Legislature(2001 - 2002)
2002-02-15 House Journal
Full Journal pdf2002-02-15 House Journal Page 2282 HB 429 HOUSE BILL NO. 429 by the House Rules Committee by request of the Governor, entitled: "An Act relating to certain licenses for the sale of tobacco products; relating to tobacco taxes and sales and cigarette tax stamps; relating to provisions making certain cigarettes contraband and subject to seizure and forfeiture; relating to certain crimes, penalties, and interest concerning tobacco taxes and sales; relating to notification regarding a cigarette manufacturer's noncompliance with the tobacco product Master Settlement Agreement or related statutory provisions and to confiscation of the affected cigarettes; and providing for an effective date." was read the first time and referred to the Labor & Commerce, Judiciary, and Finance Committees. The following fiscal note(s) apply: 1. Fiscal, Dept. of Revenue The Governor's transmittal letter dated February 13, 2002, appears below: 2002-02-15 House Journal Page 2283 "Dear Speaker Porter: This bill I am transmitting today is designed to reduce the importation of black market cigarettes into Alaska by requiring each pack of cigarettes sold in the state be clearly marked with a tobacco tax stamp. On October 1, 1997, Alaska increased its tobacco tax rate on cigarettes from 29 cents per pack to $1 per pack. The impetus for the tax increase was to promote public health. The Legislature and the Administration believed that if cigarettes were more expensive, fewer people would smoke. Our particular hope was that the increase in cost would cause fewer young people to take up the unhealthy habit in the first place. The tobacco tax increase has had a significant effect on the sale of taxable cigarettes in Alaska. In the five fiscal years before the tax increase, cigarette sales averaged 53 million packs per year. In the three complete fiscal years since the increase, cigarette sales have averaged 42.1 million packs per year - a drop of more than 20 percent. Much of this decrease can be attributed to reduced smoking. And yet, we also believe an unknown quantity of untaxed cigarettes are imported into the state. Existing laws make it difficult to track just how many untaxed cigarettes are coming into Alaska. The Department of Revenue believes a very simple measure - a tax stamp on each package - would help close our borders to the importation of untaxed cigarettes. This bill would require a stamp affixed to all packs of cigarettes on which the tax has been paid. The stamps would be heat-applied so they could not be transferred to untaxed packs and would be difficult to counterfeit. The colorful stamp would be easily recognizable so that Department of Revenue personnel, law enforcement agents, and consumers would immediately know whether the tax had been paid on any given pack of cigarettes. In addition, the bill would require the tax be paid before the cigarettes are imported into the state. The bill also would place considerable weight behind the state's ability to enforce the stamp requirement. The Department of Revenue and law enforcement agencies would have the authority to seize and destroy unstamped cigarettes, and violators could be subject to 2002-02-15 House Journal Page 2284 significant civil penalties and criminal liability. Other states, many of which have much lower cigarette taxes than Alaska, have long recognized the benefit of a tax stamp on cigarettes. At this time, 46 states require a stamp on cigarettes. This bill draws from the statutes and experience of those other states. States that recently adopted a cigarette tax stamp program have significantly increased their tobacco tax revenues. Michigan reported an 8.7 percent increase in cigarette taxes in the first year of its program, 1999. Initial reports from Hawaii - a state that, like ours, doesn't have bordering states but does have a high tax rate - indicate an amazing 25 percent increase in tax collection. Although these results from other states are encouraging, we do not have a reliable basis to predict the size of the effect of cigarette tax stamps here in Alaska. Given that cigarette tax revenue is about $40 million per year, each one percent increase in tax collected would raise about $400,000 per year. Stamps do not come free and distributors will incur costs when affixing stamps to individual packs of cigarettes. In recognition of the cost, the bill provides a tax discount for distributors of two percent for the first one million stamps and one percent for all additional stamps. I urge your support of this important bill. It will enhance compliance with the state's revenue laws while providing an important public health benefit. Sincerely, /s/ Tony Knowles Governor"