Legislature(2003 - 2004)

04/23/2004 03:33 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 538-TOBACCO TAX; LICENSING; PENALTIES                                                                                      
                                                                                                                                
[Contains discussion of SB 368, the companion bill]                                                                             
                                                                                                                                
CHAIR ANDERSON  announced that the  only order of  business would                                                               
be HOUSE  BILL NO. 538, "An  Act relating to taxes  on cigarettes                                                               
and  tobacco  products; relating  to  tax  stamps on  cigarettes;                                                               
relating to forfeiture of cigarettes  and of property used in the                                                               
manufacture,  transportation, or  sale  of unstamped  cigarettes;                                                               
relating to licenses  and licensees under the  Cigarette Tax Act;                                                               
and providing for  an effective date."  [HB 538  was sponsored by                                                               
the House  Rules Standing Committee  by request of  the governor;                                                               
before the committee was CSHB 538(W&M).]                                                                                        
                                                                                                                                
Number 0010                                                                                                                     
                                                                                                                                
CHAIR  ANDERSON reminded  members that  at the  last hearing  the                                                               
committee  heard  from  Joel   Gilbertson,  commissioner  of  the                                                               
Department of  Health and Social  Services (DHSS);  Johanna Bales                                                               
of the Department  of Revenue; and testifiers both  in support of                                                               
and  opposition  to  the  bill.    Although  he'd  closed  public                                                               
testimony, he'd  asked Commissioner  Gilbertson and Ms.  Bales to                                                               
return.                                                                                                                         
                                                                                                                                
Number 0079                                                                                                                     
                                                                                                                                
JOHANNA BALES, Excise Audit Manager,  Tax Division, Department of                                                               
Revenue, program  manager for the cigarette  and tobacco products                                                               
excise tax, said  she was available to  explain technical aspects                                                               
of  the  proposed  amendments as  well  as  the  administration's                                                               
position on those.                                                                                                              
                                                                                                                                
CHAIR  ANDERSON informed  members that  also available  to answer                                                               
questions  were  Larry  Meyers, Department  of  Revenue;  and  Al                                                               
Storey,  Alaska  State  Troopers,  Department  of  Public  Safety                                                               
(DPS),  who'd  been  present, though  not  acknowledged,  at  the                                                               
previous hearing.                                                                                                               
                                                                                                                                
Number 0166                                                                                                                     
                                                                                                                                
CHAIR ANDERSON moved to adopt Amendment 1, labeled 23-                                                                          
GH2116\Q.4, Kurtz, 4/23/04, which read:                                                                                         
                                                                                                                                
