa County ................................. 1155 DEPARTMENT OF FISH AND WILDLIFE Habitat Restoration and Enhancement Act Consistency Determination Number 1653−2019−041−001−R1, Upper Shasta River Habitat Improvement Project, Siskiyou County ........................................... 1157 DEPARTMENT OF FISH AND WILDLIFE Research on California Ridgway’ s Rail from Dr.

Cory T. Overton, U.S. Geological Survey, Western Ecological Research Center, Dixon Field Station, Dixon, California ..................................... 1159 DEPARTMENT OF HEALTH CARE SERVCIES Home and Community−Based Alternatives (HCBA) Waiver Amendment .................................. 1160

SUMMARY OF REGULATORY ACTIONS Regulations filed with the Secretary of State ........................................................ 1160 The California Regulatory Notice Register is an official state publication of the Office of Administrative Law containing notices of proposed regulatory actions by state regulatory agencies to adopt, amend or repeal regulations contained in the California Code of Regulations. The effective period of a notice of proposed regulatory action by a state agency in the California Regulatory Notice Register shall not exceed one year [Government Code § 11346.4(b)].

It is suggested, therefore, that issues of the California Regulatory Notice Register be retained for a minimum of 18 months. CALIFORNIA REGULA TORY NOTICE REGISTER is published weekly by the Office of Administrative Law, 300 Capitol Mall, Suite 1250, Sacramento, CA 95814-4339. The Register is printed by Barclays, a subsidiary of West, a Thomson Reuters Business, and is offered by subscription for $205.00 (annual price). To order or make changes to current subscriptions, please call (800) 328−4880. The Register can also be accessed at http://www.oal.ca.gov.

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z PROPOSED ACTION ON REGULATIONS Information contained in this document is published as received from agencies and is not edited by Thomson Reuters. TITLE 2. DEPARTMENT OF TECHNOLOGY NOTICE IS HEREBY GIVEN that the California Department of Technology (Department) , pursuant to the authority vested in it by

section 87306 of the Gov- ernment Code, proposes amendment to its conflict−of− interest code. A comment period has been established, commencing August 16, 2019, and closing September 23, 2019. All inquiries should be directed to the contact listed below. The Department proposes to amend its conflict−of− interest code to include employee positions that involve the making or participation in the making of decisions that may foreseeably have a material effect on any fi- nancial interest, as set forth in subdivision (

a) of

section 87302 of the Government Code. The amendment car- ries out the purposes of the law and no other alternative would do so and be less burdensome to affected persons. The proposed changes to the conflict−of−interest code will bring the code into alignment with the Depart- ment’s recent classification name changes. The pro- posed amendment and explanation of the reasons can be obtained from the contact listed below.

Any interested person may submit written comments relating to the proposed amendment by submitting them no later than September 23, 2019 or at the conclusion of the public hearing, if requested, whichever comes later. At this time, no public hearing is scheduled. A person may request a hearing no later thanSeptember 8, 2019. The Department has determined that the proposed amendments: 1. Impose no mandate on local agencies or school districts. 2. Impose no costs or savings on any state agency. 3. Impose no costs on any local agency or school district that are required to be reimbursed under

Part 7 (commencing with

Section 17500) of Division 4 of Title 2 of the Government Code. 4. Will not result in any nondiscretionary costs or savings to local agencies. 5. Will not result in any costs or savings in federal funding to the state. 6. Will not have any potential cost impact on private persons, businesses or small businesses. All inquiries concerning this proposed amendment and any communication required by this notice should be directed to: Jeff Pudoff Human Resources Manager California Department of Technology 10860 Gold Center Drive, Suite 470 Rancho Cordova, CA 95670 (916) 431−4095 jeff.pudoff@state.ca.gov TITLE 2.

FAIR POLITICAL PRACTICES COMMISSION NOTICE IS HEREBY GIVEN that the Fair Political Practices Commission, pursuant to the authority vested in it by Sections 82011, 87303, and 87304 of the Gov- ernment Code to review proposed conflict−of−interest codes, will review the proposed/amended conflict−of− interest codes of the following: CONFLICT−OF−INTEREST CODES AMENDMENT STATE AGENCY: Department of Justice Sacramento San Joaquin Delta Conservancy MULTI−COUNTY: Marin Clean Energy Dublin San Ramon Services District Peninsula Corridor Joint Powers Board A written comment period has been established com- mencing on August 16, 2019 and closing on September 30, 2019.

Written comments should be directed to the Fair Political Practices Commission, Attention Aman- da Apostol, 1102 Q Street, Suite 3000, Sacramento, California 95811. At the end of the 45−day comment period, the pro- posed conflict−of−interest code(

s) will be submitted to the Commission’s Executive Director for his review, unless any interested person or his or her duly autho- rized representative requests, no later than 15 days prior to the close of the written comment period, a public hearing before the full Commission. If a public hearing is requested, the proposed code(

s) will be submitted to the Commission for review. The Executive Director of the Commission will re- view the above−referenced conflict−of−interest 1125

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z code(s), proposed pursuant to Government Code Sec- tion 87300, which designate, pursuant to Government Code

Section 87302, employees who must disclose cer- tain investments, interests in real property and income. The Executive Director of the Commission, upon his or its own motion or at the request of any interested per- son, will approve, or revise and approve, or return the proposed code(

s) to the agency for revision and re− submission within 60 days without further notice. Any interested person may present statements, argu- ments or comments, in writing to the Executive Direc- tor of the Commission, relative to review of the pro- posed conflict−of−interest code(s). Any written com- ments must be received no later than September 30, 2019. If a public hearing is to be held, oral comments may be presented to the Commission at the hearing.

COST TO LOCAL AGENCIES There shall be no reimbursement for any new or in- creased costs to local government which may result from compliance with these codes because these are not new programs mandated on local agencies by the codes since the requirements described herein were mandated by the Political Reform Act of 1974. Therefore, they are not “costs mandated by the state” as defined in Govern- ment Code

Section 17514. EFFECT ON HOUSING COSTS AND BUSINESSES Compliance with the codes has no potential effect on housing costs or on private persons, businesses or small businesses. AUTHORITY Government Code Sections 82011, 87303 and 87304 provide that the Fair Political Practices Commission as the code−reviewing body for the above conflict−of−in- terest codes shall approve codes as submitted, revise the proposed code and approve it as revised, or return the proposed code for revision and re−submission.

REFERENCE Government Code Sections 87300 and 87306 pro- vide that agencies shall adopt and promulgate conflict− of−interest codes pursuant to the Political Reform Act and amend their codes when change is necessitated by changed circumstances. CONTACT Any inquiries concerning the proposed conflict−of− interest code(

s) should be made to Amanda Apostol, Fair Political Practices Commission, 1102 Q Street, Suite 3000, Sacramento, California 95811, telephone (916) 324−5854. A V AILABILITY OF PROPOSED CONFLICT−OF−INTEREST CODES Copies of the proposed conflict−of−interest codes may be obtained from the Commission offices or the re- spective agency. Requests for copies from the Commis- sion should be made to Amanda Apostol, Fair Political Practices Commission, 1102 Q Street, Suite 3000, Sacramento, California 95811, telephone (916) 324−5854. TITLE 2.

FAIR POLITICAL PRACTICES COMMISSION NOTICE IS HEREBY GIVEN that the Fair Political Practices Commission (the Commission), under the au- thority vested in it under the Political Reform Act (the Act)1 by

Section 83112 of the Government Code, pro- poses to adopt, amend, or repeal regulations in Title 2, Division 6 of the California Code of Regulations. The Commission will consider the proposed regulation at a public hearing on or after September 19, 2019, at the offices of the Fair Political Practices Commission, 1102 Q Street, Suite 3000, Sacramento, California, com- mencing at approximately 10:00 a.m. Written com- ments must be received at the Commission offices no later than 5:00 p.m. on September 17, 2019. BACKGROUND/OVERVIEW Governing Statutes.

Section 84222 of the Act estab- lishes campaign registration and reporting require- ments for multipurpose organizations (MPOs) that con- duct certain levels of campaign activity in California.

Section 84222 defines an MPO as an organization that solicits funds, at least in part, for purposes other than making political expenditures, but nevertheless makes political expenditures in California.

Section 84222(c)(1−5) details the ways in which an MPO can qualify as a recipient committee and when it must file 1 The Political Reform Act is contained in Government Code Sec- tions 81000 through 91014. All statutory references are to the Government Code, unless otherwise indicated. The regulations of the Fair Political Practices Commission are contained in Sections 18110 through 18997 of Title 2 of the California Code of Regula- tions. All regulatory references are to Title 2, Division 6 of the California Code of Regulations, unless otherwise indicated. 1126

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z campaign reports disclosing political activity.

Section 84222.5 also requires publicly funded nonprofit organi- zations to comply with the registration and reporting re- quirements of

Section 84222. Specifically,

Section 84222(e)(1)(

A) requires an MPO that qualifies as a committee to file a statement of organization and describe the MPO’s mission, most sig- nificant activities and political activities, on that state- ment.

Section 84222(c)(5)(

A) requires MPOs that make expenditures or contributions with nondonor funds — such as investment income or income earned from providing goods or services — to “briefly de- scribe” the source of nondonor funds used on their cam- paign statements and reports.

Section 84222(c)(5)(B), in turn, defines the types and sources of “nondonor funds.”

Section 81002 of the Act, provides that the Commis- sion shall accomplish certain purposes, including that receipts and expenditures in election campaigns “be fully and truthfully disclosed in order that the voters may be fully informed and improper practices may be inhibited.”

Section 84104 requires that committees maintain detailed accounts, records, bills, and receipts necessary to prepare campaign statements. Existing Regulation. Regulation 18422 sets forth the registration, reporting, and recordkeeping require- ments for MPOs that qualify as committees under Sec- tion 84222 of the Act. Subdivision (

b) of Regulation 18422 describes information that must be included on an MPO’s statement of organization but lacks direction on how an MPO should describe its mission and activi- ties on the statement. Subdivision (

c) details reporting requirements for MPOs that have qualified as recipient committees in any of the five ways under

Section 84222(c)(1−5). However, Regulation 18422 does not specify what information an MPO must include to “briefly describe” its nondonor funds used for expendi- tures or contributions, as required by

Section 84222(c)(5)(A). Subdivision (

f) of Regulation 18422, meanwhile, sets forth recordkeeping requirements for MPOs, while Regulation 18401 sets forth general recordkeeping re- quirements for campaign committees under the Act. As currently written, it is unclear exactly what records and source documentation MPOs must maintain under Reg- ulation 18422(f), and how these recordkeeping require- ments differ from the requirements for all committees, as set forth in Regulation 18401. REGULATORY ACTION Amend 2 Cal. Code Regs.

Section 18422 — Multipurpose Organization Political Transparency. Amendments to Regulation 18422. The Commis- sion may consider amendments to provisions of current Regulation 18422, including, but not limited to, the re- porting and recordkeeping requirements for MPOs.

At a minimum, Commission staff anticipates proposing the following:  Adding paragraph (b)(2) to clarify what information must be included on an MPO’s statement of organization regarding the description of the MPO’s mission, most significant activities and political activities.  Adding paragraph (c)(4), to clarify what information MPOs must provide on their campaign statements and reports when making contributions and expenditures using nondonor funds.  Deleting subdivision (f), regarding recordkeeping requirements for MPOs, so that a new Regulation 18422.1 can take its place with a more detailed explanation of recordkeeping requirements for MPOs.

Adopt 2 Cal. Code Regs.

Section 18422.1 — Required Recordkeeping for Multipurpose Organizations. Adoption of Regulation 18422.1. The Commission may consider adopting new Regulation 18422.1. At a minimum, Commission staff anticipates proposing the following:  Expanding upon existing Regulation 18422(

f) to clarify that basic recordkeeping requirements that apply to all committees under Regulation 18401, the existing regulation covering general recordkeeping requirements for committees, similarly apply to MPOs that qualify as committees under

Section 84222 and

Section 84222.5.  Detailing specific forms of required recordkeeping documentation unique to MPOs, such as grant agreements and solicitations to donors.  Specifying recordkeeping requirements for MPOs that use non−donor funds for political activity in California. 1127

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z SCOPE The Commission may adopt the language noticed herein, or it may choose new language to implement its decisions concerning the issues identified above or any related issues. FISCAL IMPACT STATEMENT Fiscal Impact on Local Government. This regulation will have no fiscal impact on any local entity or program. Fiscal Impact on State Government. This regulation will have no fiscal impact on any state entity or program. Fiscal Impact on Federal Funding of State Programs. This regulation will have no fiscal impact on the federal funding of any state entity or program. AUTHORITY

Section 83112 provides that the Fair Political Prac- tices Commission may adopt, amend, and rescind rules and regulations to carry out the purposes and provisions of the Act. REFERENCE The purpose of these regulations is to implement, in- terpret, and make specific Government Code Sections 81002, 84104, 84222 and 84222.5. CONTACT Any inquiries should be made to Toren Lewis, Fair Political Practices Commission, 1102 Q St., Suite 3000, Sacramento, CA 95811; telephone (916) 322−5660 or 1−866−ASK−FPPC.

