Legislature(2003 - 2004)

2003-03-28 House Journal

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2003-03-28                     House Journal                      Page 0673
HB 224                                                                                            
HOUSE BILL NO. 224 by the House Rules Committee by request of                                       
the Governor, entitled:                                                                             
     "An Act relating to a tobacco product manufacturer's compliance                                
     with certain statutory requirements regarding cigarette sales; and                             
     providing for an effective date."                                                              
was read the first time and referred to the Labor & Commerce and                                    
Finance Committees.                                                                                 

2003-03-28                     House Journal                      Page 0674
The following fiscal note(s) apply:                                                                 
1.  Zero, Dept. of Law                                                                              
2.  Zero, Dept. of Revenue                                                                          
The Governor's transmittal letter dated March 27, 2003, follows:                                    
"Dear Speaker Kott:                                                                                 
Under the authority of art. III, sec. 18, of the Alaska Constitution, I am                          
transmitting a bill relating to a tobacco product manufacturer's                                    
compliance with certain statutory requirements regarding cigarette                                  
The model for the bill was drafted by the National Association of                                   
Attorneys General in cooperation with a working group of                                            
participating states and is designed to aid state enforcement of the                                
tobacco product Master Settlement Agreement and AS 45.53, and thus                                  
preserve, to the fullest extent possible, the revenue stream under the                              
Master Settlement Agreement.  We understand that most of the 46                                     
participating states will seek to pass this legislation in their respective                         
upcoming legislative sessions.  We also understand that the bill has                                
been reviewed and approved by two of the principal tobacco parties to                               
the Master Settlement Agreement, Phillip Morris and RJ Reynolds.                                    
In 1999, 46 states, including Alaska, collectively settled their claims                             
against certain tobacco manufacturers and entered into the "Master                                  
Settlement Agreement" (MSA).  Under the MSA, the participating                                      
tobacco product manufacturers agreed to pay certain amounts to the                                  
settling states in perpetuity in exchange for dismissal of the states'                              
lawsuits.  One of the provisions of the MSA, however, required that                                 
the states enact legislation that would "level the playing field" for non-                          
participating tobacco manufacturers.  This leveling legislation required                            
such non-participating tobacco manufacturers to deposit money into                                  
escrow for every cigarette they sold in the state.  The intent of this                              
escrow requirement was to prevent the non-participants from                                         
undermining the overall goals of MSA by guaranteeing "a source of                                   
compensation and to prevent such manufacturers from deriving large,                                 
short-term profits and then becoming judgment-proof before liability                                
may arise."  See sec. 1, ch. 46, SLA 1999.                                                          

2003-03-28                     House Journal                      Page 0675
Since 1999, the participating states have detected concerted efforts by                             
non-participating tobacco manufacturers to evade the legislated                                     
escrow requirements.  Various schemes have been employed, often                                     
through use of elusive foreign tobacco manufacturers, to attempt to                                 
circumvent the requirement of escrow deposits.                                                      
This bill seeks to bring an end to these schemes.  In order to sell                                 
cigarettes in this state, a tobacco product manufacturer will have to                               
annually certify that it is in compliance with AS 45.53.  Additionally,                             
tobacco product manufacturers must include certain information that                                 
will assist the Department of Revenue in its enforcement efforts in this                            
The Department of Revenue will publish and update a directory of                                    
cigarettes that are approved for sale in this state.  Cigarettes that are                           
not listed in this directory are contraband and may not be sold in the                              
state.  The bill provides for civil penalties for selling or possessing                             
contraband cigarettes.                                                                              
The enactment of this bill will bring an end to efforts by non-                                     
participating manufacturers to evade their obligations to deposit                                   
escrow for their in-state cigarette sales.                                                          
I urge your prompt and favorable action on this measure.                                            
                                Frank H. Murkowski