     Page 10, following line 15:                                                                                                
          Insert new bill sections to read:                                                                                     
        "* Sec.  25.   AS 43.50.710 is  amended by  adding a                                                                
     new subsection to read:                                                                                                    
          (e)  Nothing in this section prohibits a                                                                              
     manufacturer from  offering promotions to  a wholesaler                                                                    
     or a  retailer provided the wholesale  promotion is the                                                                    
     same for  all participating wholesalers and  the retail                                                                    
     promotion is the same for all participating retailers.                                                                     
        * Sec. 26.  AS 43.50.720 is amended to read:                                                                          
          Sec. 43.50.720.  Sale at less than cost; with                                                                       
     gift or  concession. In all advertisements,  offers for                                                                  
     sale,  or sales  involving two  or more  items when  at                                                                    
     least  one of  the items  is cigarettes  at a  combined                                                                    
     price, and  in all advertisements, offers  for sale, or                                                                    
     sales involving the giving of  any gift, concession, or                                                                    
     coupon  of any  kind in  conjunction with  the sale  of                                                                    
     cigarettes,  the  wholesaler's or  retailer's  combined                                                                    
     selling price may  not be below the actual  cost to the                                                                    
     wholesaler  or   the  actual  cost  to   the  retailer,                                                                    
     respectively, of  the total of all  articles, products,                                                                    
     commodities,  gifts, and  concessions  included in  the                                                                    
     transactions, except  that, if any  articles, products,                                                                    
     commodities, gifts, or  concessions are not cigarettes,                                                                    
     the  actual   [BASIC]  cost  shall  be   determined  as                                                                
     provided under AS 43.50.800.                                                                                               
        * Sec. 27.  AS 43.50.760(b) is amended to read:                                                                       
          (b)  The presumptive actual [WHOLESALE AND                                                                        
     PRESUMPTIVE  RETAIL] cost  of cigarettes  as determined                                                                    
     by   the  department   under  AS 43.50.800   [FROM  THE                                                                
     MANUFACTURER'S  PRICE  LIST]  is  considered  competent                                                                    
     evidence in a court action  or proceeding as tending to                                                                    
     prove  actual  cost  to   the  wholesaler  or  retailer                                                                    
     complained  against.     A   party  against   whom  the                                                                    
     presumptive  wholesale or  presumptive  retail cost  as                                                                    
     determined by the department  is introduced in evidence                                                                    
     has the  right to offer  evidence tending to  prove any                                                                    
     inaccuracy of the  presumptive wholesale or presumptive                                                                    
     retail  cost  or  any statement  of  facts  that  would                                                                    
     impair its probative value.                                                                                                
        * Sec. 28.  AS 43.50.770 is amended to read:                                                                          
          Sec. 43.50.770.  Determination of cost of                                                                           
     cigarettes  purchased outside  of ordinary  channels of                                                                  
     trade.   In  establishing  the actual  [BASIC] cost  of                                                              
     cigarettes  to a  wholesaler or  retailer, the  invoice                                                                    
     cost [OR THE ACTUAL COST]  of cigarettes purchased at a                                                                    
     forced,  bankrupt,  or  closeout sale,  or  other  sale                                                                    
     outside  the  ordinary channels  of  trade  may not  be                                                                    
     used.                                                                                                                      
        * Sec. 29.  AS 43.50.790(a) is amended to read:                                                                       
          (a)  The department                                                                                                   
               (1)  shall administer AS 43.50.710 -                                                                             
     43.50.849;                                                                                                                 
               (2)  may adopt regulations relating to the                                                                       
     administration  and   enforcement  of   AS 43.50.710  -                                                                    
     43.50.849;                                                                                                                 
               (3)  may determine the actual [BASIC] cost                                                                   
     of cigarettes  to a wholesaler or  retailer as provided                                                                
     in  AS 43.50.800  [FROM  INFORMATION  OBTAINED  FROM  A                                                                
     MANUFACTURER];                                                                                                             
               (4)  may, after reasonable notice and                                                                            
     hearing,  revoke  or  suspend a  license  issued  under                                                                    
     AS 43.50.010 or  43.50.035 to a  person who  refuses or                                                                    
     neglects to  comply with a provision  of AS 43.50.710 -                                                                    
     43.50.849.                                                                                                                 
        * Sec.  30.  AS 43.50.800 is  repealed and reenacted                                                                  
     to read:                                                                                                                   
          Sec. 43.50.800.  Presumptions applicable to                                                                         
     determination  of  cost.    (a)   The  actual  cost  of                                                                  
     cigarettes to a wholesaler  is presumed for purposes of                                                                    
     AS 43.50.710   -  43.50.849   to  be   the  presumptive                                                                    
     wholesale cost as calculated by  the department plus an                                                                    
     amount  equal  to  four and  one-half  percent  of  the                                                                    
     presumptive  wholesale  cost  to account  for  business                                                                    
     costs.   For purposes of this  section, the presumptive                                                                    
     wholesale cost  is the manufacturer's list  price, less                                                                    
     trade  discounts,  plus  the full  face  value  of  all                                                                    
     cigarette taxes.                                                                                                           
          (b)  The actual cost of cigarettes to a retailer                                                                      
     is presumed  for purposes  of AS 43.50.710  - 43.50.849                                                                    
     to be  the presumptive wholesale cost  as calculated by                                                                    
     the  department  under (a)  of  this  section, plus  an                                                                    
     amount  equal   to  six  percent  of   the  presumptive                                                                    
     wholesale cost to account for business costs.                                                                              
          (c)  A wholesaler or retailer that wishes to                                                                          
     advertise, offer  to sell, or  sell cigarettes  at less                                                                    
     than the  presumptive actual cost to  the wholesaler or                                                                    
     retailer  as  calculated  under  (a)  or  (b)  of  this                                                                    
     section   must   first   obtain   approval   from   the                                                                    
     department.  The department may  grant approval only if                                                                    
     the wholesaler or  retailer provides proof satisfactory                                                                    
     to  the department  that the  wholesaler or  retailer's                                                                    
     actual  cost  is lower  than  presumed.   Approval  for                                                                    
     cigarette  sales at  less than  the presumptive  actual                                                                    
     cost as  determined under  (a) or  (b) of  this section                                                                    
     may not be  granted for a period longer  than one year.                                                                    
     In reviewing proof of actual  wholesale or retail cost,                                                                    
     the department may consider the  costs reflected on the                                                                    
     actual invoice,  but may  not consider  cash discounts.                                                                    
     In  reviewing  proof  of  actual  business  costs,  the                                                                    
     department may  consider the  standards and  methods of                                                                    
     accounting regularly  employed, and must  include labor                                                                    
     costs, rent,  depreciation, selling  costs, maintenance                                                                    
     of equipment,  delivery costs,  all types  of licenses,                                                                    
     taxes,  insurance,  advertising,  preopening  expenses,                                                                    
     provision  for  impaired   assets  and  closing  costs,                                                                    
     interest  expenses,   and  provision  for   merger  and                                                                    
     restructuring expenses.                                                                                                    
        *   Sec.   31.      AS 43.50.740(b),   43.50.849(1),                                                                  
     43.50.849(6), and 43.50.849(7) are repealed."                                                                            
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
Number 0211                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG objected for discussion purposes.                                                                     
                                                                                                                                