Proposed regulatory language can be accessed at http://www.fppc.ca. gov/the−law/fppc− regulations/proposed−regulations−and−notices.html. TITLE 8. WORKERS’ COMPENSATION APPEALS BOARD RULES OF PRACTICE AND PROCEDURE TITLE 8, CALIFORNIA CODE OF REGULATIONS, SECTIONS 10300 THROUGH 10999 (i.e., Division 1,

Chapter 4.5, Subchapter 2) NOTICE IS HEREBY GIVEN that the Workers’ Compensation Appeals Board (WCAB) proposes to amend its Rules of Practice and Procedure (Rules),1 as described below, after considering all comments, ob- jections, and recommendations regarding the proposed action. Although equal weight will be accorded to oral and written comments, the WCAB prefers written com- ments to oral testimony and prefers written comments submitted by e−mail. If written comments are timely submitted, it is not necessary to present oral testimony at the public hearing.

The WCAB’s proposed amendments to its Rules are being initiated pursuant to its rulemaking power under Labor Code sections 5307(a), 133, 5309 and 5708, 2 subject to the procedural requirements of

section 5307.4. This Notice of Proposed Rulemaking and the accompanying Initial Statement of Reasons have been prepared to comply with the procedural requirements of

section 5307.4 and for the convenience of the regulated public to assist it in analyzing and commenting on this largely non−APA rulemaking process. 3 PUBLIC HEARING The WCAB will hold a public hearing starting at 9:00 a.m. on Tuesday, September 24, 2019, in Room 7 of the Elihu Harris State Office Building located at 1515 Clay Street, Oakland, California. At the hearing, any person may present statements or arguments orally or in writing relevant to the proposed action. Public com- ment will begin promptly at 9:00 a.m. and will conclude when the last speaker has finished his or her presenta- tion.

To provide everyone with an opportunity to speak, public testimony will be limited to 10 minutes per speaker and should be specific to the proposed regula- tions. Testimony that would exceed 10 minutes may be submitted in writing. If public comment concludes be- fore the Noon recess, no afternoon session will be held. If an afternoon session is held, public testimony will conclude no later than 4:00 p.m. The state office building and its hearing rooms are ac- cessible to persons with mobility impairments.

Alter- nate formats, assistive listening systems, sign language interpreters, or other type of reasonable accommoda- tions to facilitate effective communication for persons with disabilities, are available upon request. Please con- tact the Statewide Disability Accommodation Coordi- 1 See Cal. Code Regs., Title 8, Division 1,

Chapter 4.5, Subchap- ter 2,

section 10300 et seq. 2 All further statutory references are to the Labor Code unless oth- erwise specified. 3 Under Government Code

section 11351, the WCAB is not sub- ject to

Article 5 (Gov. Code,

section 11346 et seq.),

Article 6 (id.

section 11349 et seq.),

Article 7 (id.

section 11349.7 et seq.), or

Article 8 (id.

section 11350 et seq.) of the rulemaking provisions of the Administrative Procedure Act (APA), with the sole excep- tion that

section 11346.4(a)(5) [publication in the California Reg- ulatory Notice Register] does apply to the WCAB. 1128

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z nator at 1−866−681−1459 (toll free), or through the Cal- ifornia Relay Service by dialing 711 or 1−800−735−2929 (TTY/English) or 1−800−855−3000 (TTY/Spanish) as soon as possible to request assistance. The WCAB requests but does not require that persons who make oral comments at the hearing also submit a written copy of their comments at the hearing. WRITTEN COMMENT PERIOD Any interested persons, or their authorized represen- tatives, may submit written comments to the WCAB relevant to the proposed rulemaking.

The written com- ment period closes at 4:00 p.m. on Tuesday, Septem- ber 24, 2019. The WCAB will consider only comments it has received by that time. The address for submission of comments by e−mail is WCABRules@dir.ca.gov. The address for submission of comments by mail is: Workers’ Compensation Appeals Board Attention; Julie Podbereski Regulations Coordinator P.O.

Box 429459 San Francisco CA 94142−9459 The address for submission of comments by delivery service or personal delivery is: Workers’ Compensation Appeals Board Attention: Julie Podbereski Regulations Coordinator 455 Golden Gate Avenue, Ninth Floor San Francisco, CA Comments also may be submitted by facsimile (Fax) at 1−415−703−4549. AUTHORITY AND REFERENCE Labor Code sections 5307(a), 133, 5309 and 5708, authorize the WCAB to adopt the proposed regulations. The proposed regulations implement, interpret and make specific various sections of the Labor Code.

DISCLOSURES REGARDING THE PROPOSED REGULATORY ACTION The WCAB has made the following initial determinations: Mandate on Local Agencies and School Districts: None. Cost to Any Local Agency or School District That Is Required To Be Reimbursed Under

Part 7 (Commenc- ing with

Section 17500) of Division 4 of the Govern- ment Code: None. Other Nondiscretionary Costs or Savings to Local Agencies: None. Cost or Savings to Any State Agency or in Federal Funding to the State: None. Significant Statewide, Adverse Economic Impact Directly Affecting Business, Including the Ability of California Businesses to Compete With Businesses in Other States: None. Effect on Small Business: None. Cost Impacts on Representative Private Persons or Businesses: None. Other Impacts on Jobs and Businesses: None. Effect on Housing Costs: None.

The adoption of these regulations is not expected to create or eliminate jobs or businesses in the State of Cal- ifornia or reduce or expand businesses currently doing business in the State of California. CONSIDERATION OF ALTERNATIVES Under Government Code

section 11351, the WCAB is not subject to the provisions of Government Code

section 11346.5(a)(13). Nevertheless, the WCAB in- vites interested persons to present statements or argu- ments at the scheduled hearing or during the written comment period regarding reasonable alternatives that would be more effective in carrying out the purpose of this rulemaking, or would be as effective and less bur- densome to the affected private persons, than the pro- posed action of this rulemaking. PRE−NOTICE PUBLIC DISCUSSIONS OF PROPOSED REGULATIONS Under Government Code

section 11351, the WCAB is not subject to the provisions of Government Code

section 11346.45 relating to pre−notice public review and comment of contemplated amendments to its Rules. CONTACT PERSONS Nonsubstantive inquiries concerning this rulemaking action, such as requests to be added to the e−mail and/or mail distribution list(

s) or requests for copies of rule- making documents (e.g., the proposed regulations, the Initial Statement of Reasons), may be directed to: Julie Podbereski, Regulations Coordinator, Workers’ Com- pensation Appeals Board, P.O. Box 429459, San Fran- cisco, CA 94142−9459, E−mail: WCABRules@dir. ca.gov, Phone: (415) 703−4580. The backup contact person for nonsubstantive inquiries is Rachel Brill, In- dustrial Relations Counsel IV , at the same address, email address, and phone number. 1129

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z The contact person for substantive inquiries is: Rachel Brill, Industrial Relations Counsel IV , W orkers’ Compensation Appeals Board, P.O. Box 429459, San Francisco, CA 94142−9459, E−mail: WCABRules@ dir.ca.gov, Phone: (415) 703−4580. The backup contact person for substantive inquiries is: Anne Schmitz, Deputy Commissioner, at the same address, email ad- dress and telephone number.

A V AILABILITY OF INITIAL STATEMENT OF REASONS, TEXT OF PROPOSED REGULATIONS, RULEMAKING FILE, AND INTERNET ACCESS Throughout the rulemaking process, the WCAB will have its entire rulemaking file available for inspection and copying at its office at 455 Golden Gate Avenue, 9th Floor, San Francisco, CA 94102, between the hours of 9:00 a.m. and 4:30 p.m., Monday through Friday (ex- cluding holidays). In addition, the above−cited materi- als may be accessed on the internet at https:// www.dir.ca.gov/wcab/WCABProposedRegulations/ Rulemaking−August−2019/Rulemaking−August− 2019.htm.

As of the date of this Notice, the rulemaking file consists of this Notice, the Initial Statement of Rea- sons, the proposed text of the regulations, and the Form 399. AUTOMATIC MAILING A copy of this Notice, the Initial Statement of Rea- sons, and the text of the proposed regulations will auto- matically be sent to those interested persons on the mailing list of the WCAB, and to all persons who have requested notice of hearing as required by Labor Code

Section 5307.4. If adopted, the regulations with any final amend- ments will appear in the California Code of Regulations at Title 8, Division 1,

Chapter 4.5, Subchapter 2, com- mencing with

Section 10300. The text of the final regu- lations also may be available through the website of the Office of Administrative Law at www.oal.ca.gov. TITLE 16. BOARD OF BEHA VIORAL SCIENCES NOTICE IS HEREBY GIVEN that the Board of Be- havioral Sciences (Board) is proposing to take the ac- tion described in the Informative Digest. Any person in- terested may present statements or arguments orally or in writing relevant to the action proposed at a hearing to be held at: Board of Behavioral Sciences 1625 N. Market Blvd. El Dorado Room, Suite 220 Sacramento, CA 95834 September 30, 2019 10:00a.m. − 11:00a.m.

Written comments, including those sent by mail, fac- simile, or e−mail to the addresses listed under Contact Person in this Notice, must be received by the Board at its office on September 30, 2019 or must be received by the Board at the hearing. The Board, upon its own motion or at the request of any interested party, may thereafter adopt the proposal substantially as described below or may modify such proposals if such modifications are sufficiently related to the original text.

With the exception of technical or grammatical changes, the full text of any modified pro- posal will be available for 15 days prior to its adoption from the person designated in this Notice as contact per- son and will be mailed to those persons who submit written or oral testimony related to this proposal or who have requested notification of any changes to the proposal.

Authority and Reference: Pursuant to the authority vested by sections 481, 482, 493, 4980.60, and 4990.20 of the Business and Professions Code, and to imple- ment, interpret, or make specific sections 141, 475, 480, 481, 482, 488, 490, 493, and 4990.30 of the Business and Professions Code, the Board is considering changes to Division 18 of Title 16 of the California Code of Reg- ulations (CCR) as follows: INFORMATIVE DIGEST/POLICY STATEMENT OVERVIEW The Board is the regulatory entity under the Depart- ment of Consumer Affairs (DCA) tasked with regulat- ing the practice of marriage and family therapists (LMFTs), licensed educational psychologists (LEPs), licensed clinical social workers (LCSWs) and licensed professional clinical counselors (LPCCs) in the State of California.

The Board’s highest priority is public pro- tection when exercising its licensing, regulatory, and disciplinary functions. Business and Professions Code (BPC)

section 480 currently authorizes boards under DCA to deny an ap- plication for licensure based on a conviction for a crime or act substantially related to the licensed business or profession. In addition, BPC

section 490 permits boards to suspend or revoke a license on the basis that the li- censee was convicted of a substantially related crime. BPC

section 481 currently requires boards to develop criteria to help evaluate whether a crime or act was sub- stantially related. BPC

section 482 currently requires boards to develop criteria to evaluate the rehabilitation 1130

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z of a person when considering denying a license or sus- pending or revoking a license. AB 2138 (Chiu,

Chapter 995, Statutes of 2018) was signed into law in 2018, with the intent of removing some of the licensing and employment barriers that those with prior criminal convictions or disciplinary ac- tions often encounter if they can demonstrate rehabilita- tion. The bill makes the following changes, which be- come effective July 1, 2020:  Amends BPC

section 480 to prohibit a DCA board from denying a license to applicants based on a criminal conviction or the acts underlying a conviction if the applicant made a showing of rehabilitation.  Amends BPC

section 480 to allow a DCA board to deny a license, in relevant part, on the grounds the applicant was convicted of a crime or has been subject to formal discipline, if one of the following has been met: 1. The conviction was in the past seven years and is substantially related to the qualifications, functions, or duties of the business or professions. (The seven−year limitations do not apply to convictions for a serious felony, as defined in Penal Code

section 1192.7, or to certain specified sex offenses); or 2. The applicant was released from incarceration within the last seven years for a crime that is substantially related to the qualifications, functions, or duties of the business or profession. (The seven−year limitations do not apply to convictions for a serious felony, as defined in Penal Code

section 1192.7, or to certain specified sex offenses); or 3. The applicant has been subject to formal discipline by a licensing board in or outside of California within the preceding seven years based on substantially related professional misconduct.  Amends BPC

section 481 to include more specific criteria that boards must use to determine whether a crime is substantially related to the qualifications, functions, or duties of the profession.  Amends BPC

section 482 to require boards to consider, when determining whether to deny, suspend, or revoke a license, whether an applicant or licensee has made a showing of rehabilitation, if the person has either completed the criminal sentence without a parole or probation violation, or if the person is rehabilitated based on the board’s rehabilitation criteria.

