Legislature(2003 - 2004)

03/31/2004 07:05 AM W&M

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 168]                                                                                                 
                                                                                                                                
Number 0200                                                                                                                     
                                                                                                                                
CHAIR HAWKER announced that the  first 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."   He noted that  Version D                                                               
includes  the two  amendments that  were passed  at the  previous                                                               
meeting.                                                                                                                        
                                                                                                                                
Number 0244                                                                                                                     
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  moved to  adopt the  proposed committee                                                               
substitute (CS)  to HB 538,  labeled 23-GH2116D,  Kurtz, 3/29/04,                                                               
as the  working document.   There being  no objection,  Version D                                                               
was before the committee.                                                                                                       
                                                                                                                                
Number 0300                                                                                                                     
                                                                                                                                
REPRESENTATIVE SAMUELS moved  to adopt Amendment 4  which read as                                                               
follows:                                                                                                                        
                                                                                                                                
     Page 2, following line 26:                                                                                                 
          Insert new bill section to read:                                                                                      
       "* Sec.  4.    AS 43.50.105 is  amended to add  a new                                                                  
     subsection to read:                                                                                                        
          (i) A person who violates the provisions of this                                                                      
     section is  jointly and severally liable  for the taxes                                                                    
     imposed  by AS  43.50.090  and AS  43.50.190.   To  the                                                                    
     fullest  extent permitted  by the  Constitution of  the                                                                    
     United  States, such  persons are  required to  collect                                                                    
     the taxes and pay them to the department."                                                                                 
     Renumber the following bill sections accordingly.                                                                          
     Page 5, lines 5-6:                                                                                                         
          Delete all material                                                                                                   
          Insert: "Sec. 43.50.625.  Forfeiture of other                                                                       
     property.  (a) Upon a  showing of probable cause that a                                                                  
     person has committed the  crime of misconduct involving                                                                    
     unstamped  cigarettes or  stamps  in  the first  degree                                                                    
     under  AS  43.50.640,  the  following  are  subject  to                                                                    
     forfeiture:"                                                                                                               
     Page 5, line 8:                                                                                                            
       Delete "possession for sale, barter, or exchange"                                                                        
          Insert "or possession for sale"                                                                                       
     Page 5, lines 11-12:                                                                                                       
          Delete "possessed for sale, or bartered or                                                                            
     exchanged"                                                                                                                 
          Insert "or possessed for sale"                                                                                        
     Page 7, lines 19-28                                                                                                        
          Delete all material                                                                                                   
     Renumber following subsections accordingly                                                                                 
     Page 8, following line 16:                                                                                                 
          Insert new bill sections to read:                                                                                     
       "* Sec. 15.  AS 43.50.640(a) is amended to read:                                                                       
          (a) A person commits the crime of misconduct                                                                          
     involving unstamped  cigarettes or stamps in  the first                                                                    
     degree if the person                                                                                                       
  (1) with reckless disregard that the cigarettes are                                                                           
     unstamped                                                                                                                  
  (A)   sells or distributes 5,000  [1,000] or more                                                                         
     unstamped cigarettes in a single transaction;                                                                              
  (B)   owns or possesses 5,000 [1,000] or more unstamped                                                                   
     cigarettes with the intent to sell; or                                                                                     
  (C)   acquires, holds, transports, imports, or possesses                                                                      
     10,000 or more unstamped cigarettes; or                                                                                    
  (2) with reckless disregard that the stamp was                                                                                
     previously affixed to another cigarette package,[;]                                                                    
  (A) affixes a previously used stamp to a cigarette                                                                            
     package; or                                                                                                                
  (B) possesses, sells, or distributes a previously used                                                                        
     stamp.                                                                                                                     
      * Sec. 16.  AS 43.50.650(a) is amended to read:                                                                         
          (a) A person commits the crime of misconduct                                                                          
     involving unstamped cigarettes or  stamps in the second                                                                    
     degree if the person                                                                                                       
   (1)  with reckless disregard that the cigarettes are                                                                         
     unstamped                                                                                                                  
  (A) sells or distributes at least one but fewer than                                                                          
     5,000   [1,000]  unstamped   cigarettes  in   a  single                                                                
     transaction;                                                                                                               
  (B) owns or possesses at least one but fewer than  5,000                                                                  
     [1,000] unstamped cigarettes, with intent to sell; or                                                                      
  (C)  acquires, holds, transports, imports, or possesses                                                                       
     at   least  one   but  fewer   than  10,000   unstamped                                                                    
     cigarettes; or                                                                                                             
     (2)  is not  licensed under  this chapter  or otherwise                                                                    
     authorized  by the  department  to  possess stamps  and                                                                    
     possesses a  stamp that is  not affixed to  a cigarette                                                                    
     package."                                                                                                                  
     Renumber following bill sections accordingly.                                                                              
                                                                                                                                