CHAIR  ANDERSON informed  members that  this was  adopted in  the                                                               
Senate  Finance  Committee  [as  an amendment  to  SB 368].    He                                                               
remarked,  "I've  been  told  by  one  of  the  facilitators  and                                                               
interested parties who want this  amendment that they believe the                                                               
Department of Administration is not averse  to it."  He read from                                                               
the  governor's   March  16,  2004,  transmittal   letter,  which                                                               
indicates  the intention  of  reducing  cigarette consumption  in                                                               
Alaska by  doubling the  excise tax to  $2 a pack.   He  said the                                                               
governor's expectation  is that the resulting  price increase for                                                               
a carton  of cigarettes  will provide  a financial  incentive for                                                               
existing smokers to quit, discourage  new smokers from picking up                                                               
the habit, and restrict access by youth to these products.                                                                      
                                                                                                                                
CHAIR  ANDERSON   acknowledged  the  arrival   of  Representative                                                               
Rokeberg.  He continued, saying  the state's position seems to be                                                               
that any  increase in cost  will reduce consumption.   Last year,                                                               
with SB 168, Alaska attempted to  join 25 other states with fair-                                                               
trade  laws  that prohibit  the  sale  of below-cost  cigarettes.                                                               
Despite  the   new  law,  some   wholesales  and   retailers  use                                                               
"predatory  pricing  practices"  to  promote the  sale  of  cheap                                                               
cigarettes.   Since there are  known, inherent health  risks from                                                               
tobacco  consumption,  he said,  it  is  inconsistent with  state                                                               
policy to  allow distributors and retailers  to promote cigarette                                                               
sales by using cigarettes as a loss leader.                                                                                     
                                                                                                                                
CHAIR ANDERSON  indicated he  deduced from  this letter  that the                                                               
administration would support an amendment  to ban the practice of                                                               
allowing  distributors  and  retailers  to  use  using  predatory                                                               
pricing schemes to promote the  sale of cigarettes.  He explained                                                               
that [among  other things] Amendment  1 repeals and  reenacts the                                                               
language in AS  43.50.800 and strengthens existing  laws.  Asking                                                               
Ms. Bales to  explain the current system and  what this amendment                                                               
might do, he  acknowledged she wasn't promoting  it, but surmised                                                               
she wasn't opposing it either.                                                                                                  
                                                                                                                                
Number 0420                                                                                                                     
                                                                                                                                
MS. BALES explained that last year's  SB 168 had a provision such                                                               
that cigarettes cannot  be sold below cost.  Since  the January 1                                                               
effective date, some distributors  in Alaska haven't been selling                                                               
below  cost necessarily;  because of  their size,  however, their                                                               
discounts from the  manufacturers and so forth tend  to be larger                                                               
than those  of other  in-state distributors,  or their  cash flow                                                               
may enable  them to  take additional  discounts because  they can                                                               
pay earlier, for example.  She said:                                                                                            
                                                                                                                                
     The way  this language  was originally written  is that                                                                    
     you could  not reduce the  price of your  cigarettes by                                                                    
     customary discounts for  cash.  Of the  25 other states                                                                    
     that  have similar  language, ...  65 percent  of those                                                                    
     states do not  allow customary discounts for  cash.  At                                                                    
     the  ninth hour  of the  legislation last  session, the                                                                    
     customary discounts for cash  was thrown into the bill.                                                                    
     ... It's  a concern for in-state  distributors, and ...                                                                    
     we  understand their  concerns  and  certainly have  no                                                                    
     disagreement with them on that.                                                                                            
                                                                                                                                
MS. BALES addressed another aspect of Amendment 1 as follows:                                                                   
                                                                                                                                
     Because we  do get  information from  manufacturers, we                                                                    
     know what  cigarettes sell for.   We post a price.   If                                                                    
     you sell  below that  cost, we,  on a  complaint basis,                                                                    
     will  go out  and  check to  see  if there's  problems.                                                                    
     What  ends up  happening there  is these  companies can                                                                    
     continue to sell their cigarettes  at a low cost before                                                                    
     we have a  chance to look at it.   This amendment would                                                                    
     require that  they get preapproval from  the Department                                                                    
     of  Revenue  before  selling their  product  below  the                                                                    
     amount that we post.                                                                                                       
                                                                                                                                