The Board’s current substantial relationship criteria, as well as its criteria for determining rehabilitation when considering denying, suspending, or revoking a license, are all in regulation. (CCR 16 sections 1812, 1813, and 1814.) These sections need to be amended in order to meet the requirements of AB 2138. In addition, some technical clean−up amendments are needed else- where in regulations in order to ensure that the regula- tions are consistent with the changes in statute.

Overall, the objective and anticipated benefits of this proposal are to carry out the objective of AB 2138: to in- crease opportunities for those with prior convictions or disciplinary action to obtain licensure if evidence points to rehabilitation, which will in turn promote fairness and social equity by boosting their employment oppor- tunities. Ensuring the regulations are consistent and fol- low the direction of statute also increases openness or transparency in government by ensuring the law is clear and that regulations and statutes are consistent with each other.

There is not an existing federal regulation or statute comparable to this proposal, as the Board’s license types are regulated at the state level. CONSISTENCY AND COMPATIBILITY WITH EXISTING STATE REGULATIONS During the process of developing these regulations and amendments, the Board has conducted a search of any similar regulations on this topic and has concluded that these regulations are neither inconsistent nor in- compatible with existing state regulations.

INCORPORA TION BY REFERENCE The document entitled “Uniform Standards Related to Substance Abuse and Disciplinary Guidelines” [Revised October 2015] has been incorporated by refer- ence into

section 1888. FISCAL IMPACT ESTIMATES Fiscal Impact on Public Agencies Including Costs or Savings to State Agencies or Costs/Savings in Federal Funding to the State: When evaluating the fiscal impact for AB 2138, the Board cited the need for one office technician position with an ongoing cost of $78,000 per year in order to comply with the data collection require- ments of the bill, which can be found in BPC

section 480(g)). However, this regulation proposal does not pertain to the data collection requirements of AB 2138; it only pertains to the substantial relationship criteria and rehabilitation criteria. The Board anticipates that by further defining sub- stantial relationship and rehabilitation criteria for crim- 1131

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z inal convictions, Board staff may see some increased workload to research convictions and to substantiate that rehabilitation has been achieved; however, it is ex- pected that this workload will be minor and absorbable. Nondiscretionary Costs/Savings to Local Agencies: None. Local Mandate: None. Cost to Any Local Agency or School District for Which Government Code Sections 17500−17630 Re- quire Reimbursement: None.

Business Impact: The Board has made an initial de- termination that the proposed regulatory action would have no significant statewide adverse economic impact directly affecting business, including the ability of Cali- fornia businesses to compete with businesses in other states. AB 2138 and the proposed regulation only affect Board licensees and applicants with past criminal con- victions or disciplinary action and seeks to reduce barri- ers to their licensure if they can present evidence of re- habilitation. It does not impose more rigorous require- ments on the licensure process.

This bill and corre- sponding regulations could increase the pool of poten- tial employees to businesses who are seeking to hire a Board licensee. Cost Impacts on Representative Private Persons or Businesses: The Board is not aware of any cost impacts that a rep- resentative private person or business would necessari- ly incur in reasonable compliance with the proposed ac- tion. The intent of AB 2138 is to reduce barriers to licen- sure for individuals with past convictions or disci- plinary action. Effect on Housing Costs: None.

Effect on Small Businesses The Board has determined that the proposed regula- tions may affect small businesses. It may increase the ability of some individuals with past convictions or dis- ciplinary action to obtain a Board license where they previously could not. Having more licensees increases the pool of hirable candidates for small business look- ing to hire licensed mental health professionals.

RESULTS OF ECONOMIC IMPACT ASSESSMENT/ANALYSIS Impact on Jobs/Businesses The Board has determined that the proposed regula- tions may have an impact on the creation of jobs or new businesses or the expansion of businesses in the State of California, as follows:  This regulatory proposal may create and will not eliminate jobs within the State of California. The proposal seeks to reduce barriers to licensure for applicants with criminal or disciplinary history if they can show evidence of rehabilitation.

Therefore, some individuals who were previously unable to become licensed due to a criminal or disciplinary background now may be able to do so. This could lead to increased job opportunities for these individuals.  The proposal may create some new businesses and will not eliminate existing businesses.

If an individual who was previously able to become licensed due to past convictions or discipline is now able to do so, that person may decide once licensed to go into business for themselves. (Some Board licensees choose to run their own private practice to provide mental health services.)  The proposal may expand certain types of businesses. If more individuals who were previously unable to obtain a license are now able to obtain one, there will be an increased pool of hireable licensees. Therefore, businesses may choose to hire more licensed mental health professionals.

Benefits of the Regulation to the Health and Welfare of California Residents, Worker Safety, and the State’s Environment: The Board has determined that this regu- latory proposal will benefit the health and welfare of California residents who seek the services of the Board’s licensees, because it may increase the ability of some individuals to obtain a Board license where they previously could not. This will increase the supply of li- censed mental health professionals, allowing greater access to those who seek mental health services.

It may also benefit individuals who are now able to obtain a li- cense when previously they were unable to, thus allow- ing them increased access to jobs and therefore reduc- ing criminal recidivism. The proposal will have no effect on worker safety or the State’s environment.

CONSIDERATION OF ALTERNATIVES The Board must determine that no reasonable alterna- tive it considered to the regulation or that has otherwise been identified and brought to its attention would either be more effective in carrying out the purpose for which the action is proposed or would be as effective and less burdensome to affected private persons than the pro- posal described in this Notice, or would be more cost− effective to affected private persons and equally effec- tive in implementing the statutory policy or other provi- sion of law.

To date, the following options were considered by the Board and rejected: 1. Option 1: Pursue a regulatory change that requires the Board to find rehabilitation if the applicant or 1132

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z licensee completed the terms of their criminal probation or parole. Courts historically rejected the view that compliant individuals are rehabilitated. “The fact that a professional who has been found guilty of two serious felonies rigorously complies with the conditions of his probation does not necessarily prove anything but good sense.” (Windham v.

Board of Medical Quality Assurance (1980) 104 Cal App.3d 461, 473.) Therefore, this alternative was rejected, because the Board believes that reviewing each individual on the basis of multiple criteria better indicates rehabilitation and better ensures the public’s health, safety, and welfare. 2. Option 2: Not adopt the regulations. This alternative was rejected because AB 2138 requires the Board to run regulations for its implementation. Any interested person may present statements or ar- guments orally or in writing relevant to the above deter- minations at the above−mentioned hearing.

INITIAL STATEMENT OF REASONS AND INFORMATION The Board has prepared an Initial Statement of Rea- sons for the proposed action and has available all the in- formation upon which the proposal is based. TEXT OF PROPOSAL Copies of the exact language of the proposed regula- tions and of the Initial Statement of Reasons, and all of the information upon which the proposal is based, may be obtained at the hearing or prior to the hearing upon request from the person designated in this Notice under Contact Person listed below, or by accessing the Board’s website, www.bbs.ca.gov.

A V AILABILITY AND LOCATION OF THE FINAL STATEMENT OF REASONS AND RULEMAKING FILE All of the information upon which the proposed regu- lations are based is contained in the rulemaking file, which is available for public inspection by contacting the Contact Person named below. You may obtain a copy of the Final Statement of Rea- sons once it has been prepared, by making a written re- quest to the Contact Person named below (or by access- ing the website listed below).

CONTACT PERSON Inquiries or comments concerning the proposed rule- making action may be addressed to: Name: Rosanne Helms Address: Board of Behavioral Sciences 1625 North Market Blvd, Suite S200 Sacramento CA 95834 Telephone: 916−574−7897 Fax: 916−574−8626 Email: Rosanne.Helms@dca.ca.gov The backup contact person is: Name: Christy Berger Address: Board of Behavioral Sciences 1625 North Market Blvd, Suite S200 Sacramento CA 95834 Telephone: 916−574−7817 Fax: 916−574−8626 Email: Christy.Berger@dca.ca.gov WEBSITE ACCESS Materials regarding this proposal can be found at www.bbs.ca.gov. TITLE 16.

BOARD OF PHARMACY NOTICE IS HEREBY GIVEN that the California State Board of Pharmacy (board) is proposing to take the rulemaking action described below under the head- ing Informative Digest/Policy Statement Overview. Any person interested may present statements or argu- ments relevant to the action proposed in writing. Writ- 1133

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z ten comments, including those sent by mail, facsimile, or e−mail to the addresses listed under Contact Person in this Notice, must be received by the board at its office by September 30, 2019. The board has not scheduled a public hearing on this proposed action. The board will, however, hold a hear- ing if it receives a written request for a public hearing from any interested person, or his or her authorized rep- resentative, no later than 15 days prior to the close of the written comment period.

The board may, after considering all timely and rele- vant comments, adopt the proposed regulations sub- stantially as described in this notice, or may modify the proposed regulations if such modifications are suffi- ciently related to the original text.

With the exception of technical or grammatical changes, the full text of any modified proposal will be available for 15 days prior to its adoption from the person designated in this Notice as contact person and will be mailed to those persons who submit written or oral testimony related to this proposal or who have requested notification of any changes to the proposal. Authority and Reference: Sections 4005, 4076, and 4112 of the Business and Professions Code authorize the board to adopt these regulations.

The proposed reg- ulations implement, interpret, and make specific sec- tions 4005, 4076, and 4112 of the Business and Profes- sions Code. INFORMATIVE DIGEST/POLICY STATEMENT OVERVIEW The board proposes to clarify and make specific the standards that apply to all pharmacies, including mail order pharmacies or pharmacies that deliver medica- tions, to fulfill their patient consultation requirements. Business and Professions Code (BPC)

section 4001.1 specifies that protection of the public is the highest pri- ority for the board in exercising its licensing, regulato- ry, and disciplinary functions. This

section further states that whenever the protection of the public is in- consistent with other interests sought to be promoted, the protection of the public shall be paramount. BPC

section 4005 generally authorizes the board to adopt and amend rules and regulations necessary for the protection of the public pertaining to the practice of pharmacy. It also specifically authorizes the board to adopt regulations: relating to the sanitation of persons and facilities licensed by the board; pertaining to li- censed facilities wherein any drug is compounded, pre- pared, furnished or dispensed; pertaining to minimum equipment for licensed facilities; and for the proper and effective enforcement and administration of Pharmacy Law. BPC

section 4037 establishes the definition of a phar- macy to include an area, place or premises licensed by the board in which the profession of pharmacy is prac- ticed and where prescriptions are compounded. BPC

section 4076 establishes the general labeling re- quirements for prescriptions. BPC

section 4112 generally establishes the licensing requirements for a nonresident pharmacy. Further, this

section requires a nonresident pharmacy to provide a toll−free number to facilitate communication between patients in California and a pharmacist with access to the patient’s record. Additionally, this

section autho- rizes the board to adopt regulations that apply the same requirements or standards for oral consultation to non- resident pharmacies as those applied to resident pharmacies. Title 16, California Code of Regulations (CCR) Sec- tion 1707.2 specifies the conditions under which a phar- macist must fulfill his or her duty to consult.

This proposal would amend the current “Duty to Consult” regulations to:  Specify the minimum time requirements a pharmacist must be available for patients to speak to, and the maximum time a consumer must wait before speaking to a pharmacist.  Updates the authority and reference sections to comply with legal requirements and ensure readers’ understanding of the underlying sections of pharmacy law that support the regulation.  Expand the current requirements for when a pharmacist shall provide oral consultation and expand the requirements to all settings.

