Legislature(2003 - 2004)

06/22/2004 02:55 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
            SB1001-TOBACCO TAX; LICENSING; PENALTIES                                                                        
CHAIR CON  BUNDE called  the Senate  Labor and  Commerce Standing                                                               
Committee  meeting  to  order  at  2:55  p.m.  All  members  were                                                               
present.  The  first  order  of   business  to  come  before  the                                                               
committee was SB 1001.                                                                                                          
MS.  JOANNA   BALES,  Program  Manager,  Cigarette   and  Tobacco                                                               
Products  Excise  Tax  Division,  Department  of  Revenue  (DOR),                                                               
identified the major changes in  the bill. First, it outlines the                                                               
intent  to provide  funding to  the tobacco  control programs  at                                                               
minimum levels recommended  by the U.S. Department  of Health and                                                               
Human Services - approximately $4 million each year.                                                                            
CHAIR BUNDE clarified that the  money goes to state agencies that                                                               
work with  tobacco cessation,  not the  non-profits to  pay their                                                               
MS. BALES agreed and added that  the money would go to Department                                                               
of  Health and  Social Services  (DHSS). A  person is  allowed to                                                               
import two cartons of cigarettes  per month without incurring the                                                               
tax, what  the federal government  allows people to  import duty-                                                               
free. The cigarettes  cannot be transported through  the mail and                                                               
must be for personal use.                                                                                                       
SB  1001 changes  the threshold  from 1,000  cigarettes to  5,000                                                               
cigarettes  for  a  class  C felony  in  the  cigarette  shipping                                                               
restriction law. The  reason is that the threshold for  a class C                                                               
felony theft  is $500 and the  tax due on 5,000  cigarettes would                                                               
be $500.                                                                                                                        
Another provision adds a section  saying that the State of Alaska                                                               
can  collect cigarette  taxes from  out-of-state  sellers to  the                                                               
fullest  extent allowed  under  the  constitution. This  language                                                               
gives  the  state some  leeway  when  an out-of-state  seller  is                                                               
selling into  the state.  The other  tobacco products  (OTP) tax,                                                               
which  is  levied  on  individuals who  bring  in  other  tobacco                                                               
products for personal consumption remains in this version.                                                                      
CHAIR  BUNDE  related  that  this  section  pertained  mostly  to                                                               
MS. BALES  added that manufacturers  are now  making machine-made                                                               
cigars  that  meet the  definition  of  a  cigar, but  are  being                                                               
advertised as a substitute for cigarettes.                                                                                      
SENATOR RALPH  SEEKINS asked what  the difference would be  for a                                                               
pack of cigarettes and a pack of cigars.                                                                                        
MS.  BALES answered  that  the mini-cigar  called  Prime Time  is                                                               
being sold  in Alaska and can  be bought on the  Internet for $18                                                               
per carton.  If a  person brought  that into  the state,  the tax                                                               
would be  $18 for a  total of $36.  A carton of  cigarettes would                                                               
run from $42 - $70 per  carton. Without this provision, one would                                                               
only pay $18 for a carton of cigars.                                                                                            
SENATOR SEEKINS  asked why the tax  wasn't paid on the  weight of                                                               
the product.                                                                                                                    
MS. BALES replied that some states  have done that and found that                                                               
is more convoluted to administer.                                                                                               
SENATOR GARY STEVENS asked if there were any tax exemptions.                                                                    
MS. BALES replied  that the state has no authority  to levy a tax                                                               
on  military  installations,  Indian reservations  or  on  Indian                                                               
Country. There are two such  locations in Alaska - the Metlakatla                                                               
Smoke Shop and the Klawock  Smoke Shop. She emphasized that these                                                               
exemptions were strictly for personal consumption.                                                                              
MS.  BALES said  that the  bill  also clarifies  a forfeiture  of                                                               
property provision that would only  come into play when the crime                                                               
committed was a felony, not a misdemeanor.                                                                                      
CHAIR  BUNDE summarized  that this  bill increases  the tax  to a                                                               
full dollar  the day that  it's effective  and has a  floor stock                                                               
tax to prevent stock piling and taxes other tobacco products.                                                                   
SENATOR STEVENS  wanted to know  how the additional  monies going                                                               
to cessation programs were going to be used.                                                                                    
MS. BALES replied  that the $4 million tax is  in addition to the                                                               
$4 million  to $5  million that  is received  each year  from the                                                               
master settlement agreement. The  commissioner of the Division of                                                               
Health and Social Services would address how the funds are used.                                                                
COMMISSIONER JOEL  GILLBERTSON, Department  of Health  and Social                                                               
Services (DHSS),  explained that adding $4  million would augment                                                               
existing funds  coming from the master  settlement agreement. His                                                               
department  provides  a  variety  of services  with  the  tobacco                                                               
control   program  dollars   for   cessation  and   intervention.                                                               
Competitive grants  are awarded  to different  organizations like                                                               
the Tobacco Control Alliance, preventive  ads are placed on radio                                                               
and  T.V. and  a  private  toll-free quit  line  is operated  for                                                               
cessation services.  Funds come to  the department first  and are                                                               
disbursed through grants and contracts.                                                                                         
CHAIR BUNDE  asked if there was  a mechanism in place  that could                                                               
absorb the $4 million tax increase effectively.                                                                                 
COMMISSIONER GILBERTSON  said that  an orderly ramp-up  is needed                                                               
in program services.                                                                                                            
SENATOR  STEVENS asked  what major  organizations his  department                                                               
would provide grants to.                                                                                                        
COMMISSIONER GILBERTSON  replied to organizations  for cessations                                                               
and education,  the quit-line, advertising efforts,  and possible                                                               
new  programs.  Some funds  are  used  in-house for  things  like                                                               
epidemiological surveys, data collection and general services.                                                                  
CHAIR BUNDE asked  if municipalities could apply  for and receive                                                               
the competitive grants.                                                                                                         
COMMISSIONER GILBERTSON replied yes.                                                                                            
SENATOR  SEEKINS  moved  to  pass SB  1001  from  committee  with                                                               
individual  recommendations and  attached fiscal  notes. Senators                                                               
Davis, French, Seekins,  Gary Stevens and Chair  Bunde voted yea;                                                               
and SB 1001 moved from committee.                                                                                               

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