CHAIR ANDERSON referred  to testimony at the  previous hearing by                                                               
Michael Elerding  of Ketchikan, owner of  Northern Sales [Company                                                               
of  Alaska,  Inc.].   Chair  Anderson  indicated  that  Anchorage                                                               
distributors  must contend  with those  out-of-state distributors                                                               
as well.  He explained that  he'd moved to adopt [Amendment 1] to                                                               
try  to  bring  parity  and  some balance,  and  to  ensure  that                                                               
everyone has  to abide  by the same  regulatory scheme,  since he                                                               
believes  the last-minute  amendment [to  SB 168]  affected local                                                               
distributors adversely.                                                                                                         
                                                                                                                                
Number 0640                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG informed members  that Mr. Elerding had                                                               
come to  his office to outline  this problem; he thanked  him for                                                               
bringing this  forward.   He asked Ms.  Bales what  criteria have                                                               
been used by the department to grant the [preapproval].                                                                         
                                                                                                                                
MS. BALES responded  that this expands items  that the department                                                               
would look at  and increases the department's  ability to request                                                               
"more  and  more  documentation  from  a  company  if  we're  not                                                               
comfortable  with what  they've provided."   Businesses  all work                                                               
differently  and have  different  accounting  systems; thus  this                                                               
language doesn't specifically outline  what they have to provide.                                                               
Citing an example of a  multistate and multinational company that                                                               
had  only provided  the  costs of  operating  in Alaska,  despite                                                               
having  support  from  regional  headquarters,  she  opined  that                                                               
requiring  prior approval  is a  good idea  because it  gives the                                                               
department more time to get the necessary information.                                                                          
                                                                                                                                
CHAIR  ANDERSON  remarked  that  he'd  brought  up  where  [those                                                               
distributors]  live,  in  Ketchikan  and  Anchorage,  because  of                                                               
wanting to help local folks.                                                                                                    
                                                                                                                                
Number 0750                                                                                                                     
                                                                                                                                
MS. BALES, in response to  a further question from Representative                                                               
Guttenberg, explained:                                                                                                          
                                                                                                                                
     Any provision that's put in  Title 43 is subject to ...                                                                    
     the hearing process.  So  if we tell any business, "No,                                                                    
     we're not  happy with your information,"  they have the                                                                    
     right  to appeal  any determination  that  we made  and                                                                    
     take it up to an appeals  officer and then also take it                                                                    
     ... outside  to the  Office of Tax  Appeals [Department                                                                    
     of Administration]  and then ...  up the chain.  ... We                                                                    
     will try  to identify, as much  as we can, but  at this                                                                    
     time ...  we really need  to do our homework  to figure                                                                    
     out how these businesses operate,  to make sure that we                                                                    
     have  regulations that  pertain  to  all the  different                                                                    
     nuances that come up.                                                                                                      
                                                                                                                                
Number 0846                                                                                                                     
                                                                                                                                
MS. BALES, in  response to questions, specified  that a cigarette                                                               
is  defined as  tobacco rolled  in  paper.   For example,  herbal                                                               
clove "cigarettes"  don't contain tobacco or  nicotine and aren't                                                               
taxed.                                                                                                                          
                                                                                                                                
REPRESENTATIVE GATTO surmised that  these other products would be                                                               
harmful in some way, however.                                                                                                   
                                                                                                                                
MS.  BALES said  she didn't  know, but  didn't believed  they had                                                               
caught on much.                                                                                                                 
                                                                                                                                
Number 0920                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG withdrew his objection.                                                                               
                                                                                                                                
CHAIR  ANDERSON asked  whether there  was any  further objection.                                                               
There being no objection, Amendment 1 was adopted.                                                                              
                                                                                                                                
Number 0987                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  moved to adopt Amendment  2, labeled 23-                                                               
GH2116\Q.2, Kurtz, 4/20/04, which read:                                                                                         
                                                                                                                                
     Page 4, line 20:                                                                                                           
          Delete "the total proceeds of the tax multiplied                                                                      
     by the quotient of seven divided by 62"                                                                                    
          Insert "8.9 percent of the total proceeds of the                                                                      
     tax"                                                                                                                       
                                                                                                                                
CHAIR ANDERSON objected for discussion purposes.                                                                                
                                                                                                                                
REPRESENTATIVE ROKEBERG  explained that 8.9 percent  of the total                                                               
proceeds of  the tax would  be in addition  to the amount  in the                                                               
education  and  cessation  fund.    Recalling  testimony  at  the                                                               
previous  hearing  about this,  he  said  there  seemed to  be  a                                                               
question then with  regard to whether 8.9 percent  is the correct                                                               
amount   to  equal   the  approximately   8.1  percent,   to  his                                                               
recollection,  that  is  the  basic floor  for  the  Centers  for                                                               
Disease  Control  and  Prevention  (CDC).   He  asked  Ms.  Bales                                                               
whether this is the accurate figure.                                                                                            
                                                                                                                                