ANTICIPATED BENEFITS OF THE PROPOSED REGULATIONS The broad objective of this proposal is to ensure that California consumers have timely access to a pharma- cist to receive patient consultation. The specific bene- fits anticipated by the proposed amendments are to pro- tect the public from risks of unsafe and or ineffective use of prescription medications through patient educa- tion.

Providing access to a pharmacist ensures a patient is provided the opportunity to understand the appropri- ate use of the medications, drug warnings and interac- tions, and potential adverse effects if the medication is not taken as directed. Without such information patients are at risk. CONSISTENCY AND COMPATIBILITY WITH EXISTING STATE REGULATIONS During the process of developing these regulations and amendments, the board has conducted a search of 1134

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z any similar regulations on this topic and has concluded that these regulations are neither inconsistent nor in- compatible with existing state regulations. FISCAL IMPACT AND RELATED ESTIMATES The board has made the following initial fiscal im- pact determinations: Local Mandate: None.

Fiscal Impact on Public Agencies:  Cost to Any Local Agency or School District for Which Government Code Sections 17500−17630 Require Reimbursement: None.  Costs/Savings to State Agencies: Minimal cost savings.  Nondiscretionary Costs/Savings to Local Agencies: None.  Costs/Savings in Federal Funding to the State: None. Significant Statewide Adverse Economic Impact Directly Affecting Businesses (If Any): The board has made a determination that the pro- posed regulatory action would have no significant statewide adverse economic impact directly affecting businesses and/or employees.

RESULTS OF ECONOMIC IMPACT ASSESSMENT/ANALYSIS Impact on Jobs/New Businesses: The board concludes that:

(1) It is unlikely that the proposal will create or eliminate any jobs within California;

(2) It is unlikely that the proposal will create new, or eliminate existing, businesses in California;

(3) It is unlikely that the proposal will expand businesses currently doing businesses within the state; and,

(4) The benefits to the public are for consumer protection and increased assurance that any patient consultation services are readily available to all California consumers irrespective of where the patient receives his or her medication. Benefits of the Proposal: The board has determined that this regulatory propos- al will benefit the health and welfare of California resi- dents. The legislature recognized the importance of pa- tients having access to a pharmacist for purposes of pro- viding patient consultation and created a mandate for the board to develop regulations specific to nonresident pharmacies.

To fulfill this mandate, the board is ensur- ing patients have timely access to a pharmacist. The proposed amendments modify patient consultation re- quirements to specify how such consultation must be provided, irrespective of the care setting. This change will increase patient access to pharmacists and result in better patient education surrounding the appropriate use of prescription medications. The proposed regula- tions will not benefit worker safety or the state’s environment.

Cost Impact on Representative Private Person or Business: The board is not aware of any cost impacts that a rep- resentative private person or business would necessari- ly incur in reasonable compliance with the proposed ac- tion. The board anticipates that the regulatory proposal will not result in any cost impacts to patients. Further, the board anticipates that this regulatory proposal will not result in any cost impacts to mail order pharmacies or pharmacies that have a medication delivery service.

This determination is based on public comments re- ceived from representatives of mail order pharmacies operating both within and outside of California. BUSINESS REPORTING REQUIREMENT The proposal requires pharmacies, including those that are nonresident, mail order, or that deliver medica- tion to comply with patient consultation requirements. This proposal does not create any business reporting requirements. EFFECT ON SMALL BUSINESS The board believes this regulation will have no sig- nificant impact on small businesses.

Although the board does not have nor maintain data to define if any of its licensees (pharmacies) are a “small business” as de- fined in Government Code

section 11342.610, the board has made an initial determination that the pro- posed regulatory action would not have a significant ad- verse economic impact directly affecting small busi- nesses. This is based on the determination that the regu- latory proposal could result in existing mail order and nonresident pharmacies, some of which are likely small businesses, fulfilling patient consultation requirements already envisioned in statutory requirements.

CONSIDERATION OF ALTERNATIVES The board must determine that no reasonable alterna- tive it considered or that has otherwise been identified and brought to its attention (1) would be more effective in carrying out the purpose for which the action is pro- posed, (2) would be as effective and less burdensome to 1135

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z affected private persons than the proposal described in this Notice, or (3) would be more cost−effective to af- fected private persons and equally effective in imple- menting the statutory policy or other provision of law. The board invites interested persons to present state- ments or arguments with respect to the alternatives to the proposed regulations during the public comment period.

A V AILABILITY OF INITIAL STATEMENT OF REASONS, TEXT OF PROPOSED REGULATIONS AND RULEMAKING FILE The board will have the entire rulemaking file avail- able for inspection and copying throughout the rule- making process at its office at the address above. As of the date this notice is published in the Notice Register, the rulemaking file consists of this notice, the proposed text of the regulations, the initial statement of reasons, and all of the documents upon which the proposal is based.

A V AILABILITY OF THE FINAL STATEMENT OF REASONS Upon its completion, you may obtain a copy of the fi- nal statement of reasons by accessing the website listed below or by contacting the person named below.

CONTACT PERSON Inquiries or comments concerning the proposed rule- making action may be addressed to: Name: Lori Martinez Address: 2720 Gateway Oaks Dr., Ste 100 Sacramento, CA 95833 Phone Number: (916) 518−3078 Fax Number: (916) 574−8618 E−Mail Address: Lori.Martinez@dca.ca.gov The backup contact person is: Name: Debbie Damoth Address: 2720 Gateway Oaks Dr., Ste 100 Sacramento, CA 95833 Phone Number: (916) 518−3090 Fax Number: (916) 574−8618 E−Mail Address: Debbie.Damoth@dca.ca.gov WEBSITE ACCESS Copies of this notice, the initial statement of reasons, and the text of the proposed regulations in underline and strikeout can be found at the California State Board of Pharmacy’s website: www.pharmacy.ca.gov.

TITLE 18. CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION The California Department of Tax and Fee Administration Proposes to Adopt Amendments to

Section 4076, Wholesale Cost of Tobacco Products, and New

Section 4077, Tobacco Product Manufacturer, in Title 18 of the California Code of Regulations NOTICE IS HEREBY GIVEN that the California Department of Tax and Fee Administration (CDTFA), pursuant to the authority vested in it by Revenue and Taxation Code (RTC)

section 30451, proposes to amend California Code of Regulations, title 18,

section (Regulation or Reg.) 4076, Wholesale Cost of Tobacco Products, and adopt Regulation 4077, Tobacco Product Manufacturer. The proposed amendments to Regula- tion 4076 provide additional notice that the meaning of the term “tobacco products” changed and includes “electronic cigarettes,” for purposes of the taxes and surtaxes imposed under the Cigarette and Tobacco Products Tax Law (CTPTL) (Rev. and Tax. Code (RTC),

section 30001 et seq.), effective April 1, 2017. The proposed amendments to Regulation 4076 clarify the meaning of the phrase “sold in combination with,” which is used in the definition of electronic cigarettes, 1136

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z provide examples of items that are and are not electron- ic cigarettes, clarify how to determine the wholesale cost of tobacco products when the manufacturer is also the distributor, and provide examples of how to esti- mate or calculate the wholesale cost of products includ- ed in the new definition of tobacco products.

The pro- posed amendments to Regulation 4076 clarify that to- bacco products may only be distributed once and that a retailer does not make a taxable distribution by repack- aging tax−paid tobacco products with other items for re- tail sale or selling tax−paid tobacco products with other items for a single price at retail. The proposed amend- ments to Regulation 4076 also replace the regulation’s references to the State Board of Equalization (BOE) with references to the CDTFA.

Proposed Regulation 4077 defines the term “tobacco product manufacturer,” clarifies who is regarded as the manufacturer of an elec- tronic cigarette produced by mixing liquid nicotine with flavoring to make a customized product, and clarifies that a retailer who is not a licensed manufacturer or dis- tributor must purchase its nicotine products from a li- censed tobacco products distributor or wholesaler. AUTHORITY Regulations 4076 and 4077: RTC

section 30451 REFERENCE Regulation 4076: RTC sections 30008, 30010, 30011, 30017, 30105, 30121, 30123, 30126, 30131.1, 30131.2, 30131.5, 30201, and 30221 Regulation 4077: RTC sections 30008, 30010, 30011, 30016, 30103, 30121, 30131.1, 30149, 30210, 30211, and 30212 INFORMATIVE DIGEST/POLICY STATEMENT OVERVIEW

Summary of Existing Laws and Regulations 2017 Legislation The CTPTL currently imposes taxes and surtaxes on distributors’ distributions of cigarettes and other tobac- co products (OTP) in this state. The Cigarette and To- bacco Products Licensing Act of 2003 (Licensing Act) (Bus. and Prof. Code (BPC),

section 22970 et seq.) cur- rently requires distributors, manufacturers, importers, wholesalers, and retailers of cigarettes and tobacco products to obtain licenses to engage in the sale of ciga- rettes or tobacco products in this state. (BPC, sec- tions 22972, 22975, 22979, 22979.21.) The CTPTL and the Licensing Act were administered and enforced by the BOE pursuant to RTC

section 30451 and BPC

section 22971.2, respectively. Howev- er, on June 27, 2017, the Governor approved Assembly Bill No. (AB) 102 (Stats. 2017, ch. 16), The Taxpayer Transparency and Fairness Act of 2017, which added

part 8.7 (commencing with

section 15570) to division 3 of title 2 of the Government Code (part 8.7).

Part 8.7 es- tablished the CDTFA (Gov. Code,

section 15570) and transferred most of the BOE’s former duties, powers and responsibilities to the CDTFA, operative July 1, 2017, including the BOE’s former duties, powers, and responsibilities related to the administration and en- forcement of the CTPTL and Licensing Act. (Gov. Code,

section 15570.22).

Part 8.7 provided for the laws prescribing the powers, duties and responsibilities transferred to the CDTFA, including the CTPTL and Li- censing Act, and the regulations adopted under those laws to continue in force on and after July 1, 2017. (Ibid.) And,

part 8.7 provides that “whenever any refer- ence to the [BOE] appears in any statute, regulation, or contract, or in any other code, with respect to any of the functions transferred to the [CDTFA], it shall be deemed to refer to the [CDTFA].” (Gov. Code, sec- tion 15570.24.) Distributors, Manufacturers, Importers, Wholesalers, and Retailers As relevant here, the CTPTL currently provides that the term “distribution” includes “[t]he sale of untaxed cigarettes or tobacco products in this state” and “[t]he placing ...o f untaxed cigarettes or tobacco prod- ucts ... i n retail stock for the purpose of selling the cig- arettes or tobacco products to consumers.” (RTC, sec- tion 30008, subds. (

a) and (c).) The CTPTL currently provides that the term “distributor” includes every per- son who distributes cigarettes or tobacco products, “within the meaning of the term ‘distribution.’ ” (RTC,

section 30011, subds. (

a) and (b).) And, it generally provides that “untaxed” cigarettes and tobacco prod- ucts means cigarettes and tobacco products that have not been distributed in such a manner as to produce a tax liability under the CTPTL. (RTC, sections 30005, 30005.5.) The CTPTL currently requires distributors to register for a distributor’s license (RTC, sections 30140, 30151) and makes it a crime to engage in business as a distribu- tor without a license. (RTC,

section 30149.) The CTPTL requires distributors to purchase tax stamps to pay the taxes imposed on their distributions of ciga- rettes, and affix a tax stamp to each pack of cigarettes before distribution. (RTC, sections 30161, 30163.) It also requires distributors to file returns reporting the taxes imposed on their distributions of OTP, and re- quires distributors to remit payment for those taxes with their returns. (RTC,

section 30181, subd. (b).) And, to- bacco products are referred to as “tax−paid” after they 1137

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z have been distributed by a licensed distributor who will pay the applicable taxes imposed on the distribution of the tobacco products under the CTPTL. The CTPTL does not prohibit manufacturers from buying untaxed materials to use to manufacture ciga- rettes and tobacco products, and provides for manufac- turers to sell untaxed cigarettes and tobacco products to licensed distributors (RTC,

section 30103), although there are no CTPTL statutes or regulations that define the term “manufacturer” or clarify which persons are considered to be tobacco product manufacturers. The CTPTL provides for the original importer (as defined in RTC,

section 30019) to sell untaxed cigarettes and to- bacco products manufactured outside the United States to a licensed distributor. (RTC,

section 30105.) The CTPTL provides that the term “wholesaler” includes any person, other than a licensed distributor, who en- gages in the business of making sales for resale of tax− paid cigarettes and tobacco products (RTC, sec- tion 30016), requires wholesalers to register for a wholesaler’s license (RTC,

section 30155), and makes it a crime to engage in business as a wholesaler without a license. (RTC,

section 30159.) The CTPTL also pro- vides that if any person becomes a distributor without first obtaining a distributor’s license, then the taxes and applicable penalties and interest, imposed on the per- son’s distributions of untaxed cigarettes and OTP, are immediately due and payable (RTC,

section 30210), and the taxes, interest, and penalties are subject to being immediately assessed and collected by the seizure and sale of the person’s property. (RTC, sections 30211, 30212.) The CTPTL does not define the term “retailer” and the CTPTL does not apply to a retailer, unless the retailer is also a distributor, manufacturer, importer, or wholesaler. Taxes and Surtaxes on Distributors’ Distributions of Cigarettes and Tobacco Products RTC

section 30101 in the CTPTL imposes a tax upon every distributor of cigarettes, and the tax applies to the distribution of each cigarette. The rate of the RTC sec- tion 30101 tax was five mills ($0.005) per cigarette dis- tributed from October 1, 1967, through December 31, 1993, and the rate of the tax has been six mills ($0.006) per cigarette or $0.12 per pack ($0.006 x 20 cigarettes) distributed since January 1, 1994. In November 1988, California voters passed Proposi- tion 99, known as the “Tobacco and Health Protection Act of 1988” (Prop. 99).

