Legislature(2003 - 2004)

06/23/2004 12:00 PM House L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB1001-TOBACCO TAX; LICENSING; PENALTIES                                                                                      
CHAIR ANDERSON announced  that the first order  of business would                                                               
be HOUSE BILL  NO. 1001, "An Act relating to  taxes on cigarettes                                                               
and tobacco products, to tax  stamps on cigarettes, to forfeiture                                                               
of  cigarettes   and  of  property   used  in   the  manufacture,                                                               
transportation, possession,  or sale of unstamped  cigarettes, to                                                               
accounting for and use of part  of the proceeds of the additional                                                               
cigarette tax, and to licenses  and licensees under the Cigarette                                                               
Tax Act;  relating to unfair  cigarette sales; and  providing for                                                               
an effective date."                                                                                                             
Number 0079                                                                                                                     
JOHANNA BALES, Excise Audit Manager,  Tax Division, Department of                                                               
Revenue, explained that HB 1001  is basically the House Labor and                                                               
Commerce Standing  Committee version  [CSHB 538(L&C)]  adopted by                                                               
this committee  at the  end of last  session plus  one additional                                                               
provision  that was  proposed by  Senator Bunde  to the  Senate's                                                               
companion  legislation.    Ms.   Bales  explained  that  HB  1001                                                               
outlines the  intent by  the legislature  to provide  funding for                                                               
tobacco control  programs and directs the  legislature to deposit                                                               
8.9  percent  of the  cigarette  tax  proceeds, approximately  $4                                                               
million each year,  to the tobacco use,  education, and cessation                                                               
fund.    Furthermore,  this  legislation  allows  individuals  to                                                               
personally transport  up to 400 cigarettes  without incurring any                                                               
cigarette  tax.   The aforementioned  conforms with  federal law.                                                               
This legislation changes the threshold  from a class C felony for                                                               
[the  theft  of]  1,000  or  more cigarettes  to  5,000  or  more                                                               
cigarettes,  which  was  an  amendment  discussed  in  the  House                                                               
Special  Committee on  Ways  and Means.    Raising the  threshold                                                               
makes it consistent with the  threshold for class C felony theft,                                                               
which requires a  value of $500.   Under HB 1001, the  tax due on                                                               
5,000 cigarettes  would be $500.   Furthermore,  this legislation                                                               
increases  the  tax   on  cigarettes  by  $1  per   pack  per  20                                                               
cigarettes.    There  is  no phase-in.    This  legislation  also                                                               
increases the  tax on other  tobacco products form 75  percent to                                                               
100 percent  of the  wholesale cost.   This legislation  levies a                                                               
tax  on  individuals  who  import   other  tobacco  products  for                                                               
personal  consumption.    The aforementioned  was  the  amendment                                                               
offered by Senator  Bunde, and the amendment is  supported by the                                                               
in-state distributors and retailers  who have systematically lost                                                               
business to  out-of-state companies.   The Department  of Revenue                                                               
believes the aforementioned provision is important, she related.                                                                
MS.  BALES highlighted  that the  legislation still  contains the                                                               
provision  allowing licensees  with  a physical  location in  the                                                               
state and a  good payment record for the last  five year with the                                                               
Department of  Revenue to reduce  their bonding  requirement when                                                               
the tax rate increases.   Therefore, the additional bonding won't                                                               
become a burden.   Moreover, the legislation allows  the state to                                                               
seize  assets and  includes  forfeiture  and seizure  provisions.                                                               
Ms.  Bales noted  that HB  1001  includes all  of the  amendments                                                               
adopted by the House Special Committee  on Ways and Means.  Those                                                               
amendments  from  the  original   legislation  require  that  the                                                               
seizure provisions only apply to  class C felony violations.  She                                                               
further  explained that  this legislation  makes  changes to  the                                                               
Unfair Cigarette  Sales Act.   This  legislation requires  that a                                                               
floor  stock  tax be  paid  in  six sequential  monthly  payments                                                               
beginning with  the effective date  of the legislation,  which is                                                               