                                                                                                                                
REPRESENTATIVE WEYHRAUCH objected for discussion purposes.                                                                      
                                                                                                                                
Number 0402                                                                                                                     
                                                                                                                                
MICHAEL  BARNHILL,  Assistant Attorney  General,  Commercial/Fair                                                               
Business  Section,  Civil  Division,   Department  of  Law  (DOL)                                                               
explained  Amendment  4  by  saying  it  addresses  many  of  the                                                               
concerns mentioned  in the last meeting.   He said it  adds a new                                                               
Section 4  on page 2  of the  bill in response  to Representative                                                               
Gruenberg's concern  about the  Quill decision,  which has  to do                                                               
with individuals  that import cigarettes  to Alaska and  who then                                                               
would be liable for the tax.   He explained that last session the                                                               
legislature enacted a bill which  prohibits importation by a non-                                                               
licensee, so he  said he predicts it won't be  much of a problem.                                                               
If there  is a cigarette  seller from out  of state who  does not                                                               
have  physical presence  in Alaska  and  who is  selling a  large                                                               
number  of  cigarettes  to  people   in  Alaska  who  don't  have                                                               
licenses, subsection  (i), which is  an addition to  the shipping                                                               
restriction statute,  43.50.105, should  address that issue.   It                                                               
would make  the out-of-state  shipper liable for  the tax  to the                                                               
full  extent permitted  by the  constitution.   He called  it the                                                               
"Quill notion," which would allow tax to be collected from [out-                                                                
of-state] sellers.                                                                                                              
                                                                                                                                
Number 0605                                                                                                                     
                                                                                                                                
MR.  BARNHILL  explained  that  the  next  proposed  section  [of                                                               
Amendment 4]  deals with  the forfeiture  provision, which  is on                                                               
page 5 of  the proposed CS.   The preamble in the  CS [lines 5-6]                                                               
which  says  "The  following  are   subject  to  forfeiture:"  is                                                               
deleted.   He  said that  the  only conduct  targeted is  conduct                                                               
which  rises to  the level  of a  felony, which  is clarified  by                                                               
inserting "Upon  a showing  of probable cause  that a  person has                                                               
committed the crime of  misconduct involving unstamped cigarettes                                                               
or stamps in  the first degree under AS  43.50.640, the following                                                               
are subject to forfeiture:".                                                                                                    
                                                                                                                                
MR.  BARNHILL,  turning to  the  second  page of  [Amendment  4],                                                               
pointed out  that in  [subsection (a),  paragraphs (1)  and (2)],                                                               
the transactions  of bartering and  exchanging have  been deleted                                                               
in response  to Representative Samuels'  concerns and  a proposal                                                               
made by Deputy Commissioner Porter.                                                                                             
                                                                                                                                
Number 0730                                                                                                                     
                                                                                                                                
REPRESENTATIVE   GRUENBERG  remarked   that   [that  portion   of                                                               
Amendment 4] may not be technically  correct.  Looking at page 2,                                                               
lines 4-6  of the amendment, he  asked if Mr. Barnhill  has the D                                                               
version of the bill handy.                                                                                                      
                                                                                                                                
MR. BARNHILL replied he does.                                                                                                   
                                                                                                                                
REPRESENTATIVE  GRUENBERG suggested,  included  in [the  wording]                                                               
which eliminates "possessed for  sale, or bartered or exchanged",                                                               
should also be  "for goods and services".  He  asked Mr. Barnhill                                                               
if that additional phrase is needed.                                                                                            
                                                                                                                                
MR. BARNHILL said Representative Gruenberg is absolutely right.                                                                 
                                                                                                                                
REPRESENTATIVE GRUENBERG offered that as a friendly amendment.                                                                  
                                                                                                                                
MR. BARNHILL said he appreciates  that observation.  He corrected                                                               
the amendment on  page 2, lines 1  and 5, to add  the words, "for                                                               
goods and services".                                                                                                            
                                                                                                                                
Number 0906                                                                                                                     
                                                                                                                                
The committee took an at-ease from  7:15 a.m. to 7:17 a.m. to fix                                                               
technical difficulties with the off-net sites.                                                                                  
                                                                                                                                