MS. BALES responded that currently  the tobacco-use education and                                                               
cessation  fund receives  $4.4 million  to $5  million, depending                                                               
upon  payments to  the master  settlement  agreement (MSA);  that                                                               
fund receives 20  percent of MSA payments,  which have fluctuated                                                               
between $4.4 million and $5 million  each year.  Whereas the bill                                                               
allocates  an additional  $5 million  to that  fund, the  CDC has                                                               
estimated at  minimum that  Alaska, based  on its  population and                                                               
cigarette  consumption,  should  allocate  $8.1 million  to  $8.4                                                               
million to  the tobacco-use  education and  cessation fund.   She                                                               
further explained:                                                                                                              
                                                                                                                                
     What  this amendment  does is  it slightly  reduces the                                                                    
     amount that's in the original  bill.  But in total, the                                                                    
     8.9  percent that  is in  this  amendment would  direct                                                                    
     approximately  $4 million  from cigarette-tax  revenues                                                                    
     that  are  deposited in  the  general  fund ...  to  be                                                                    
     appropriated   to   the   tobacco-use   education   and                                                                    
     cessation fund.  ... With the  $4 million and  the $4.4                                                                    
     million from  the MSA, there'd  be a total  annually of                                                                    
     $8.4 million, which would meet the minimum CDC levels.                                                                     
                                                                                                                                
Number 1147                                                                                                                     
                                                                                                                                
JOEL GILBERTSON,  Commissioner, Department  of Health  and Social                                                               
Services   (DHSS),  in   response  to   Representative  Rokeberg,                                                               
specified that the administration supports the amendment.                                                                       
                                                                                                                                
CHAIR  ANDERSON   removed  his   objection  and   announced  that                                                               
Amendment 2 was adopted.                                                                                                        
                                                                                                                                
Number 1176                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  moved to adopt Amendment  3, labeled 23-                                                               
GH2116\Q.3, Kurtz, 4/20/04, which read:                                                                                         
                                                                                                                                
     Page 3, lines 7 - 9:                                                                                                       
          Delete "100 cigarettes imported by an individual                                                                      
     for personal  consumption during the calendar  month or                                                                
     the first"                                                                                                             
                                                                                                                                
     Page 3, line 9:                                                                                                            
          Delete "during the calendar month"                                                                                
          Insert "[100 CIGARETTES IMPORTED BY AN INDIVIDUAL                                                                     
     FOR PERSONAL CONSUMPTION] during the calendar month"                                                                       
                                                                                                                                
     Page 4, lines 14 - 16:                                                                                                     
          Delete "100 cigarettes imported by an individual                                                                      
     for personal consumption during the calendar month or                                                                  
     the first"                                                                                                             
                                                                                                                                
     Page 4, line 17:                                                                                                           
          Delete "during the calendar month"                                                                                
          Insert "[100 CIGARETTES IMPORTED BY AN INDIVIDUAL                                                                     
     FOR PERSONAL CONSUMPTION] during the calendar month"                                                                       
                                                                                                                                
REPRESENTATIVE   ROKEBERG  asked   Ms.   Bales  or   Commissioner                                                               
Gilbertson to  address this amendment,  saying it is  directed in                                                               
part to a request of the administration.                                                                                        
                                                                                                                                
MS. BALES  explained that  during hearings  in the  House Special                                                               
Committee on  Ways and Means, Representative  Rokeberg offered an                                                               
amendment  to allow  an individual,  as discussed  last time,  to                                                               
personally carry  in 600  cigarettes a month.   As  the amendment                                                               
was  drafted,  however, current  language  allowing  a person  to                                                               
bring  in 100  cigarettes remained  in the  bill.   She said  the                                                               
administration  has requested  removal  of  that language,  since                                                               
Representative  Rokeberg's intention  was  to have  the total  be                                                               
600, not the 700 that it appears  someone could bring in.  Thus a                                                               
person could  personally transport  in 600 cigarettes  each month                                                               
and there would be no tax on that amount.                                                                                       
                                                                                                                                
Number 1246                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  referred to Section 7,  page 3, lines 7-                                                               
9.  He  pointed out that Amendment 3 would  limit the importation                                                               
of even  the 100 cigarettes currently  allowed, unless personally                                                               
transported.   It tightens it  up from a  100-cigarette tolerance                                                               
to  a zero-tolerance  policy for  any importation,  including the                                                               
Internet, but leaves the amendment  he'd made previously in terms                                                               
of the  personal transportation of  three cartons, which  he said                                                               
was  intended  to  decriminalize activity  of  people  physically                                                               
bringing in  cigarettes for  personal consumption.   He  said his                                                               
prior amendment  speaks to  the method  of importation  only, and                                                               
the rationale behind  the 600 is that it would  allow a person to                                                               
bring in three  cartons of cigarettes without becoming  a class A                                                               
misdemeanant subject  to up to  one year  in jail and  $10,000 in                                                               
fines, "overkill of the worst order."                                                                                           
                                                                                                                                