September 1, 2004.                                                                                                              
Number 0497                                                                                                                     
MS.  BALE, in  response to  Representative Gatto,  explained that                                                               
the  OTP [other  tobacco products]  amendment requires  those who                                                               
import other  tobacco products  besides cigarettes,  for personal                                                               
consumption,  to   obtain  a  license   for  a  $25  fee.     The                                                               
aforementioned  fee is  required of  those who  import cigarettes                                                               
for  personal  consumption.    She   noted  that  now  there  are                                                               
manufacturers  making  "machine-made   cigars,"  which  meet  the                                                               
definition  of a  cigar and  thus  aren't taxed  as a  cigarette.                                                               
However,  these   "machine-made  cigars"  are  advertised   as  a                                                               
substitute for  cigarettes and are significantly  less expensive.                                                               
She noted that  cigarette-making kits are also  prevalent and are                                                               
a  cheap  alternative  that  avoids   taxes.    Without  the  OTP                                                               
amendment,  people  can  utilize cheap  substitutes  without  any                                                               
price  increase.   She  emphasized  that  the in-state  retailers                                                               
support  the  OTP  amendment  because  their  business  has  been                                                               
impacted without such an amendment.                                                                                             
REPRESENTATIVE  GATTO inquired  as to  when a  cigarette isn't  a                                                               
cigarette.   He  posed  a situation  in which  there  is only  20                                                               
percent  tobacco in  a single  cigarette,  and asked  if the  tax                                                               
would only [apply]  to the 20 percent tobacco product.   Would it                                                               
still be considered a cigarette, he asked.                                                                                      
MS. BALES specified that Alaska  law, federal law, and most other                                                               
states define  cigarettes as tobacco,  regardless of  the amount,                                                               
rolled in paper.  Therefore,  the distinction with cigars is that                                                               
they are  rolled in  tobacco leaf.   With  regard to  there being                                                               
only a  percentage of tobacco  in the  product, the tax  would be                                                               
assessed  regardless of  the percentage  of tobacco.   Ms.  Bales                                                               
specified that  any product  containing tobacco  is taxed  and if                                                               
it's tobacco wrapped in paper, it's taxed as a cigarette.                                                                       
Number 0823                                                                                                                     
REPRESENTATIVE   CRAWFORD  requested   review   of  the   bonding                                                               
MS.  BALES explained  that currently  before a  distributor or  a                                                               
licensee  can  purchase  tax stamps  from  the  department,  that                                                               
distributor or  licensee has to  post a  bond when the  taxes are                                                               
paid on  a deferred  basis.  If  the taxes are  paid in  cash, no                                                               
bond  is necessary.    The bond  amounts to  200  percent of  the                                                               
distributor's  or  licensee's  monthly  purchases,  which  covers                                                               
their outstanding tax liability until  the first payment is made.                                                               
The provision  in HB 1001  allows the distributor or  licensee to                                                               
only pay  100 percent.   Basically, the  state will float  a one-                                                               
month credit if cigarette tax  stamps are purchased on a deferred                                                               
payment basis.   She highlighted  that this option would  only be                                                               
available  to those  licensees with  a physical  presence in  the                                                               
state and  with a  good payment  history of  at least  five years                                                               
with  the Department  of Revenue.   Such  an option  relieves the                                                               
bonding  requirements  on  the licensee  and/or  distributor  for                                                               
which  the bond  cost in  this industry  is fairly  high.   Those                                                               
without  a physical  presence  in  the state  or  a good  payment                                                               
history must  purchase cigarette tax  stamps with cash or  a bond                                                               
in the amount of 200 percent  must be posted.  She specified that                                                               
an  out-of-state  licensee,  regardless  of his  or  her  payment                                                               
history, would have to post a bond in the amount of 200 percent.                                                                
REPRESENTATIVE ROKEBERG  asked if the  provisions in HB  1001 are                                                               
consistent with HCS CSSB 368(FIN).                                                                                              