Number 0944                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GRUENBERG  withdrew  his friendly  amendment  and                                                               
moved  to adopt  a  conceptual amendment  to  Amendment 4,  which                                                               
would change the  language on page 5,  lines 7, 8, and  9 [of the                                                               
proposed  CS]  to  say  "material   and  equipment  used  in  the                                                               
manufacture, sale, offering  for sale, or possession  for sale of                                                               
cigarettes  in  this  state  in  violation  of  -  and  then  the                                                               
statutes."  There being no objection, it was so ordered.                                                                        
                                                                                                                                
MR.  BARNHILL  continued  to explain  the  changes  contained  in                                                               
Amendment 4.   He noted that  [subsection (i)] on page  7 [of the                                                               
proposed  CS]  is  deleted  in response  to  concerns  voiced  by                                                               
members of  the committee.   He said  that the judge  could still                                                               
order forfeiture at his or her discretion.                                                                                      
                                                                                                                                
REPRESENTATIVE WILSON said she would  like to see "something very                                                               
strong here" or there may be many violations.                                                                                   
                                                                                                                                
MR. BARNHILL responded  that he has discussed  deleting this part                                                               
with the  criminal section [of  DOL] which  said "to get  a judge                                                               
comfortable  with a  new forfeiture  section, there  is going  to                                                               
have to be a major violation.  There's  going to have to be a lot                                                               
of bootlegged  cigarettes at  stake."  He  said that  if deleting                                                               
this does not work, it can be returned  to at a later date for an                                                               
amendment  to require  mandatory  forfeiture.   He reported  that                                                               
[DOL]  is  comfortable  with  deleting  [subsection  (i)  of  the                                                               
proposed CS].                                                                                                                   
                                                                                                                                
MR. BARNHILL continued  to say on page 8, following  line [16] to                                                               
the  end [of  the proposed  CS], a  new section  is added.   This                                                               
section amends the  two criminal provisions in  the cigarette tax                                                               
stamp Act  [SB 168]  enacted last session,  which deals  with the                                                               
crimes of misconduct involving unstamped  cigarettes in the first                                                               
degree and  in the second  degree.  The threshold  increases from                                                               
1,000  to 5,000  cigarettes for  a felony  violation in  order to                                                               
address the concern of a felony  kicking in when the threshold is                                                               
too low,  and in  order to  achieve parity with  the rest  of the                                                               
criminal statutes.                                                                                                              
                                                                                                                                
Number 1410                                                                                                                     
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  asked on page  2, line 18, and  page 3,                                                               
line  1 [of  Amendment  4],  why it  doesn't  say "with  reckless                                                               
knowing or intentional disregard" instead of just "reckless."                                                                   
                                                                                                                                
MR. BARNHILL said he does not recall the reason.                                                                                
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  asked if there  is a reason not  to add                                                               
those standard words.                                                                                                           
                                                                                                                                
MR. BARNHILL said he thinks  that reckless disregard is the floor                                                               
of  intent  and knowing  or  intentional  is  a higher  level  of                                                               
intent.                                                                                                                         
                                                                                                                                
REPRESENTATIVE WEYHRAUCH asked if reckless is the lowest form.                                                                  
                                                                                                                                
MR. BARNHILL replied yes.                                                                                                       
                                                                                                                                
REPRESENTATIVE  WILSON asked  what  the change  in  number is  in                                                               
cartons.                                                                                                                        
                                                                                                                                
MR. BARNHILL said five cartons.                                                                                                 
                                                                                                                                
REPRESENTATIVE WILSON  asked if  a person can  now bring  in five                                                               
cartons of cigarettes for personal use.                                                                                         
                                                                                                                                
MR. BARNHILL  replied that  is a different  issue.   Elsewhere in                                                               
the statutes  there is  a provision  for people  to bring  in 100                                                               
cigarettes a month, he explained.   This amendment has to do with                                                               
bootlegging:   any amount of  bootlegging up to  5,000 cigarettes                                                               
is a misdemeanor, and anything over 5,000 is a felony, he added.                                                                
                                                                                                                                
Number 1608                                                                                                                     
                                                                                                                                
REPRESENTATIVE WILSON asked why the  number of cigarettes is used                                                               
rather than the number of cartons.                                                                                              
                                                                                                                                
MR. BARNHILL said he has no idea.                                                                                               
                                                                                                                                
REPRESENTATIVE GRUENBERG,  responding to  Representative Wilson's                                                               
question, said that  the size of a carton could  be varied, but a                                                               
number is certain.                                                                                                              
                                                                                                                                
REPRESENTATIVE GRUENBERG referred to page  8 [of the proposed CS]                                                               
and suggested a renumbering of the Section 16.                                                                                  
                                                                                                                                