Among other things, Prop. 99 imposed a surtax on every distributor of cigarettes at the rate of 12.5 mills ($0.0125) per cigarette or $0.25 per pack ($0.0125 x 20 cigarettes) distributed. Prop. 99 im- posed a tax on every distributor of OTP, based on the wholesale cost of the products distributed, at a rate equivalent to the combined rate of the taxes imposed on cigarettes by the Prop. 99 surtax and the other provi- sions of the CTPTL, which only included the RTC sec- tion 30101 tax at the time.

Prop. 99 also added RTC sec- tion 30121, subdivision (b), to the CTPTL to provide that OTP “includes, but is not limited to, all forms of cigars, smoking tobacco, chewing tobacco, snuff, and any other articles or products made of, or containing at least 50 percent, tobacco, but does not include ciga- rettes.” Prop. 99’s surtax on the distribution of ciga- rettes and equivalent tax on the distribution of OTP are both codified in RTC

section 30123 in the CTPTL. In November 1998, California voters passed Proposi- tion 10, known as “The Children and Families First Act” (Prop. 10). The purpose of Prop. 10 was to create county commissions to provide early childhood medi- cal care and education. Prop. 10 imposed an additional surtax on every distributor of cigarettes at the rate of 25 mills ($0.025) per cigarette or $0.50 per pack distrib- uted. Prop. 10 imposed a tax on every distributor of OTP (as defined in RTC,

section 30131.1, subd. (b), which was identical to RTC,

section 30121, subd. (

b) quoted above), based on the wholesale cost of the prod- ucts distributed, at a rate equivalent to the rate of the Prop. 10 surtax on cigarettes. Prop. 10’s surtax on the distribution of cigarettes and equivalent tax on the dis- tribution of OTP are both codified in RTC

section 30131.2 in the CTPTL. On November 8, 2016, California voters passed Proposition 56, known as “The California Healthcare, Research and Prevention Tobacco Tax Act of 2016” (Prop. 56), which went into effect on April 1, 2017. As relevant here, Prop. 56 imposed an additional tax on ev- ery distributor of cigarettes at the rate of 100 mills ($0.10) per cigarette or $2.00 per pack distributed, which increased the combined cigarette tax rate from $0.87 per pack to $2.87 per pack.

And, Prop. 56 im- posed a tax on every distributor of OTP based on the wholesale cost of the products, at a rate equivalent to the rate of Prop. 56’s tax on cigarettes. Prop. 56’s tax on the distribution of cigarettes is codified in RTC

section 30130.51 in the CTPTL and Prop. 56’s equivalent tax on the distribution of OTP is imposed by RTC

section 30123 in the CTPTL (discussed above). In addition, Prop. 56 amended RTC

section 30121, subdivision (b), to provide, for purposes of Prop. 99’s tax on OTP , that: “Tobacco products” includes, but is not limited to, a product containing, made, or derived from tobacco or nicotine that is intended for human consumption, whether smoked, heated, chewed, absorbed, dissolved, inhaled, snorted, sniffed, or ingested by any other means, including, but not limited to, cigars, little cigars, chewing tobacco, pipe tobacco, or snuff, but does not include 1138

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z cigarettes. Tobacco products shall also include electronic cigarettes. Tobacco products shall not include any product approved by the United States Food and Drug Administration for sale as a tobacco cessation product or for other therapeutic purposes where that product is marketed and sold solely for such approved use. Tobacco products does not include any food products as that term is defined pursuant to

Section 6359. Prop. 56 added a new subdivision (

c) to RTC

section 30121 to provide, for purposes of Prop. 99’s tax on OTP, that: “Electronic cigarettes” means any device or delivery system sold in combination with nicotine which can be used to deliver to a person nicotine in aerosolized or vaporized form, including, but not limited to, an e−cigarette, e−cigar, e−pipe, vape pen, or e−hookah. Electronic cigarettes include any component, part, or accessory of such a device that is used during the operation of the device when sold in combination with any liquid or substance containing nicotine.

Electronic cigarettes also include any liquid or substance containing nicotine, whether sold separately or in combination with any device that could be used to deliver to a person nicotine in aerosolized or vaporized form. Electronic cigarettes do not include any device not sold in combination with any liquid or substance containing nicotine, or any battery, battery charger, carrying case, or other accessory not used in the operation of the device if sold separately. And, Prop. 56 amended RTC

section 30131.1 and added RTC

section 30130.50, so that OTP has the same meaning for purposes of Prop. 10’s and Prop. 56’s taxes on OTP, as it does for Prop. 99’s tax on OTP, after the amendments to RTC

section 30121 quoted above. Wholesale Cost RTC

section 30017 provides that “ ‘[w]holesale cost’ means the cost of tobacco products to the distributor pri- or to any discounts or trade allowances.” On May 24, 2016, the BOE adopted Regulation 4076 to clarify the meaning of the phrase “wholesale cost,” and the regula- tion became effective October 1, 2016.

As relevant here, Regulation 4076, subdivision (a)(3), currently provides that “ ‘[f]inished tobacco products’ and tobacco products in ‘finished condition’ are tobacco products that will not be subject to any addi- tional processing before first distribution in the state.” Regulation 4076, subdivision (b)(2), currently explains how to determine the wholesale cost of OTP when a manufacturer or importer is also the distributor.

It pro- vides that the wholesale cost of OTP “includes all man- ufacturing costs, the cost of raw materials (including waste materials not incorporated into the finished to- bacco product) prior to any discounts or trade al- lowances, the cost of labor, any direct and indirect over- head costs, any direct (including freight−in) and indi- rect overhead costs, and any federal excise and/or U.S. Customs taxes paid.

Wholesale cost includes all freight or transportation charges for shipment of materials and/ or unfinished product from the supplier to the manufac- turer concurrently licensed as a distributor, but excludes domestic freight or transportation charges for shipment of finished tobacco products.” Regulation 4076, subdi- vision (b)(3) and (4), currently provide that “[i]f tobac- co product costs include express, implicit, or unstated discounts or trade allowances” or “[i]f tobacco products are not purchased in an arm’s−length transaction,” “the correct wholesale costs to be reported by the distributor may be determined using any of the methods in subdivi- sion (c).” Regulation 4076, subdivision (c), currently provides alternative methods for determining the wholesale cost of OTP using available price lists or in- dustry data, and Regulation 4076, subdivision (c)(2)(E), currently provides for the use of additional methods with BOE approval.

Regulation 4076, subdi- vision (d), currently presumes that transactions be- tween related parties are not at arm’s−length and ex- plains how to rebut the presumption if the BOE deter- mines that a transaction is between related parties. Reg- ulation 4076, subdivision (e), currently provides seven examples about how to calculate the wholesale cost of OTP under different circumstances, the example in sub- division (e)(1) concerns a distributor who produces handmade cigars, and the example in subdivision (e)(2) concerns a transaction between related parties that the BOE presumes is not at arm’s−length.

And, Regulation 4076, subdivision (f), currently explains that the BOE’s “annual determination of the rate of tax that applies to other tobacco products shall be made based on the wholesale cost of tobacco products as of March 1 of the current calendar year and shall be effective during the next fiscal year, beginning July 1,” in accordance with the express provisions of RTC sections 30126 and 30131.5 in the CTPTL.

EFFECT, OBJECTIVE, AND BENEFITS OF THE PROPOSED AMENDMENTS AND NEW REGULATION Initial Need for Regulatory Action The passage of Prop. 56 changed the definition of OTP and included electronic cigarettes in the definition of OTP for the first time. Therefore, BOE staff deter- mined that distributors may have issues (or problems within the meaning of Gov. Code,

section 11346.2, subd. (b)(1)) understanding that the definition of OTP changed, effective April 1, 2017, determining whether 1139

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z certain items are electronic cigarettes subject to the tax- es on OTP, and determining the wholesale cost of elec- tronic cigarettes subject to the taxes on OTP.

And, BOE staff determined that it is necessary to amend Regula- tion 4076 for the specific purpose of addressing the is- sues (or problems) by providing additional notice to distributors regarding the new definition of OTP, clari- fying the new definition of OTP by defining the phrase “sold in combination with,” which is used in the defini- tion of electronic cigarettes, and providing examples of how to estimate or calculate the wholesale cost of prod- ucts that have been defined as OTP effective April 1, 2017.

Prop. 56 did not change the CTPTL’s definition of cigarettes and BOE staff was not aware of any confu- sion regarding Prop 56’s additional tax on the distribu- tion of cigarettes. So, BOE staff determined that there was no need to take regulatory action to further clarify the application of the cigarette taxes imposed by the CTPTL due to the passage of Prop. 56. Initial Definition of Sold in Combination With As noted above, RTC

section 30121, subdivision (c), provides that “ ‘[e]lectronic cigarettes’ means any de- vice or delivery system sold in combination with nico- tine which can be used to deliver to a person nicotine in aerosolized or vaporized form” and includes “any com- ponent, part, or accessory of such a device that is used during the operation of the device when sold in combi- nation with any liquid or substance containing nico- tine.” BOE staff visited manufacturers’ websites prior to April 1, 2017.

BOE staff noted that manufacturers commonly sold vaping devices with related products, including liquids and substances containing nicotine, directly to consumers as part of starter kits or all−in−one kits for a single price. BOE staff noted that manufactur- ers allowed customers to choose whether to include nicotine in their start kits or all−in−one kits and to choose the percentage of nicotine included in kits with nicotine.