MS.  BALES clarified  that  HB  1001 is  CSHB  538(L&C) plus  the                                                               
amendment Senator  Bunde made to SB  368.  Therefore, all  of the                                                               
amendments offered  within this  committee and the  House Special                                                               
Committee on Ways and Means to  [HB 538] are included in HB 1001.                                                               
In  further  response  to   Representative  Rokeberg,  Ms.  Bales                                                               
related  her  belief that  the  bonding  provisions in  HCS  CSSB
368(FIN) are similar to those in [CSHB 538(L&C)].                                                                               
Number 1070                                                                                                                     
PAT LUBY, Advocacy Director, AARP  - Alaska, noted the dedication                                                               
of the World War II Memorial  and the celebration of the sixtieth                                                               
anniversary  of  D-Day.   He  noted  that  at  that time  no  one                                                               
connected smoking with cancer and  respiratory disease.  Although                                                               
many were  lost in World  War II, many  more were lost  after the                                                               
war, simply because  of smoking.  Mr. Luby  highlighted that AARP                                                               
members  are grandparents  and if  increasing the  tax keeps  any                                                               
grandchildren from smoking, AARP is in  favor of it.  He stressed                                                               
that AARP is entirely in support  of the tobacco tax measure.  He                                                               
referred to the governor's transmittal  letter during the regular                                                               
session,  which clearly  states that  a higher  tobacco tax  will                                                               
help prevent  youth from  beginning to  smoke while  also helping                                                               
current smokers  stop.  The  governor's transmittal letter  is of                                                               
concern  in regard  to  the data  that  suggests Alaska  Natives,                                                               
particularly Alaska  Native high  school youth,  smoke at  a much                                                               
higher rate than the non-Native  population.  Therefore, Mr. Luby                                                               
strongly  recommended that  some  of the  new  revenue coming  to                                                               
state  government  from  the  tax  increase  be  used  to  target                                                               
cessation efforts for Native smokers, particularly Native youth.                                                                
MR. LUBY  informed the committee that  in March 2004 there  was a                                                               
report from the Medicare trustees  who indicated that health care                                                               
costs for  Medicare were much  higher than expected.   He pointed                                                               
out that  Medicare would be in  a better financial state  if many                                                               
of  the current  retirees hadn't  been smokers  earlier in  their                                                               
lives.   Therefore, Mr. Luby  opined that increasing  the tobacco                                                               
tax  in  Alaska  would  produce an  immediate  beneficial  health                                                               
consequence as well as long-term  beneficial consequences for the                                                               
financial situation of Medicare and  Medicaid.  Mr. Luby recalled                                                               
Senator Bunde's  statement last week  that a $1.00  increase will                                                               
result in  "sticker shock" and  youth and adults deciding  not to                                                               
smoke because of the cost.   Although the House Finance Committee                                                               
recommended  a phased  approach, AARP  believes it  should be  an                                                               
immediate  increase.   In conclusion,  Mr.  Luby recommended  the                                                               
committee support HB 1001.                                                                                                      
Number 1234                                                                                                                     
REPRESENTATIVE  LYNN  inquired as  to  the  percent decrease  one                                                               
would expect as the result of a $1.00 tax.                                                                                      
MR. LUBY deferred to the department.                                                                                            
REPRESENTATIVE  LYNN  inquired  as  to  the  point  at  which  an                                                               
increase in the tax would reach diminishing returns.                                                                            
MR. LUBY reiterated the "sticker  shock" notion.  He related that                                                               
research throughout  the world  has proven that  the best  way to                                                               
stop people from smoking is to  make it too expensive to start or                                                               
REPRESENTATIVE LYNN surmised that this is taxing behavior.                                                                      
REPRESENTATIVE  ROKEBERG  pointed  out  that the  last  time  the                                                               
legislature raised tobacco taxes it did  so by $.71.  He asked if                                                               
Mr. Luby believes that $.60 would create "sticker shock."                                                                       
MR. LUBY said  that a $1.00 is noticeable, and  he opined will be                                                               
most  helpful  in keeping  youth  from  starting  to smoke.    In                                                               