Number 1330                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GATTO  suggested  changing  "calendar  month"  to                                                               
"within  any 30-day  period" because,  for  example, someone  who                                                               
wants to get around the  restriction could take across a quantity                                                               
at nearly  midnight at the  end of a month  and then do  it again                                                               
after midnight, defeating the intent.                                                                                           
                                                                                                                                
REPRESENTATIVE  ROKEBERG said  he wouldn't  object to  a friendly                                                               
amendment,  although  perhaps  it  could  be  more  difficult  to                                                               
enforce.    He indicated  the  language  had been  the  drafter's                                                               
choice in order to have a timeframe.                                                                                            
                                                                                                                                
MS. BALES  responded that she  thinks the calendar month  is much                                                               
easier to enforce.  She pointed  out that in the example posed by                                                               
Representative Gatto, the person  couldn't bring anything else in                                                               
for  at least  another  30 days,  at the  beginning  of the  next                                                               
month.                                                                                                                          
                                                                                                                                
REPRESENTATIVE GATTO  clarified that  he was thinking  of someone                                                               
passing  through  Canada,  for  example, and  taking  a  one-time                                                               
opportunity.   He  suggested perhaps  it  isn't worth  addressing                                                               
that infrequent activity.                                                                                                       
                                                                                                                                
MS.  BALES reiterated  that  having it  within  a calendar  month                                                               
makes it  easier for enforcement  and when developing  cases, for                                                               
instance.                                                                                                                       
                                                                                                                                
REPRESENTATIVE ROKEBERG  pointed out a technical  problem brought                                                               
to his attention by the committee  aide:  line 5 of the amendment                                                               
[which read "Page 3, line 9"] should say "Page 3, line 10".                                                                     
                                                                                                                                
Number 1478                                                                                                                     
                                                                                                                                
CHAIR  ANDERSON  removed  his   objection.    He  announced  that                                                               
Amendment 3  [as amended by the  aforementioned technical change]                                                               
was adopted.                                                                                                                    
                                                                                                                                
Number 1500                                                                                                                     
                                                                                                                                
REPRESENTATIVE CRAWFORD [moved to  adopt Amendment 4, a four-page                                                               
amendment that changed the age from  19 to 21 throughout the bill                                                               
and  changed  the  title  to  add ",  and  raising  the  age  for                                                               
purchase, sale, exchange, or possession of tobacco to age 21"].                                                                 
                                                                                                                                
CHAIR ANDERSON objected for discussion purposes.                                                                                
                                                                                                                                
REPRESENTATIVE CRAWFORD explained that  since the intention is to                                                               
reduce consumption  of cigarettes and  limit the number  of young                                                               
people who start smoking, he believes  raising the age to 21 is a                                                               
good method.   He acknowledged  that teenagers might  hang around                                                               
with older  youths, but indicated  that without access  to people                                                               
who can  buy cigarettes legally,  youths will have a  harder time                                                               
obtaining tobacco products.   He mentioned that  his related bill                                                               
has been languishing in the  House Community and Regional Affairs                                                               
Standing Committee for more than a year.                                                                                        
                                                                                                                                
REPRESENTATIVE  ROKEBERG  remarked  that he  didn't  particularly                                                               
care for the  amendment, but asked about  impacts to enforcement,                                                               
the  history of  enforcement,  and the  effectiveness of  current                                                               
enforcement against underage people.                                                                                            
                                                                                                                                
Number 1606                                                                                                                     
                                                                                                                                
COMMISSIONER  GILBERTSON  noted  that this  question  relates  to                                                               
multiple  departments.    He said  DHSS  doesn't  do  enforcement                                                               
against  minors who  purchase tobacco  products, but  does "Synar                                                               
enforcement"  of compliance  by retailers,  conducting stings  by                                                               
using confidential informants  under the age of 19  who are hired                                                               
by DHSS and  accompanied by law enforcement  personnel; the young                                                               
person  attempts to  buy tobacco  products illegally  from retail                                                               
establishments,  presenting  valid  identification  that  clearly                                                               
states that he or she is  under the legal age to purchase tobacco                                                               
products.                                                                                                                       
                                                                                                                                
COMMISSIONER GILBERTSON explained  that Synar enforcement relates                                                               
in part to a federal  requirement for SAMHSA [Substance Abuse and                                                               
Mental Health  Services Administration]  block grants,  which are                                                               
alcohol- and substance-abuse grants  that [the U.S. Department of                                                               
Health and Human Services] provides to the states.  He said:                                                                    
                                                                                                                                
