Legislature(2003 - 2004)
04/16/2003 01:46 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE BILL NO. 224 "An Act relating to a tobacco product manufacturer's compliance with certain statutory requirements regarding cigarette sales; and providing for an effective date." MIKE BARNHILL, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, testified in support of the bill and provided information about the legislation. He referred to the Master Settlement Agreement, initiated in Alaska and 45 other states as a result of the 1998 settlement of tobacco company litigation. The Master Settlement Agreement established a stream of revenue that lasts in perpetuity. He noted that Alaska's most recent annual payment was for $17.5 million. Mr. Barnhill stated that the revenue stream could however be reduced under certain circumstances. He noted that one circumstance was known as a non-participating manufacturer (NPM) adjustment. He explained that states could avoid an NPM adjustment in two ways: first, by enacting an NPM statute, and second, by diligently enforcing the statute. He referenced Alaska's NPM statute, located in AS 45.53. He explained that the statute creates economic equanimity under the Settlement Agreement between participating and non- participating manufacturers. He pointed out that participating manufacturers fund the Settlement Agreement revenue stream by raising the prices of cigarettes. He stated that the NPM statute requires non-participating manufacturers to deposit money into an escrow account based on cigarette sales in the state. He noted that in FY 01 and 02, the amount deposited equaled 1.5 cents per sale. Mr. Barnhill also addressed the enforcement of the statute. He noted that the Department of Revenue sends letters to non-participating manufacturers advising them of their legal obligations. If compliance does not occur after several letters, the manufacturers are referred to the Department of Law, and a lawsuit may be filed if the sales are significant. He pointed out the case of a company in India that did not comply, resulting in a lawsuit filed by the state of Alaska. He discussed the difficulties of filing an international lawsuit, and noted that in 2001 Alaska, along with the state of Maine, passed complimentary legislation designed to enhance the states' ability to enforce their escrow laws. He added that in 2002, the National Association of Attorneys General formed a working group to design model statutes and encourage uniformity between states. He stated that the proposed legislation, HB 224, resulted from this working group. Mr. Barnhill explained that the statute establishes a list, developed by the Department of Revenue, of the manufacturers and brands of cigarettes allowed for sale in the state of Alaska. He noted that to be on the list, a manufacturer must do one of two things: either certify annually that they are a participating manufacturer under the Settlement Agreement, or a non-participating manufacturer in compliance with state law. A distributor may refer to the list and determine which brands they may sell. He noted that the legislation also provides for provision of information by manufacturers in order to monitor compliance. It also provides penalties for non-compliance, and addresses special conditions for foreign manufacturer enforcement. He added that the bill provides a tax credit for distributors who purchase a brand of cigarettes that are later taken off the list for non-compliance. Representative Stoltze asked for information about statutes exempting tribal entities from paying taxes on cigarette sales. Mr. Barnhill referred to national research investigating Internet sites selling tax-free cigarettes. Representative Stoltze referred to the sale of tax-free tobacco on reservations. JOHANNA D. BALES, TAX AUDITOR, DEPARTMENT OF REVENUE noted that she coordinates the cigarette and tobacco products excise tax program. She referred to the passage of the Native Claims Settlement Act in 1977, and its establishment of corporation status for every tribe in the state of Alaska. She noted that the only tribe with a reservation status was the Metlakatla Indian Community, making them the only native tribe in the state that can purchase cigarettes without paying tax. She noted that the Department of Revenue had negotiated with the tribe and reached an agreement, whereby the tribe will collect and pay state taxes if their purchase of tobacco products exceeds a certain amount. She added that the Klawock Indian Community maintained 2.5 acres of Indian Country Land, which includes a smoke shop where they can sell cigarettes without paying tax. She concluded that Alaska differed from others states in this issue, and did not experience the same difficulties. In response to a question by Representative Meyer, Mr. Barnhill clarified that the zero impact fiscal notes were a result of existing complimentary legislation. He added that the proposed legislation simply updates current procedures and makes enforcement easier. Vice-Chair Meyer asked if there was legislation considering placing a stamp on cigarettes to indicate its place of purchase. Mr. Barnhill noted that SB 168-CIGARETTE SALE/DISTRIBUTION ["An Act relating to . . . payment of cigarette taxes through the use of cigarette tax stamps; . . ."] did propose this action. Representative Foster MOVED to report HB 224 out of Committee with individual recommendations and accompanying fiscal notes. There being NO OBJECTION it was so ordered. HB 224 was REPORTED out of Committee with a "do pass" recommendation and two previously published zero fiscal notes, #1 from the Department of Law and #2 from the Department of Revenue.