response  to  Chair  Anderson,   Mr.  Luby  confirmed  that  AARP                                                               
supports any [tobacco] tax and the higher, the better.                                                                          
Number 1345                                                                                                                     
KATTARYNA STILES,  Alaskans for  Tobacco Free Kids  (ATFK), began                                                               
by  explaining that  ATFK is  a  coalition of  the Alaska  Native                                                               
Health  Board   (ANHB),  the  American  Heart   Association,  the                                                               
American  Cancer Society,  and the  American Lung  Association of                                                               
Alaska.  She  related that ATFK supports HB 1001,  which is first                                                               
and  foremost a  health issue.   By  raising the  tobacco tax  by                                                               
$1.00, nearly 3,000  lives of youth will be saved  and over 9,000                                                               
youth  will never  start smoking.   With  regard to  the rate  of                                                               
price increase in  accordance with the reduction  in smoking, Ms.                                                               
Stiles related  that studies  show nationwide  that for  every 10                                                               
percent increase  there is  about a 6.5  percent decrease  in the                                                               
number  of youth  who  smoke.   Since the  tobacco  tax was  last                                                               
raised, there was a 50 percent  reduction in youth smoking.  With                                                               
this proposed  increase, she anticipated a  15 percent reduction.                                                               
Ms. Stiles encouraged  the committee to pass a  $1.00 increase in                                                               
the tobacco  tax in  order to  obtain the  maximum impact  on the                                                               
health of  today's youth.   She related  her data  supporting the                                                               
notion that increasing the tobacco tax is a health issue.                                                                       
Number 1546                                                                                                                     
REPRESENTATIVE GATTO  surmised that  one would  want youth  to be                                                               
tobacco  free in  order  to  be healthier.    However, there  are                                                               
plenty of  ways to  have healthier  youth, such  as [eliminating]                                                               
drugs, alcohol,  abuse, and obesity.   He asked if Ms.  Stiles is                                                               
involved in any groups addressing the aforementioned areas.                                                                     
MS. STILES  specified that  her work is  only related  to tobacco                                                               
use, although  the organizations  she represents do  perform work                                                               
in those areas mentioned.   The collected coalition is working on                                                               
tobacco because  it is  the number  one killer  of Alaskans.   In                                                               
further response  to Representative  Gatto, Ms. Stiles  said that                                                               
it's legal to smoke at age 19.                                                                                                  
REPRESENTATIVE GATTO surmised  then that if smoking  under age 19                                                               
is illegal, then  there should be better  enforcement rather than                                                               
MS.  STILES  said  that  she  believes  the  state's  enforcement                                                               
efforts  have  been successful  and  improving.   However,  youth                                                               
continue to obtain cigarettes.                                                                                                  
Number 1633                                                                                                                     
REPRESENTATIVE  ROKEBERG inquired  as  to  whether [Ms.  Stile's]                                                               
organization  was   involved  with   the  Ketchikan   Daily  News                                                             
advertisement this spring,  which lobbied Representative Williams                                                               
to release legislation from the House Finance Committee.                                                                        
MS. STILES  said that  "our organizations"  were involved  with a                                                               
list of  signatures from within  the Ketchikan area.   In further                                                               
response to  Representative Rokeberg,  Ms. Stiles  confirmed that                                                               
no  funds  for  that  advertisement came  from  Alaska's  Tobacco                                                               
Cessation and  Education Fund.   She specified that  ANHB doesn't                                                               
receive any funds from the state.   She explained that the Alaska                                                               
Tobacco  Control Alliance  is an  organization in  which everyone                                                               
involved in  tobacco control across  the state is involved.   The                                                               
Alaska Tobacco Control Alliance  doesn't have a formal governance                                                               
structure  and  isn't  a  501(c)(3).   However,  she  noted  that                                                               
individual  organizations that  are  part of  the Alaska  Tobacco                                                               
Control  Alliance do  hire lobbyists.   "No  state funds  through                                                               
tobacco  cessation  and  education   funds  are  used  for  those                                                               