BOE staff also noted that some manufacturers sell the same items included in starter kits and all−in− one kits individually, such as vaping devices, compo- nents, accessories, and liquids or substances containing nicotine, and they will sell the individual items for sepa- rately stated prices in the same transaction. Therefore, BOE staff determined that the phrase sold in combina- tion with does not refer to “every” item that is merely sold “with” a liquid or substance containing nicotine in the same transaction based upon the wording of RTC

section 30121, subdivision (c), and industry practice. Staff determined that when a kit containing a device or delivery system that can be used to deliver nicotine in aerosol or vapor form to a person or a kit containing any component, part, or accessory of such a device or deliv- ery system is sold with any liquid or substance contain- ing nicotine for a single price, then the items are sold in combination with the liquid or substance containing nicotine and the entire unit is an electronic cigarette for purposes of

section 30121, subdivision (c). Staff deter- mined that when a kit containing a device or delivery system or a kit containing any component, part, or ac- cessory of such a device or delivery system is not sold with a liquid or substance containing nicotine for a sin- gle price, the kit is not an electronic cigarette. Staff also determined that when the individual items that can be included in a kit are sold in the same transaction for sep- arately stated prices, then the items are not sold in com- bination with each other for purposes of RTC

section 30121, subdivision (c), and only the liquids or sub- stances containing nicotine would be electronic ciga- rettes. The other items would not be electronic cigarettes. First Discussion Paper and Interested Parties Meeting As a result, BOE staff drafted amendments to Regula- tion 4076 to address the issues described above, staff prepared a discussion paper explaining the proposed amendments, and staff issued the discussion paper on March 27, 2017. The proposed amendments:  Added new subdivision (a)(3) to define the term “electronic cigarettes” in accordance with RTC

section 30121, subdivision (c);  Renumbered current subdivision (a)(3) as subdivision (a)(4);  Added new subdivision (a)(5) to clarify that the term “ ‘sold in combination with’ refers to kits, systems, or packages that usually include atomizers, cartomizers or similar type device, component pieces, accessories, and liquids containing nicotine that are all sold for a single price”;  Added new subdivision (a)(6) to explain that the definition of OTP changed effective April 1, 2017, and now “includes all products containing, made, or derived from tobacco or nicotine that are intended for human consumption,” including electronic cigarettes, but does not include cigarettes; and  Added new subdivision (

f) to provide examples of how to estimate or calculate the wholesale cost of products that have been defined as OTP effective April 1, 2017, such as self−manufactured nicotine products, kits sold with nicotine for a single price, and closed−system electronic cigarettes containing nicotine. BOE staff held an interested parties meeting to dis- cuss the proposed amendments on April 11, 2017. Dur- ing the meeting, BOE staff indicated that they were proposing to change the “definition of sold in combina- 1140

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z tion with” to refer to “kits, systems, or packages that usually include atomizers, cartomizers or similar type device, component pieces, accessories, and liquids con- taining nicotine that are packaged or wrapped as one set or sold for a single price.” (Italics added.) Staff ex- plained that the change was intended to prevent distrib- utors from selling kits containing devices or delivery systems and liquids containing nicotine as one unit, but separately stating the prices of the items in the kits so that the liquids containing nicotine are the only items in the kits classified as electronic cigarettes and only the wholesale cost of the liquids containing nicotine is sub- ject to tax.

During the April 2017 meeting, BOE staff was asked to clarify who is regarded as the manufacturer of a to- bacco product, particularly an electronic cigarette pro- duced by mixing liquid nicotine with flavoring to make a customized product. Also, staff was asked if either Distributor A or B can obtain a refund when Distributor B purchases OTP in California from Distributor A, Dis- tributor A reports and pays its tax on its distribution of the OTP in California, and then Distributor B subse- quently sells the tax−paid OTP to a third party and ships the OTP out of state pursuant to that contract of sale.

And, BOE staff said that, under those facts, tax would apply to Distributor A’s distribution of the OTP in Cali- fornia and Distributor B could not obtain a refund of tax reported and paid by Distributor A, even if it was re- fundable to Distributor A.

After the April 2017 meeting, Nu Mark LLC submit- ted a written comment dated April 25, 2017, suggesting that BOE staff’s proposed definition of electronic ciga- rettes was too broad and that a component, part, or ac- cessory of a device or delivery system should only be classified as an electronic cigarette if it is sold in combi- nation with nicotine and it is used during the operation of the device or delivery system, based upon the second sentence in RTC

section 30121, subdivision (c) (quoted above). However, BOE staff disagreed and concluded that a component, part, or accessory of a device or deliv- ery system that is not used in the operation of the device or delivery system is still an electronic cigarette if it is sold in combination with a liquid or substance contain- ing nicotine because the fourth sentence in RTC

section 30121, subdivision (c), expressly provides that “[e]lec- tronic cigarettes do not include . . . any battery, battery charger, carrying case, or other accessory not used in the operation of the device if sold separately .” (Italics added.) In its written comment, Nu Mark LLC also agreed that items should be considered to be sold in combina- tion with each other if they are packaged together as one set or unit. However, Nu Mark LLC did not agree that items should be considered to be sold in combination with each other solely because they are sold for a single price.

And, Nu Mark LLC expressed its concern that staff’s proposed definition of sold in combination was too broad and recommended that the phrase “or sold for a single price” be deleted from the definition so that tax would only apply to the wholesale cost of the liquid containing nicotine when a distributor offers to sell a separately packaged device and a separately packaged liquid containing nicotine for a single price or offers a free device to customers who purchase a specified amount of liquid containing nicotine, as a promotion.

In addition, the California Smoke Free Organization (CSFO) submitted a written comment dated April 26, 2017, agreeing that the definition of sold in combina- tion with should include items sold with a liquid con- taining nicotine “as one set in [their] original manufac- tur[er] packaging, or packaged or wrapped as one set or sold for a single price by a licensed distributor,” and suggesting that the definition should not include items a retailer purchases separately and for a separate price, no matter how the items are sold by the retailer.

CSFO said that its suggested language was intended to “protect re- tailers [that are not licensed distributors] from being considered de facto distributors if they package or wrap nicotine substances and devices as one set or sell them for a single price at the retail level.” Also, CSFO’s writ- ten comment concluded that, in its opinion, “if Distribu- tor A applies tax to its distribution of tobacco products to Distributor B, then Distributor B ships the tax paid to- bacco products pursuant to a contract of sale [with a third party] to a point outside this state, either Distribu- tor B or at least Distributor A, should be able to obtain a refund or credit” under RTC

section 30176.1 and Regu- lation 4063.5, Exported Tax−Paid Tobacco Products, or RTC

section 30361.5, and suggested that Regulation 4063.5 should be clarified accordingly. And, Californi- ans for Tobacco Harm Reduction (CATHR) submitted a written comment dated April 24, 2017, asking BOE staff to clarify how the proposed definition of sold in combination with applies at the retail level. Second Issue Paper and Second Interested Parties Meeting After considering the interested parties comments, BOE staff determined that manufacturers commonly sell vaping devices with related products, including liq- uids and substances containing nicotine, as part of starter kits or all−in−one kits.

Some manufacturers also allow customers to create customized kits by selecting their accessories, flavoring, and nicotine content. And, the manufacturers package the products included in a kit all together in a single box or other type of storage container, which is sealed by the manufacturer, and which lists the contents of the kit and includes the man- ufacturer’s logos, pictures, and advertisements on the outside of the box or container. Therefore, BOE staff 1141

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z agreed with CSFO that an item is sold in combination with a liquid or substance containing nicotine when they are sold together in their original manufacturer packaging as one unit.

And, to address Nu Mark LLC’s and CSFO’s concerns, BOE staff agreed to change the definition of sold in combination with to refer to “kits, systems, or packages that usually include atomizers, cartomizers or similar type device, component pieces, accessories, and liquids containing nicotine that are sold in their original manufacturer packaging as one unit or sold for a single price” (italics added), so that items a retailer purchases separately for a separate price and packages with tax−paid liquid containing nicotine would not be considered sold in combination with the nicotine merely because they were packaged together by the retailer, and retailers that are not licensed distrib- utors would not be considered de facto distributors just because they packaged an item together with a tax−paid liquid containing nicotine as one unit for sale at the re- tail level.

Also, to address Nu Mark LLC’s and CSFO’s con- cerns and CATHR’s request for further clarification, BOE staff agreed to revise the examples in Regulation 4076, subdivision (f)(2) and (3), to make them consis- tent with the revised definition of sold in combination with.

BOE staff agreed to add new subdivision (f)(5) to Regulation 4076 to provide an example clarifying that when a retailer purchases tax−paid liquid containing nicotine from a licensed distributor and then packages the liquid with other items for sale as part of a promo- tion, the promotional package is not subject to tax be- cause “the distribution occurred prior to the retail sale.” And, BOE staff agreed to add new subdivision (f)(6) to Regulation 4076 to provide an example clarifying that a separately packaged device and a separately packaged liquid containing nicotine are not sold for a single price when the distributor’s invoice shows the price charged for each item, even if the price charged for one of the items is zero.

However, BOE staff continued to assert that items a distributor sells with a previously un−taxed liquid containing nicotine for a single price are sold in combination with the nicotine under RTC

section 30121, subdivision (c), regardless of how they are pack- aged by the manufacturer or distributor. In addition, after considering the interested parties comments, BOE staff determined that there may be ad- ditional issues (or problems within the meaning of Gov. Code,

section 11346.2, subd. (b)(1)) determining whether a person is a manufacturer of OTP, as newly de- fined, effective April 1, 2017. And, BOE staff deter- mined that it was necessary to propose a new regulation for the specific purpose of addressing the additional is- sues by defining the term “tobacco product manufactur- er” and clarifying who is regarded as the manufacturer of an electronic cigarette produced by mixing liquid nicotine with flavoring to make a customized product. Therefore, BOE staff looked at federal law for guidance as to who is a manufacturer of tobacco products. Specifically, BOE staff looked at

section 387(20)(

A) of title 21 of the United States Code, which provides that “tobacco product manufacturer means any person, including any repacker or relabeler, who . . . manufac- tures, fabricates, assembles, processes, or labels a to- bacco product” for purposes of the Federal Food, Drug, and Cosmetic Act (21 U.S.C.

section 301 et seq.). BOE staff drafted subdivision (

a) off proposed Regulation 4077, Tobacco Product Manufacturer, to define tobac- co product manufacturer in accordance with the federal definition and clarify that a “tobacco product manufac- turer is any person, including any repacker or relabeler, who manufactures, fabricates, assembles, processes, or labels a finished tobacco product.” BOE staff drafted subdivision (

b) of proposed Regulation 4077 to specifi- cally clarify for retailers that a “retailer who mixes, pre- pares, or combines liquid nicotine and other compo- nents of a tobacco product is a tobacco product manu- facturer” and “if the retailer does not mix, prepare or combine any liquid nicotine products but allows its cus- tomers to do so after a sale has been made then that re- tailer is not a manufacturer,” based upon the general definition of tobacco product manufacturer. BOE staff also included a third sentence in subdivision (

b) of pro- posed Regulation 4077 to provide additional notice that “A retailer must purchase their nicotine products from a licensed tobacco products distributor” so the retailer will not become a distributor without first obtaining a distributor’s license. In addition, after considering CSFO’s written comment:  BOE staff concluded that RTC

section 30176.1 only provides for a refund when tax has been “paid on the distribution of tobacco products which are shipped to a point outside the state” (italics added) and does not apply when a distributor makes a distribution of OTP in the state and does not ship the products outside the state as part of the distribution in accordance with Regulation 4063.5;  BOE staff also concluded that RTC

section 30361 only permits an amount to be refunded to the distributor who paid it and only if the amount paid was computed upon an amount that is not taxable or the amount paid was is in excess of the tax due, and it does not provide for a refund of tax that was properly paid on the distribution of OTP in the state; and  A statutory change would be required to provide a refund if Distributor A applies tax to its distribution of tobacco products to Distributor B in 1142

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z this state, then Distributor B ships the tax paid tobacco products to a point outside this state pursuant to a contract of sale with a third party. As a result, BOE staff prepared a second discussion paper explaining its revised amendments to Regulation 4076, staff’s new proposed Regulation 4077, and staff’s understanding of RTC sections 30176.1 and 30361. Staff issued the second discussion paper, the revised amendments to Regulation 4076, and proposed Regula- tion 4077 on May 26, 2017.

And, staff held an interested parties meeting to discuss the revised amendments and proposed regulation on June 6, 2017. At the June 2017 interested parties meeting, BOE staff was informed by the electronic cigarette industry that when the owner of a brand or formula for a type of liquid nicotine manufactures its product, the owner of the brand or formula may contract with another person to complete the fabrication and assembly of the product to the brand or formula owner’s standard.

Staff was also informed that the industry refers to the owner of a brand or formula for a type of liquid nicotine as a manufactur- er regardless of whether the owner directly performs all of the services related to the manufacture of its product or contracts with a third party to perform services relat- ed to the manufacture of its product on its behalf. And, some interested parties raised another issue (or problem within the meaning of Gov. Code,

section 11346.2, subd. (b)(1)) about whether staff’s proposed definition of tobacco product manufacturer in Regulation 4077, subdivision (a), was broad enough to classify the owner of a brand or formula for a type of liquid nicotine as a manufacturer when the owner contracts with a third party to perform services related to the manufacture of its product.

After the June 2017 meeting, BOE staff received written comments from SA VEURvape, Inc., and Ting Fan, which were both dated June 20, 2017, and recom- mended that the definition of tobacco product manufac- turer in Regulation 4077, subdivision (a), be revised to include the owner of a “brand and formula” for a tobac- co product who contracts with a third party to perform services related to the manufacture of its product.