Number 1743                                                                                                                     
                                                                                                                                
CHAIR HAWKER  acknowledged that any conforming  changes that need                                                               
to be made, should this  amendment be approved, Legislative Legal                                                               
and  Research Services  could  incorporate  without changing  the                                                               
substance of the amendment.                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked Mr.  Barnhill if [Section  16] of                                                               
the amendment conforms the misdemeanors.                                                                                        
                                                                                                                                
MR. BARNHILL replied yes.                                                                                                       
                                                                                                                                
REPRESENTATIVE  GRUENBERG  asked   if  possessing  one  unstamped                                                               
cigarette would  be a  misdemeanor, and he  said he  is concerned                                                               
about that  because packs  are stamped,  but cigarettes  are not.                                                               
He  asked  how a  person  would  know  if  a cigarette  has  been                                                               
stamped.                                                                                                                        
                                                                                                                                
MR. BARNHILL  opined that if  a person  bought a stamped  pack of                                                               
cigarettes, those  20 cigarettes inside  would be deemed  to have                                                               
been stamped.   He continued to  say, "If someone handed  you one                                                               
cigarette from  an unstamped pack  of cigarettes, and  you didn't                                                               
know,  then  I would  say  that  doesn't  raise to  the  reckless                                                               
disregard  standard  required  for  either  a  misdemeanor  or  a                                                               
felony."                                                                                                                        
                                                                                                                                
REPRESENTATIVE  GRUENBERG  asked how  many  cigarettes  are in  a                                                               
pack.                                                                                                                           
                                                                                                                                
REPRESENTATIVE WILSON said twenty.                                                                                              
                                                                                                                                
REPRESENTATIVE GRUENBERG offered a  friendly amendment to say "at                                                               
least 20 cigarettes."                                                                                                           
                                                                                                                                
MR. BARNHILL replied  that he is not sure that  would be received                                                               
as a friendly amendment.  He  said he believes that Senator Bunde                                                               
may have good reasons for making the floor one [cigarette].                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG  said he  would not pursue  the friendly                                                               
amendment.                                                                                                                      
                                                                                                                                
Number 2017                                                                                                                     
                                                                                                                                
REPRESENTATIVE WEYHRAUCH withdrew his objection.                                                                                
                                                                                                                                
CHAIR HAWKER  asked if  there was any  further objection  [to the                                                               
motion to adopt Amendment 4].  Hearing none, it was so ordered.                                                                 
                                                                                                                                
REPRESENTATIVE  OGG  stated  that  he   is  not  going  to  offer                                                               
Amendment 3.                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG said he is  not going to offer Amendment                                                               
6.                                                                                                                              
                                                                                                                                
CHAIR  HAWKER  noted that  Amendment  6,  which deals  with  bond                                                               
requirements,  will  also not  be  offered.   He  explained  that                                                               
Amendment  6 would  have changed  Section 43.50.550,  which deals                                                               
with the deferred payment for stamps.  He read from the statute:                                                                
                                                                                                                                
     A licensee who submits  an application for the purchase                                                                    
     of  stamps on  a deferred  payment basis  shall post  a                                                                    
     bond acceptable  to the department in  the amount equal                                                                    
     to 200 percent of the  maximum dollar amount of allowed                                                                    
     monthly  purchases under  this section  as a  condition                                                                    
     for approval of the application.                                                                                           
                                                                                                                                
CHAIR HAWKER  said this is  an important provision  for business,                                                               
in general,  but particularly  for small  businesses that  do not                                                               
have unlimited  cash resources.  He  related that he has  been in                                                               
lengthy discussions  with insurance  companies that  are involved                                                               
in bonding, but he has not been  able to get anyone to testify by                                                               
today.   Doubling the bond  requirements for small  businesses is                                                               
an insurance product  that is not readily  available, which could                                                               
cripple or  eliminate these businesses,  he said.  He  stated his                                                               
intention is to set the bill  aside and ask [DOR] to resolve this                                                               
issue so  that the ability  of industry  to operate in  Alaska is                                                               
not compromised.   He  opined that an  amendment would  not solve                                                               
the problem and more research is needed.                                                                                        
                                                                                                                                
Number 2333                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG  mentioned that  the reason  he withdrew                                                               
[Amendment 5]  was to  not delay  the movement  of the  bill, but                                                               
now, knowing  that the bill  will be taken  up again, he  said he                                                               
will be offering his amendment at the next meeting.                                                                             
                                                                                                                                
CHAIR HAWKER said that a brief  recess is needed to fix technical                                                               
sound problems.                                                                                                                 
                                                                                                                                
[HB 538 was held over.]                                                                                                         
                                                                                                                                
The committee took an at-ease from 7:32 a.m. to 7:38 a.m.                                                                     
                                                                                                                                

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