lobbyists," she said.                                                                                                           
Number 1730                                                                                                                     
JENNIFER  APP,  American  Heart  Association,  related  that  the                                                               
American Heart  Association strongly supports the  proposed $1.00                                                               
per pack cigarette tax as well  as the 33 percent increase in tax                                                               
on  other tobacco  products.   She  informed  the committee  that                                                               
smoking  is the  number one  preventable cause  of cardiovascular                                                               
disease in Alaska.  Furthermore,  smoking is the leading cause of                                                               
preventable  death   in  the  state.     Currently,   smoking  is                                                               
responsible for  one of  every five  deaths in  Alaska.   Ms. App                                                               
expressed concern with statements  from the House leadership that                                                               
the House  may adjourn  without voting  on this  important public                                                               
health  measure.   This  would  be  a disappointment  because  67                                                               
percent of Alaskans support the $1.00  per pack increase as do 70                                                               
percent  of registered  Republicans.   Ms. App  related that  the                                                               
American Heart Association doesn't  accept state funding and none                                                               
of  the  groups  in  ATFK  use any  state  funding  for  lobbying                                                               
purposes.   The  Master Settlement  Agreement (MSA)  funds aren't                                                               
used by  any of  the organizations for  lobbying activities.   In                                                               
response  to earlier  comments regarding  a point  of diminishing                                                               
returns,  Ms. App  said  that no  state has  reached  a point  of                                                               
diminishing returns  in relation to  the amount  of the tax.   In                                                               
fact, with New Jersey's tax  of $2.05 and Rhode Island's proposed                                                               
$2.45  tax there  has been  no diminishing  returns.   Therefore,                                                               
nationwide  statistics  don't indicate  that  a  $2.00 tax  would                                                               
result  in diminishing  returns.   However,  she  did agree  that                                                               
there may be  a point of diminishing returns.   Ms. App concluded                                                               
by reiterating  the American  Heart Association's  strong support                                                               
of HB 1001, which is an excellent public health measure.                                                                        
CHAIR  ANDERSON reminded  Ms. App  of the  efforts the  committee                                                               
took on  this topic  during the  regular session  and highlighted                                                               
the fact that the committee is hearing HB 1001.                                                                                 
Number 1879                                                                                                                     
REPRESENTATIVE   GUTTENBERG  commented   that   motives  of   the                                                               
cessation groups are clear and what  he considered to be a fairly                                                               
high calling.   Representative Guttenberg noted  his appreciation                                                               
for the work of the cessation groups.                                                                                           
MS. APP  thanked the  committee for  hearing the  legislation and                                                               
for the action  the committee took on the  legislation during the                                                               
regular session.   She  acknowledged this  committee's commitment                                                               
to  this  important issue.    She  clarified that  [her  comments                                                               
directed toward  the leadership] were  merely to relate  the need                                                               
for HB 1001 to have a vote on the floor.                                                                                        
Number 1952                                                                                                                     
CAROL  EDWARDS,  Oncology  Nurse;  Member,  Board  of  Directors,                                                               
Alaska Nurses  Association, related  that she  has taken  care of                                                               
many  who have  died from  cancer-related tobacco  illness.   Ms.                                                               
Edwards related that the Board  of Directors of the Alaska Nurses                                                               
Association  strongly supports  the $1.00  immediate increase  in                                                               
the tobacco  tax.  She noted  that she was recently  appointed to                                                               
the state's workforce in order  to develop a comprehensive cancer                                                               
plan  for Alaska.    As the  chair of  the  prevention and  early                                                               
detection committee, she has read  many statistics on tobacco and                                                               
cancer.    One of  the  issues  that  the committee  has  brought                                                               
forward is  the need for  the tobacco tax  to cover the  costs of                                                               
tobacco-related  illnesses   in  Alaska.     To   accomplish  the                                                               
aforementioned  would  require  a  $6.00   per  pack  tax.    She                                                               