     To receive  your full grant,  you must be a  state that                                                                    
     does Synar  enforcement, and  you must  have compliance                                                                    
     in your  Synar enforcement  to receive your  full block                                                                    
     grant.   The  requirement is  that you  cannot have  an                                                                    
     illegal-sale  rate  that's  greater  than  20  percent,                                                                    
     which means no more than 20  percent of the time you do                                                                    
     the   stings   on   retail   establishments   can   you                                                                    
     successfully purchase products for minors.                                                                                 
                                                                                                                                
COMMISSIONER GILBERTSON  noted that Alaska had  been noncompliant                                                               
since Synar  enforcement began in  the late 1990s,  with illegal-                                                               
sale  rates to  confidential  informants  in percentages  ranging                                                               
from  the  low  to  mid-30s.     Therefore,  DHSS  increased  its                                                               
enforcement  efforts  and  retailer education;  he  cited  "great                                                               
partnerships"  with retailers  and distributors  with respect  to                                                               
training the workforce  and ensuring there are  good protocols in                                                               
place, through a  cooperative and not punitive effort.   He added                                                               
that  for 2002  the  illegal-sale  rate in  the  stings was  30.2                                                               
percent, whereas for 2003 it was  down to 10 percent.  Mentioning                                                               
law enforcement  by DPS and  local law enforcement  for purchases                                                               
outside  of the  sting  effort,  he deferred  to  DPS to  respond                                                               
further.                                                                                                                        
                                                                                                                                
Number 1740                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked  for details  about  block  grant                                                               
money.                                                                                                                          
                                                                                                                                
COMMISSIONER   GILBERTSON  explained   that  if   the  state   is                                                               
noncompliant,  above the  20 percent  threshold, the  sanction is                                                               
that the  state loses 40 percent  of its SAMHSA block  grant; for                                                               
Alaska,  that's  about  $2  million  in  substance-abuse  grants.                                                               
However, the  U.S. Department of  Health and Human  Services does                                                               
allow a state,  in lieu of that 40 percent  penalty, to "purchase                                                               
the continued  funding of its  block grant" by paying  a monetary                                                               
penalty that goes into enhanced enforcement.                                                                                    
                                                                                                                                
COMMISSIONER GILBERTSON,  noting that the penalty  is cumulative,                                                               
said  Alaska chose  for a  number of  years to  instead take  the                                                               
alternative  penalty, an  increase  in general  fund dollars  for                                                               
enforcement; perhaps $800,000  a year was being  paid in enhanced                                                               
tobacco enforcement as a penalty  for being above that 20 percent                                                               
threshold.   Now  that it's  below  the threshold  for the  first                                                               
time,  the state  no  longer  has to  pay  the  penalty and  will                                                               
receive the full SAMHSA block grant.   If the legal-sale age were                                                               
raised and noncompliance increased to  above 20 percent again, he                                                               
said the same situation would  arise whereby the state could lose                                                               
40 percent of the block grant  or would have to invest more money                                                               
in [tobacco-related enforcement].                                                                                               
                                                                                                                                
REPRESENTATIVE ROKEBERG asked  what that would do  to funding for                                                               
enforcement, and whether it would lower it.                                                                                     
                                                                                                                                
COMMISSIONER  GILBERTSON replied  that  more enforcement  funding                                                               
would be needed.                                                                                                                
                                                                                                                                
REPRESENTATIVE ROKEBERG asked whether it had been lowered.                                                                      
                                                                                                                                
COMMISSIONER GILBERTSON said no.                                                                                                
                                                                                                                                
Number 1818                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  surmised  that the  concern  is  that                                                               
changing the [age] will affect the compliance rate.                                                                             
                                                                                                                                
COMMISSIONER GILBERTSON acknowledged that  he didn't know whether                                                               
it would do that.                                                                                                               
                                                                                                                                
REPRESENTATIVE  GUTTENBERG asked  whether  the  concern would  be                                                               
alleviated somewhat  if this  were done  through a  phase-in such                                                               
that someone who  now is 18 years old  couldn't [purchase tobacco                                                               
products] until the age of 21, for example.                                                                                     
                                                                                                                                
COMMISSIONER GILBERTSON pointed  out that in many  states the age                                                               
is 18  or even lower.   He remarked that a  staggered increase in                                                               
the legal-sale age would make  it easier for enforcement to "step                                                               
up and do  retailer education," but whatever  age the legislature                                                               
chooses, [DHSS] would  work diligently to make sure  the state is                                                               
in compliance with Synar.                                                                                                       
                                                                                                                                