BOE staff also received written comments from Charlie’s Chalk Dust, LLC, and CSFO, which were both dated June 22, 2017, and recommended that the definition of tobacco product manufacturer include a tobacco “prod- uct owner” and “product licensee” who contracts with a third party to perform services related to the manufac- ture of its product. In addition, CSFO’s June 2017 written comment rec- ommended that Regulation 4076 do more to clarify that a retailer who packages untaxed devices or other items with tax−paid liquid containing nicotine and sells them for a single price will not be considered a distributor.

The comment requested that staff further clarify how a person that is both the manufacturer and distributor of electronic cigarettes is required to calculate the whole- sale cost of the electronic cigarettes under Regulation 4076, subdivision (b)(2). The comment recommended that the third sentence in proposed Regulation 4077, subdivision (b), be revised to clarify that a retailer “that is not also a manufacturer or distributor” must purchase their nicotine products from a licensed tobacco prod- ucts distributor.

And, the comment disagreed with BOE staff’s analysis of RTC sections 30176.1 and 30361 and Regulation 4063.5, and requested that Regulation 4063.5 be amended to clarify that a refund is permitted if Distributor A applies tax to its distribution of tobacco products to Distributor B in the state, then Distributor B ships the tax paid tobacco products for subsequent sale or use outside this state.

CDTF A Staff’ s Changes to the Proposed Amendments to Regulation 4076 CDTFA staff continued to work on BOE staff’s project to amend Regulation 4076 and adopt new Regu- lation 4077 after the July 1, 2017, transfer of the BOE’s authority to administer and enforce the CTPTL to the CDTFA. CDTFA staff determined that there was anoth- er issue (or problem within the meaning of Gov. Code,

section 11346.2, subd. (b)(1)) with Regulation 4076 be- cause it refers to the BOE, instead of the CDTFA, as the agency with the authority to administer and enforce the CTPTL. Therefore, CDTFA staff proposed replacing the references to the BOE with references to the CDTFA in Regulation 4076, subdivisions (c)(2)(E), (d)(2), and (e)(2), and renumbered subdivision (g), to address the issue. In addition, CDTFA staff considered the interested parties’ comments from June 2017.

And, CDTFA staff determined that Regulation 4076, subdivision (b)(2), should more clearly explain what overhead costs are in- cludable in a manufacturer’s manufacturing costs and generally permit manufacturers and importers to use the alternative methods in Regulation 4076, subdivision (c), to determine the wholesale cost of OTP.

Therefore, CDTFA staff proposed deleting the phrase providing that manufacturing costs include “any direct (including freight−in) and indirect overhead costs” from the first paragraph in subdivision (b)(2) and adding a new sec- ond paragraph to subdivision (b)(2) to more clearly ex- plain that: Manufacturing costs include all overhead expenses that are directly or indirectly attributable to the production of finished goods. These costs can include, but are not limited to, production and administrative salaries, depreciation, repairs and maintenance, rent and utilities for the production facilities, and equipment.

Manufacturing costs must be allocated to each product unit by a 1143

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z reasonable and consistent pro−rata accounting method. Manufacturing costs do not include overhead expenses that are not directly or indirectly attributable to the production of finished goods. These costs can include, but are not limited to, salaries and other expenses for business activities involving selling, distribution, marketing, finance, information technology, human resources and legal activities.

CDTFA staff proposed adding a new fourth para- graph to Regulation 4076, subdivision (b)(2), to permit manufacturers and importers that are also distributors to use the alternative methods in Regulation 4076, subdi- vision (c), to determine the wholesale cost of OTP. CDTFA staff proposed amending the example currently in Regulation 4076, subdivision (e)(1), and the example proposed to be added to Regulation 4076, subdivision (f)(1), to clarify that the distributors in the examples are also manufacturers and the wholesale cost of the OTP they manufacture would include the costs described in subdivision (b)(2).

CDTFA staff proposed adding new subdivision (f)(7) to Regulation 4076 to provide an ex- ample illustrating that a manufacturer who uses five percent of a rented facility for manufacturing is re- quired to include five percent of the rent paid for the fa- cility in its manufacturing costs. And, CDTFA staff pro- posed other minor grammatical changes to Regulation 4076, subdivisions (b)(2) and (f)(5) and (6), and renum- bered subdivision (g). CDTFA staff provided a revised draft of the proposed amendments to Regulation 4076 to the interested par- ties on August 1, 2017.

CDTFA staff received a written comment from CATHR dated August 10, 2017. CATHR’s comment indicated that some members of the association had received inconsistent information from CDTFA staff about how to substantiate the wholesale cost of OTP when the manufacturer is also the distribu- tor.

And, CATHR’s comment requested that Regulation 4076 “spell out that there is no requirement that a cer- tain transaction be performed to document the move- ment of tobacco products from a licensed manufacturer that is also a licensed distributor when they are the same entity” and requested additional “explicit clarification that an arm’s length transaction would not be required in this circumstance.” CDTFA staff agreed that this new issue was important, and should be addressed through appropriate training and outreach after the current rule- making project is completed.

However, CDTFA staff did not agree that further amendments to Regulation 4076 are needed to address the issue at this time. CDTFA staff received a written comment from Dr. Michael Ong, dated August 11, 2017, on behalf of the Tobacco Education and Research Oversite Committee, which raised concerns about whether the proposed reg- ulatory

definitions for the terms “electronic cigarettes” and “tobacco products” were too abbreviated and sug- gested alternative

definitions. Therefore, CDTFA staff reviewed the proposed

definitions. Staff revised the regulatory definition of electronic cigarettes to clarify that electronic cigarettes include any liquids (“e−juice” or “e−liquid”) or substances that contain nicotine, “re- gardless of whether they are sold in combination with any device, delivery system, or any component, part, or accessory of such a device or delivery system,” to en- sure consistency between the statutory and regulatory

definitions and avoid any potential confusion. Howev- er, CDTFA staff did not revise the definition of tobacco products because staff determined that the regulatory definition is clear, concise, and consistent with the statutory definition in RTC

section 30121 as amended by Prop. 56. Also, CDTFA staff received a written comment from CSFO dated August 18, 2017. CSFO’s comment re- quested that the example being added to subdivision (f)(5) of Regulation 4076 be revised to “clarify that tax would not apply to the transaction even if the retailer sold the promotional package for a single price.” CDTFA staff agreed that tax would not apply to the transaction in the example even if the retailer sold the promotional package for a single price and that the ex- ample should be clarified accordingly.

Staff also real- ized that the example was illustrating that OTP, such as a liquid or substance containing nicotine, may only be distributed once, and that an item is only sold in combi- nation with a liquid or substance containing nicotine if they are sold in their original manufacturer packaging as one unit or sold for a single price before or when the liquid or substance containing nicotine is distributed.

Therefore, staff proposed to delete the word “first” from the definition of “finished tobacco product” and tobac- co product in “finished condition” in renumbered sub- division (a)(4) of Regulation 4076 to clarify that there is only one distribution of OTP.

Staff revised the defini- tion of sold in combination with proposed to be added to subdivision (a)(5) of Regulation 4076 to provide that an item is sold in combination with a liquid or substance containing nicotine if they are sold in their original manufacturer packaging as one unit or sold for a single price “before or when the liquid or substance containing nicotine is distributed.” Staff also revised the example being added to subdivision (f)(5) of Regulation 4076 to clarify that tax does not apply when a retailer purchases a tax−paid liquid containing nicotine and packages it to- gether with other items for retail sale at a single price as a promotion because the distribution of the tax−paid liq- uid containing nicotine already occurred.

In addition, CSFO’s August 18, 2017, written com- ment incorporated its prior comments regarding re- funds and requested that Regulation 4063.5 be further clarified. However, CDTFA staff determined that any 1144

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z changes to Regulation 4063.5 would be beyond the scope of the current project to address issues (or prob- lems) related to the passage of Prop. 56 and CDTFA staff did not agree that it is necessary to make any changes to Regulation 4063.5 at this time.

CDTF A Staff’s Changes to Proposed Regulation 4077 After considering the interested parties’ comments from June 2017, CDTFA staff agreed that the owner of a brand or formula for a tobacco product who contracts with another person to physically complete the fabrica- tion and assembly of the product to the brand or formula owner’s standard is a manufacturer.

Therefore, CDTFA staff proposed adding the following additional sentence to Regulation 4077, subdivision (a), to address the issue regarding brand or formula owners raised at the June 2017 interested parties meeting: The term tobacco product manufacturer includes an owner of a brand or formula for a tobacco product who contracts with another person to complete the fabrication and assembly of the product to the brand or formula owner’s standard.

In addition, after reviewing CSFO’s June 2017 writ- ten comment regarding the third sentence in proposed Regulation 4077, subdivision (b), CDTFA staff deter- mined that the statement in the third sentence that a “re- tailer must purchase their nicotine products from a li- censed tobacco products distributor” was not entirely accurate.

This is because a retailer that is a licensed manufacturer or distributor may purchase untaxed nicotine products from a person that is not a licensed to- bacco products distributor, and making such a purchase will not cause a retailer that is already a licensed manu- facturer or distributor to become a distributor without first obtaining a distributor’s license.

This is also be- cause a retailer that is not a licensed manufacturer or distributor may purchase tax−paid cigarettes and tobac- co products from a licensed distributor or wholesaler and doing so will not cause a retailer to become a dis- tributor without first obtaining a distributor’s license.

Therefore, to be entirely accurate, staff revised the sen- tence to provide that a “retailer who is not a licensed manufacturer or distributor must purchase its nicotine products from a licensed tobacco products distributor or wholesaler.” Determinations The CDTFA subsequently determined that staff’s proposed amendments to Regulation 4076 are reason- ably necessary to have the effect and accomplish the ob- jective of addressing the issues (or problems) regarding the change to the definition of OTP, effective April 1, 2017, determining whether certain items are electronic cigarettes subject to the taxes on OTP, and determining the wholesale cost of electronic cigarettes subject to the taxes on OTP, discussed above, by providing additional notice to distributors regarding the new definition of OTP, clarifying the new definition of OTP by defining the phrase “sold in combination with,” which is used in the definition of electronic cigarettes, providing exam- ples of items that are and are not sold in combination with a liquid or substance containing nicotine, clarify- ing how to determine the wholesale cost of OTP when the manufacturer is also the distributor, and providing examples of how to estimate or calculate the wholesale cost of products that have been defined as OTP effective April 1, 2017.

The CDTFA determined that the amend- ments to Regulation 4076 are reasonably necessary to have the effect and accomplish the objective of address- ing the issue (or problem) regarding the references to the BOE in Regulation 4076 by replacing those refer- ences with references to the CDTFA.

The CDTFA de- termined that staff’s proposed Regulation 4077 is rea- sonably necessary to have the effect and accomplish the objective of addressing the issue (or problem) deter- mining whether a person is a manufacturer of OTP, as newly defined, effective April 1, 2017, by defining the term “tobacco product manufacturer,” and clarifying who is regarded as the manufacturer of an electronic cigarette produced by mixing liquid nicotine with fla- voring to make a customized product.

The CDTFA also determined that staff’s proposed amendments to Regu- lation 4076 and staff’s proposed Regulation 4077 are reasonably necessary to have the effect and accomplish the objective of addressing the de facto distributor issue (or problem) discussed above by clarifying in Regula- tion 4076 that OTP may only be distributed once and that a retailer does not make a taxable distribution by repackaging tax−paid OTP with other items for retail sale or selling tax−paid OTP with other items for a sin- gle price at retail, and clarifying in proposed Regulation 4077 that a retailer who is not a licensed manufacturer or are reasonably necessary to have the effect and ac- complish the objective of distributor must purchase its nicotine products from a licensed tobacco products dis- tributor or wholesaler.

The CDTFA anticipates that the proposed amend- ments to Regulation 4076 will promote fairness and benefit taxpayers and the CDTFA by providing addi- tional notice to distributors regarding the new definition of OTP, clarifying the new definition of OTP by defin- ing the phrase “sold in combination with,” which is used in the definition of electronic cigarettes, providing examples of items that are and are not sold in combina- tion with a liquid or substance containing nicotine, clar- ifying how to determine the wholesale cost of OTP when the manufacturer is also the distributor, and pro- viding examples of how to estimate or calculate the wholesale cost of products that have been defined as OTP effective April 1, 2017.