expressed concern  that a  graduated tax would  never be  able to                                                               
come close to covering the  costs of tobacco-related illnesses in                                                               
Alaska.   Ms. Edwards urged the  committee to think of  the lives                                                               
that would be saved.                                                                                                            
REPRESENTATIVE  GATTO recalled  the  testimony that  one in  five                                                               
dies of  tobacco-related illnesses.  He  asked if there is  a way                                                               
to verify the number of tobacco-related deaths.                                                                                 
MS.  EDWARDS related  her belief  that if  there is  a malignancy                                                               
present, she  believes the death  is listed under  that registry.                                                               
Whether the death  would be listed under  other related diseases,                                                               
she said she didn't know.                                                                                                       
REPRESENTATIVE GATTO asked if the  cause of death is listed under                                                               
each [registry under which it fits].                                                                                            
MS. EDWARDS said that she  wasn't sure, although she believes the                                                               
cause of death listed is the  primary cause at the time of death.                                                               
She suggested  checking with  a coroner,  indicating that  it may                                                               
vary with the physician or coroner.                                                                                             
Number 2152                                                                                                                     
REPRESENTATIVE LYNN asked if smoking is an addiction.                                                                           
MS. EDWARDS replied  yes.  In further  response to Representative                                                               
Lynn, Ms.  Edwards related  her belief that  an addiction  can be                                                               
stopped with taxes.  She related  her own experience in which she                                                               
quit  smoking  once  it  became   too  expensive.    Furthermore,                                                               
statistics illustrate that taxes do decrease smoking.                                                                           
CHAIR ANDERSON closed public testimony.                                                                                         
Number 2198                                                                                                                     
368(FIN), Version 23-GS2116\W] as the working document.                                                                         
CHAIR ANDERSON objected for discussion purposes.                                                                                
REPRESENTATIVE  ROKEBERG  pointed  out  that  CSHB  1001  is  the                                                               
legislation that moved out of the  Finance Committees in May.  He                                                               
noted  that the  committee packet  should include  a side-by-side                                                               
comparison  between HB  1001 and  CSHB 1001  [HCS CSSB  368(FIN),                                                               
Version W].   He mentioned the  need to amend CSHB  1001 in order                                                               
to change the effective date.                                                                                                   
MS.  BALES pointed  out that  in  CSHB 1001  [HCS CSSB  368(FIN)]                                                               
there is  not an increase in  the tax on other  tobacco products,                                                               
and therefore the tax on other  tobacco products would stay at 75                                                               
percent of the wholesale cost.   Furthermore, CSHB 1001 [HCS CSSB
368(FIN)]  doesn't  include  the   amendment  to  tax  individual                                                               
importation of  other tobacco products,  which is included  in HB
368(FIN)]  had  a   provision,  AS  43.50.200,  "Nonparticipating                                                               
manufacturers equity excise  tax", which was deleted  in HB 1001.                                                               
He inquired as to why that was deleted.                                                                                         
MS. BALES explained that CSHB  1001 [HCS CSSB 368(FIN)] placed an                                                               
additional  $.25 per  package tax  on cigarettes  manufactured by                                                               
manufacturers that didn't sign the Master Settlement Agreement.                                                                 
TAPE 04-55, SIDE B                                                                                                            
MS. BALES related  that less than .5  percent of nonparticipating                                                               
manufacturers  (NPM) product  is  in  the state.    She said  she                                                               
wasn't sure  how helpful this  additional tax would  be, although                                                               
it's  estimated  that  perhaps   there  would  be  an  additional                                                               
$36,000-$40,000 in  tax revenue by imposing  this additional $.25                                                               
per  pack tax  on  NPM  product.   It  would  cost an  additional                                                               
$2,000-$3,000   per  year   to   have  a   different  tax   stamp                                                               
manufactured to  sell to retailers  or distributors who  sell NPM                                                               
product.    The aforementioned  coupled  with  concerns over  the                                                               
constitutionality  of  this  additional  tax  is  why  it  wasn't                                                               