Number 1885                                                                                                                     
                                                                                                                                
CHAIR ANDERSON  remarked that even  though he supports  the bill,                                                               
for  him it  comes down  to rights  and a  balance.   He said  he                                                               
didn't  know whether  this  [change to  age  21] was  necessarily                                                               
appropriate  to attach  to  this  bill, and  he'd  rather see  it                                                               
debated  in a  separate piece  of legislation.   He  suggested it                                                               
might bring in more tobacco-industry  opposition, and he'd rather                                                               
see the bill move forward without the change at this juncture.                                                                  
                                                                                                                                
Number 1920                                                                                                                     
                                                                                                                                
REPRESENTATIVE LYNN  recalled that at  20 years old, he  flew the                                                               
first  supersonic interceptor  in the  U.S. Air  Force inventory.                                                               
He said he didn't smoke then or  now, but hated to think he could                                                               
fly  the first  supersonic  interceptor and  yet  couldn't buy  a                                                               
cigarette  if he  wanted to.   Now  there are  many 20  year olds                                                               
being shot at  in Iraq, he noted, who on  return wouldn't be able                                                               
to buy a cigarette.                                                                                                             
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked Lieutenant Storey for  his opinion                                                               
on  Amendment 4  and  whether  it would  add  to difficulties  in                                                               
enforcement.                                                                                                                    
                                                                                                                                
Number 1988                                                                                                                     
                                                                                                                                
ALLEN  STOREY, Lieutenant,  Central  Office,  Division of  Alaska                                                               
State  Troopers, Department  of  Public Safety,  said he  doesn't                                                               
believe  a large  amount of  enforcement effort  takes place  [by                                                               
DPS]; it's generally left up  to DHSS to do enforcement, although                                                               
officers may  on occasion write  citations for  underage smoking.                                                               
He  apologized  for  not  having statistical  data  on  how  many                                                               
citations have been written.                                                                                                    
                                                                                                                                
Number 2026                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG asked whether  DPS only enforces at the                                                               
point of sale, then.                                                                                                            
                                                                                                                                
LIEUTENANT STOREY replied that he  believes citations are written                                                               
for  sales on  occasion, but  the vast  majority are  through the                                                               
DHSS underage-smoking-enforcement unit.                                                                                         
                                                                                                                                
REPRESENTATIVE GUTTENBERG asked what  the enforcement level is on                                                               
the military bases for statutes like this.                                                                                      
                                                                                                                                
MS. BALES answered that, to her  belief, the smoking age is 18 on                                                               
military installations.                                                                                                         
                                                                                                                                
REPRESENTATIVE LYNN  mentioned military reservations and  said he                                                               
believes  those  who  join  up   can  have  the  same  exemptions                                                               
[throughout the country].                                                                                                       
                                                                                                                                
CHAIR ANDERSON maintained his objection to Amendment 4.                                                                         
                                                                                                                                
REPRESENTATIVE CRAWFORD  said he thinks  it's the right  thing to                                                               
do for a number  of reasons.  He noted that when  he was 18 years                                                               
old, he could  buy cigarettes or beer legally;  however, that age                                                               
has been raised to  21, a policy call.  He said  this is a policy                                                               
call as well, but one he wouldn't try to make now.                                                                              
                                                                                                                                
Number 2116                                                                                                                     
                                                                                                                                
REPRESENTATIVE  CRAWFORD withdrew  Amendment 4,  saying he  wants                                                               
this bill to pass and not be weighted down by this issue.                                                                       
                                                                                                                                
REPRESENTATIVE GATTO remarked that  there is a connection between                                                               
smoking and  drinking; that evidence  has been  presented showing                                                               
the two  seem to reinforce  each other physiologically;  and that                                                               
although Representative Crawford had  withdrawn the amendment, he                                                               
understood its value.   However, he said he was  glad Amendment 4                                                               
was withdrawn because of the merit of the bill on its own.                                                                      
                                                                                                                                
The committee took an at-ease from 4:15 p.m. to 4:16 p.m.                                                                       
                                                                                                                                
Number 2178                                                                                                                     
                                                                                                                                
REPRESENTATIVE  CRAWFORD  moved  to  report  [CSHB  538(W&M),  as                                                               
amended,  out of  committee with  individual recommendations  and                                                               
the accompanying fiscal notes].                                                                                                 
                                                                                                                                
REPRESENTATIVE LYNN objected.  He  declined to speak to the issue                                                               
at this point.                                                                                                                  
                                                                                                                                
A roll call vote was  taken.  Representatives Rokeberg, Crawford,                                                               
Guttenberg, Gatto, and  Anderson voted in favor  of reporting the                                                               
bill  from  committee.   Representative  Lynn  voted against  it.                                                               
Therefore, CSHB  538(L&C) was reported  from the House  Labor and                                                               
Commerce Standing Committee by a vote of 5-1.                                                                                   

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