The CDTFA anticipates that proposed Regulation 4077 will promote fairness 1145

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z and benefit taxpayers and the CDTFA by defining the term “tobacco product manufacturer,” and clarifying who is regarded as the manufacturer of an electronic cigarette produced by mixing liquid nicotine with fla- voring to make a customized product.

The CDTFA also anticipates that the proposed amendments to Regula- tion 4076 and proposed Regulation 4077 will promote fairness and benefit taxpayers and the CDTFA by clari- fying that OTP may only be distributed once, clarifying that a retailer does not make a taxable distribution by repackaging tax−paid OTP with other items for retail sale or selling tax−paid OTP with other items for a sin- gle price at retail, and clarifying that a retailer who is not a licensed manufacturer or distributor must purchase its nicotine products from a licensed tobacco products dis- tributor or wholesaler.

In addition, the CDTFA has performed an evaluation of whether the proposed amendments to Regulation 4076 and proposed Regulation 4077 are inconsistent or incompatible with existing state regulations and deter- mined that the proposed amendments and proposed reg- ulation are not inconsistent or incompatible with exist- ing state regulations. This is because Regulation 4076 is the only regulation that clarifies the meaning of the phrase “wholesale cost” for purposes of the CTPTL and Regulation 4077 is the only regulation that clarifies who is a tobacco product manufacturer for purposes of the CTPTL.

In addition, the CDTFA has determined that the provisions in the first sentence of proposed Reg- ulation 4077 are comparable to the provisions in

section 387(20)(

A) of title 21 of the United States Code and do not substantially differ from the provisions in the feder- al statute, and that there are no comparable federal regu- lations or statutes to the amendments to Regulation 4076 or the other provisions in proposed Regulation 4077. NO MANDATE ON LOCAL AGENCIES AND SCHOOL DISTRICTS The CDTFA has determined that the adoption of the proposed amendments to Regulation 4076 and pro- posed Regulation 4077 will not impose a mandate on lo- cal agencies or school districts, including a mandate that requires state reimbursement under

part 7 (com- mencing with

section 17500) of division 4 of title 2 of the Government Code. ONE−TIME COST TO AND NON−QUANTITATIVE SA VINGS FOR THE CDTFA, BUT NO OTHER COST OR SA VINGS TO STATE AGENCIES, LOCAL AGENCIES, AND SCHOOL DISTRICTS The CDTFA has determined that the adoption of the proposed amendments to Regulation 4076 and pro- posed Regulation 4077 will result in an absorbable $436 one−time cost for the CDTFA to update its website after the proposed regulatory action is completed.

The CDTFA has also determined that the proposed amend- ments to Regulation 4076 are likely to produce some savings for the CDTFA by reducing the time it takes to perform audits, the number of times distributors will need to be billed for unreported or underreported taxes on electronic cigarettes, and the number of appeals. The CDTFA has determined that proposed Regulation 4077 is likely to produce some savings for the CDTFA by re- ducing the need for enforcement actions against unli- censed manufacturers. However, the CDTFA cannot quantitatively determine the amount of the savings.

In addition, the CDTFA has determined that the adop- tion of the proposed amendments to Regulation 4076 and proposed Regulation 4077 will result in no other di- rect or indirect cost or savings to any state agency, no cost to any local agency or school district that is re- quired to be reimbursed under

part 7 (commencing with

section 17500) of division 4 of title 2 of the Government Code, no other non−discretionary cost or savings im- posed on local agencies, and no cost or savings in feder- al funding to the State of California. NO SIGNIFICANT STATEWIDE ADVERSE ECONOMIC IMPACT DIRECTLY AFFECTING BUSINESS The CDTFA has made an initial determination that the adoption of the proposed amendments to Regulation 4076 and proposed Regulation 4077 will not have a sig- nificant, statewide adverse economic impact directly affecting business, including the ability of California businesses to compete with businesses in other states.

The adoption of the proposed amendments to Regula- tion 4076 and proposed Regulation 4077 may affect small business. 1146

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z NO MEASURABLE COST IMPACTS TO PRIV ATE PERSONS OR BUSINESSES The CDTFA is not aware of any direct cost impacts that a representative private person would necessarily incur in reasonable compliance with the proposed action.

The CDTFA has determined that the amendments to Regulation 4076 will have some direct impact on dis- tributors of liquid nicotine products and accessories by clarifying when devices or delivery systems and any component, part, or accessory of such a device is sold in combination with nicotine and subject to tax as an elec- tronic cigarette, which is included in the statutory defi- nition of tobacco products, and some of the impacted distributors may be small businesses. Also, tobacco products taxes are generally passed onto wholesalers, retailers, and consumers in the form of higher prices.

Therefore, the CDTFA has determined that the amend- ments to Regulation 4076 may have some indirect im- pact on wholesalers, retailers, and consumers if they in- crease the wholesale or retail price of devices, compo- nents, parts, or accessories that were classified as tax- able electronic cigarettes at the time they were distrib- uted, and some of the wholesalers and retailers may be small businesses.

However, the amendments to Regula- tion 4076 do not require distributors to sell their de- vices, components, parts, or accessories in combination with nicotine, and they do not prevent distributors from changing their business practices so that their sales of devices, components, parts, and accessories are not sales of electronic cigarettes subject to tax. Therefore, the CDTFA does not expect the amendments to measur- ably increase or decrease the taxes on or the wholesale or retail prices of devices, components, parts, and ac- cessories or have a measurable cost impact on private persons or businesses.

The CDTFA has also determined that proposed Reg- ulation 4077 will have some impact on businesses that manufacture tobacco products, including liquid nico- tine products, in this state, and some of those businesses may be small business.

This is because tobacco prod- ucts manufacturers are required to register with the CDTFA for a Cigarette and/or Tobacco Products Manufacturer/Importer’s License and some businesses may determine that they are manufacturers as a result of the regulation and incur costs to register with the CDTFA for a manufacturer’s license that might be indi- rectly related to the proposed regulation. However, the CDTFA has determined that those indirect costs are likely to be relatively small and cannot be reliably estimated. RESULTS OF THE ECONOMIC IMPACT ASSESSMENT REQUIRED BY GOVERNMENT CODE

SECTION 11346.3, SUBDIVISION (

b) The CDTFA assessed the economic impact of the proposed amendments to Regulation 4076 and pro- posed Regulation 4077 on California businesses and in- dividuals and determined that the proposed regulatory action is not a major regulation, as defined in Govern- ment Code

section 11342.548 and California Code of Regulations, title 1,

section 2000. Therefore, the CDTFA has prepared the economic impact assessment (EIA) required by Government Code

section 11346.3, subdivision (b)(1), and included it in the initial state- ment of reasons. In the EIA, the CDTFA determined that the adoption of the proposed amendments to Regu- lation 4076 and proposed Regulation 4077 will neither create nor eliminate jobs in the State of California nor result in the creation of new businesses or the elimina- tion of existing businesses in the state, and will not af- fect the expansion of businesses currently doing busi- ness in the State of California.

Furthermore, the CDTFA determined that the adoption of the proposed amendments to Regulation 4076 and proposed Regula- tion 4077 will not affect the benefits of the regulations to the health and welfare of California residents, worker safety, or the state’s environment. NO SIGNIFICANT EFFECT ON HOUSING COSTS The adoption of the proposed amendments to Regula- tion 4076 and proposed Regulation 4077 will not have a significant effect on housing costs.

DETERMINATION REGARDING ALTERNATIVES The CDTFA must determine that no reasonable alter- native considered by it or that has otherwise been identi- fied and brought to its attention would be more effective in carrying out the purpose for which the action is pro- posed, would be as effective and less burdensome to af- fected private persons than the proposed action, or would be more cost−effective to affected private per- sons and equally effective in implementing the statuto- ry policy or other provision of law than the proposed action.

CONTACT PERSONS Questions regarding the substance of the proposed amendments to Regulation 4076 and proposed Regula- 1147

CALIFORNIA REGULATORY NOTICE REGISTER 2019, VOLUME NUMBER 33-Z tion 4077 should be directed to Joshua Aldrich, Tax Counsel, by telephone at (916) 322−3283, by e−mail at Joshua.Aldrich@cdtfa.ca.gov, or by mail at California Department of Tax and Fee Administration, Attn: Joshua Aldrich, MIC:82, 450 N Street, P.O. Box 942879, Sacramento, CA 94279−0082. Written comments for the CDTFA’s consideration, written requests to hold a public hearing, notices of in- tent to present testimony or witnesses at the public hear- ing, and other inquiries concerning the proposed ad- ministrative action should be directed to Mr.

Rick Ben- nion, Regulations Coordinator, by telephone at (916) 445−2130, by fax at (916) 322−2958, by e−mail at Richard.Bennion@cdtfa.ca.gov, or by mail at Califor- nia Department of Tax and Fee Administration, Attn: Rick Bennion, MIC:50, 450 N Street, P.O. Box 942879, Sacramento, CA 94279−0050. Mr. Bennion is the des- ignated backup contact person to Mr. Aldrich. WRITTEN COMMENT PERIOD The written comment period ends at 11:59 p.m. (PDT) on September 30, 2019. The CDTFA will con- sider the statements, arguments, and/or contentions contained in written comments received by Mr.

Rick Bennion at the postal address, email address, or fax number provided above, prior to the close of the written comment period, before the CDTFA decides whether to adopt the proposed amendments to Regulation 4076 and proposed Regulation 4077. The CDTFA will only consider written comments received by that time.

However, if a public hearing is held, written com- ments may also be submitted at the public hearing and the CDTFA will consider the statements, arguments, and/or contentions contained in written comments sub- mitted at the public hearing before the CDTFA decides whether to adopt the proposed amendments to Regula- tion 4076 and proposed Regulation 4077. A V AILABILITY OF INITIAL STATEMENT OF REASONS AND TEXT OF PROPOSED REGULATION The CDTFA has prepared a copy of the text of the proposed amendments to Regulation 4076 illustrating its express terms.

The proposed amendments are illus- trated in underline and strikeout format because Cali- fornia Code of Regulations, title 1,

section 8, subdivi- sion (

b) provides that “the final text of the regulation shall use underline or italic to accurately indicate addi- tions to, and strikeout to accurately indicate deletions from, the California Code of Regulations.” The CDTFA has prepared a copy of the text of pro- posed Regulation 4077 illustrating its express terms; however, the proposed regulation is not illustrated in underline or italics format because California Code of Regulations, title 1,

section 8, subdivision (

b) provides that “[u]nderline or italic is not required for the adop- tion of a new regulation or set of regulations if the final text otherwise clearly indicates that all of the final text submitted to OAL for filing is added to the California Code of Regulations.” The CDTFA has also prepared an initial statement of reasons for the adoption of the proposed amendments to Regulation 4076 and proposed Regulation 4077, which includes the economic impact assessment required by Government Code

section 11346.3, subdivision (b)(1). These documents and all the information on which the proposed amendments and proposed regulation are based are available to the public upon request. The rule- making file is available for public inspection at 450 N Street, Sacramento, California. The express terms of the proposed amendments to Regulation 4076 and pro- posed Regulation 4077 and the initial statement of rea- sons are also available on the CDTFA’s website at www.cdtfa.ca.gov.

PUBLIC HEARING The CDTFA has not scheduled a public hearing to discuss the proposed amendments to Regulation 4076 and proposed Regulation 4077. However, any interest- ed person or his or her authorized representative may submit a written request for an oral hearing no later than 15 days before the close of the written comment period, and the CDTFA will hold a public hearing if it receives a timely written request. SUBSTANTIALLY RELATED CHANGES PURSUANT TO GOVERNMENT CODE

SECTION 11346.8 The CDTFA may adopt the proposed amendments to Regulation 4076 and adopt proposed Regulation 4077 with changes that are non−substantial or solely gram- matical in nature, or sufficiently related to the original proposed text that the public was adequately placed on notice that the changes could result from the originally proposed regulatory action. If a sufficiently related change is made, the CDTFA will make the full text of the proposed regulation, with the change clearly indi- cated, available to the public for at least 15 days before adoption.

The text of the resulting regulation will be mailed to those interested parties who commented on the original proposed regulation orally or in writing or who asked to be informed of such changes. The text of the resulting regulation will also be available to the pub- l