California State Measure 56: Tobacco Tax and Medi-Cal Funding

California Proposition 56, the Healthcare, Research and Prevention Tobacco Tax Act of 2016, added $2.00 to the state excise tax on every pack of cigarettes and imposed an equivalent tax on other tobacco products, including nicotine e-cigarettes. Voters approved it in November 2016, the cigarette increase took effect on April 1, 2017, and the revenue is constitutionally locked into Medi-Cal, tobacco prevention, and tobacco-related research.

What the Tax Is

Before Proposition 56, California’s state excise tax on cigarettes was 87 cents per pack of 20. The measure pushed that to $2.87 per pack, and it has stayed there through mid-2025.¹ The tax is levied on distributors and wholesalers rather than collected at the register, but the cost passes through to the price a smoker pays.

Other tobacco products, cigars, pipe tobacco, chewing tobacco, and snuff, are taxed as a percentage of wholesale cost rather than a flat per-unit amount. The CDTFA recalculates the percentage each fiscal year to keep it equivalent to the per-pack cigarette rate. When the new rate first took effect for 2017–18, it jumped from 27.30 percent to 65.08 percent of wholesale cost.² As of July 2025, it sits at 54.27 percent of wholesale cost.¹ Because it floats with wholesale cigarette pricing, the rate on other tobacco products changes from year to year while the per-pack cigarette tax stays fixed.

Proposition 56 also rewrote the legal definition of tobacco products to include electronic cigarettes and nicotine liquids used in vaping devices, pulling them under the same excise tax as cigars and chewing tobacco.² One detail trips people up: zero-nicotine vaping products aren’t covered. The tax reaches only electronic cigarettes “containing or sold with nicotine.”³ California has since added a separate retail-level e-cigarette tax of 12.5 percent of the selling price, on top of the Proposition 56 excise tax.

The expanded cigarette tax and the new definition pulling in e-cigarettes both took effect on April 1, 2017. The higher rate on other tobacco products followed on July 1, 2017, the start of the next fiscal year.⁴

Where the Money Goes

Revenue flows into a dedicated fund named after the act. Before any new program sees a dollar, a portion must “backfill” the older tobacco tax programs created by Propositions 99 and 10. Those older taxes bring in less as cigarette consumption falls, and Proposition 56 requires making them whole first. In fiscal year 2022–23, the backfill exceeded $153 million.⁵

What’s left is split three ways.

Medi-Cal Healthcare: 82 Percent

The largest share goes to the Healthcare Treatment Fund, where the Department of Health Care Services uses it to increase payments and services for Medi-Cal enrollees. The statute requires the money to draw down federal matching dollars and bars it from replacing existing general fund spending. Payments reach physicians, dentists, clinics, licensed health facilities, and managed care plans that contract with the state.⁶

Part of this allocation funds the Proposition 56 Medi-Cal Physicians and Dentists Loan Repayment Program, which helps physicians and dentists pay down school debt if they work in provider-shortage areas and keep a patient caseload that is at least 30 percent Medi-Cal.⁷

Tobacco Prevention and Cessation: 13 Percent

Within this slice, 85 percent goes to the Department of Public Health’s Tobacco Control Program for prevention campaigns, community health communication, and tracking tobacco use. The remaining 15 percent goes to the Department of Education for school-based programs targeting youth tobacco and nicotine use. Both portions must direct at least 15 percent of their funding at tobacco-related health disparities.⁸

Tobacco-Related Disease Research: 5 Percent

The last five percent funds the Tobacco-Related Disease Research Program at the University of California, covering research on prevention, detection, and treatment of diseases linked to tobacco use, including cancer, cardiovascular disease, and lung disease. For 2024–25, the related CalMedForce graduate medical education grant program distributed about $24.6 million to residency training programs across the state.⁹

Why the Legislature Can’t Touch the Fund

Because Proposition 56 amended the state constitution along with the tax code, its revenue cannot be appropriated, transferred, reverted, or loaned to the general fund or any other state or local fund for purposes outside the act. The governor, the legislature, the Director of Finance, and the State Controller are each explicitly barred from redirecting the money. The revenue also doesn’t count as general fund revenue for state spending-limit calculations, keeping it outside the usual budget negotiations.¹⁰ That lock-box design is why the funded programs have stayed largely intact through budget shortfalls.

Revenue Is Shrinking

The measure contains a built-in tension: higher prices suppress the sales that generate the tax. Taxed cigarette packs distributed in California fell from 651 million to 465 million over the six fiscal years leading into 2022–23, and total annual Proposition 56 revenue dropped from about $1.5 billion in 2017–18 to about $1.1 billion in 2022–23.⁵

Programs are feeling it. The Department of Public Health ended its STAKE grants for tobacco retail enforcement, citing insufficient revenue and a decision to prioritize state-level efforts.⁵ The University of California’s graduate medical education program has started supplementing Proposition 56 money with earned interest to hold award levels steady.⁹

Tobacco Sold on Tribal Land Is Not Exempt

A common misconception is that cigarettes bought on a Native American reservation escape the Proposition 56 tax. California provides no special excise tax exemption for sales to or by Native Americans. A non-tribal distributor selling to a tribal retailer must still purchase and affix California tax stamps. If a tribal retailer sells untaxed cigarettes to a non-tribal customer, the retailer is responsible for collecting and remitting the excise tax. If the retailer doesn’t, the non-tribal purchaser becomes personally liable, must register with the CDTFA, and must file returns and pay the tax directly.¹¹

1
California Department of Tax and Fee Administration. Tax Rates — Special Taxes and Fees
2
California Department of Tax and Fee Administration. Cigarette and Tobacco Revenue
3
California Department of Tax and Fee Administration. Tax Guide for California Electronic Cigarette Excise Tax
4
California Department of Tax and Fee Administration. Special Taxes and Fees Publication 201
5
California State Auditor. 2023-046 Proposition 56 Tobacco Tax
6
California Office of the Attorney General. Revenue and Tax Code Sections 30130.50–30130.58
7
California Legislative Information. AB-882 Proposition 56 Medi-Cal Physicians and Dentists Loan Repayment Act Program
8
California Legislative Information. California Revenue and Taxation Code RTC 30130.55
9
University of California Office of the President. Use of Proposition 56 Funding: 2024-2025 Appropriation
10
California Office of the Attorney General. Proposition 56 — Text of Proposed Laws
11
California Department of Tax and Fee Administration. Tax Guide for Native Americans: Other Taxes and Fees