included in HB 1001.                                                                                                            
Number 2319                                                                                                                     
REPRESENTATIVE ROKEBERG  noted that  NPM product in  the national                                                               
marketplace is  a large and  growing area.  The  reasoning behind                                                               
including the  additional tax  is the  anticipation that  the NPM                                                               
segment of  the market  will be  expanding quite  rapidly because                                                               
these companies don't have to pay the MSA surcharge.                                                                            
MS. BALES  agreed that nonparticipating manufacturers  don't have                                                               
to pay  the MSA surcharge, but  pointed out that they  must put a                                                               
similar  amount  in  an  escrow  fund in  the  state  each  year.                                                               
Therefore, an additional  $.25 per pack tax as  well as requiring                                                               
an escrow  account is where  the concern over  the constitutional                                                               
challenge  stems.   In  response  to  Chair Anderson,  Ms.  Bales                                                               
highlighted that under  CSHB 1001 [HCS CSSB 368(FIN)]  the tax is                                                               
phased in such  that this year the  tax would be $.60  and in two                                                               
years  an additional  $.20 would  be  added and  in another  year                                                               
there would  be an  additional $.20  increase bringing  the total                                                               
tax to $1.00 per pack in fiscal  year 2007.  Under CSHB 1001 [HCS                                                               
CSSB 368(FIN)] there  is no increase in the tax  on other tobacco                                                               
products and no provision for  taxing individuals who bring other                                                               
tobacco products into the state for personal consumption.                                                                       
REPRESENTATIVE  ROKEBERG pointed  out that  [HB 1001]  includes a                                                               
provision   allowing   the   department  to   immediately   adopt                                                               
regulations, which he suggested would  be good to include in CSHB
1001.    He  also  mentioned  that  there  are  transitional  tax                                                               
provisions for the floor stock in HB 1001.                                                                                      
MS. BALES  confirmed that under  HB 1001  there would be  a floor                                                               
stock tax in  order to alleviate the amount of  stock piling that                                                               
distributors and retailers could do at  the old rate.  Under CSHB
1001,  there is  no floor  stock tax  and thus  any retailer  and                                                               
distributor could  stock pile cigarettes and  basically delay the                                                               
effective  date  of any  revenue  increases.   She  informed  the                                                               
committee  that in  1997  there was  no floor  stock  tax on  the                                                               
effective  date of  the  increase and  several  of the  retailers                                                               
increased the price immediately.   The aforementioned resulted in                                                               
the  state  revenue  going  into the  pockets  of  retailers  and                                                               
distributors.  She highlighted that  the Department of Revenue is                                                               
charged with  protecting state revenues, which  will be protected                                                               
with a floor stock tax.                                                                                                         
CHAIR ANDERSON  recalled that  under HB  1001, the  Department of                                                               
Public  Safety (DPS)  enforces  this while  under  CSHB 1001  the                                                               
state would provide enforcement.                                                                                                
MS. BALES said  that is a minor  change by which it  says the DPS                                                               
is responsible to post notice  of seized property rather than the                                                               
Department of Law.                                                                                                              
Number 2104                                                                                                                     
REPRESENTATIVE  ROKEBERG referred  to AS  43.53.050, an  indirect                                                               
court rule  amendment.  He  asked if that provision  was included                                                               
due to the phased approach.                                                                                                     
MS. BALES  explained that  when the tax  rate increased  in 1997,                                                               
the entire  increase was placed  into the school tax  fund, which                                                               
is a dedicated fund.  However,  session law at the time specified                                                               
that  if there  was ever  a constitutional  challenge to  placing                                                               
that  increase  in  the  school  tax  fund,  the  [AS  43.53.050]                                                               
provisions  would apply  and  the entire  tax  increase would  be                                                               
placed into the general fund.   The CSHB 1001 [HCS CSSB 368(FIN)]                                                               
changed the session  law of 1997 to reflect the  new tax increase                                                               
rates.    In further  response  to  Representative Rokeberg,  the                                                               
language wasn't included  in HB 1001 because there  hasn't been a                                                               
challenge in  seven years  and the  [governor/department] doesn't                                                               
believe there  will be  a challenge  to the  1997 increase.   She                                                               
pointed out that under HB 1001  the entire amount of the increase                                                               
would be placed in the general  fund.  Ms. Bales pointed out that                                                               
CSHB  1001  [HCS  CSSB  368(FIN)]  includes  [HB  468]  regarding                                                               
tobacco appeals  bonds in its  entirety.  The  language referring                                                               
to tobacco appeals  bonds specifies that if a  tobacco company is                                                               
sued  for harm  that  its  product has  caused,  the court  can't                                                               
require  the company  to  post  more than  $100  million bond  to                                                               
appeal.   The  aforementioned  came about  after  court cases  in                                                               
Florida  and Illinois.   In  fact, in  Illinois there  was a  $12                                                               
billion  judgment against  the tobacco  industry, which  appealed                                                               
and thus was concerned about posting the bond.                                                                                  
CHAIR ANDERSON interjected that  such language would place Alaska                                                               
in the group  of about a third  of the states that  have the same                                                               
range or lower than that proposed in CSHB 1001.                                                                                 
MR. BALES acknowledged  that some are concerned  that by limiting                                                               
the  amount of  appeal bonds  in one  industry, other  industries                                                               
might want to be included.                                                                                                      
CHAIR ANDERSON removed his objection.                                                                                           
Number 1946                                                                                                                     
REPRESENTATIVE CRAWFORD objected for  purposes of discussion.  He                                                               
related  that   he  didn't  like  the   appeals  bond  provision.                                                               
Representative   Crawford  said   that  he   wants  to   see  the                                                               
legislation  move out  of committee  today  and if  CSHB 1001  is                                                               
what's forwarded,  he would vote  to do so although  he disagrees                                                               
with it.                                                                                                                        
A roll call vote was  taken.  Representatives Lynn, Rokeberg, and                                                               
Anderson  voted  in  favor  of   adopting  CSHB  1001  [HCS  CSSB
368(FIN)].    Representatives  Crawford, Guttenberg,  Gatto,  and                                                               
Dahlstrom voted  against it.   Therefore, CSHB 1001 failed  to be                                                               
adopted  by  a  vote of  3-4  and  thus  HB  1001 is  before  the                                                               
Number 1843                                                                                                                     
REPRESENTATIVE ROKEBERG mentioned that  he had an amendment which                                                               
would  prohibit a  municipal government  or borough  from levying                                                               
further taxes on  tobacco, and therefore the state  would be left                                                               
as  the sole  taxing source.   Representative  Rokeberg suggested                                                               
that there  should be some  discussion regarding  whether another                                                               
governmental agency/entity could impose a  tax in addition to the                                                               
state tax.   He noted that Juneau, Fairbanks,  and Anchorage have                                                               
additional taxes  on to tobacco  products, which would  result in                                                               
tax rates within the state.                                                                                                     
The committee took an at-ease from 1:05 p.m. to 1:01 p.m.                                                                       
CHAIR ANDERSON  noted that  the committee  was receiving  a third                                                               
fiscal note  from the Department  of Health and  Social Services.                                                               
He  noted that  Representative Rokeberg  has decided  to withhold                                                               
his amendment.                                                                                                                  
Number 1765                                                                                                                     
REPRESENTATIVE CRAWFORD moved to report  HB 1001 out of committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
REPRESENTATIVE LYNN objected.                                                                                                   
A roll call vote was  taken.  Representatives Rokeberg, Crawford,                                                               
Guttenberg,  Gatto, Dahlstrom,  and  Anderson voted  in favor  of                                                               
reporting  HB 1001  from the  House Labor  and Commerce  Standing                                                               
Committee.  Representative Lynn voted  against it.  Therefore, HB
1001 was  reported out of  the House Labor and  Commerce Standing                                                               
Committee by a vote of 6-1.                                                                                                     

Document Name Date/Time Subjects