Legislature(2001 - 2002)

2002-02-19 Senate Journal

Full Journal pdf

2002-02-19                     Senate Journal                      Page 2228
SB 298                                                                                            
SENATE BILL NO. 298 BY THE SENATE 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                                       
was read the first time and referred to the Labor and Commerce,                                     
Judiciary and Finance Committees.                                                                   
The following fiscal information was published today:                                               
 Fiscal Note No. 1, Department of Revenue                                                           
Governor's transmittal letter dated February 13:                                                    
Dear President Halford:                                                                             
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.                                                                                        

2002-02-19                     Senate Journal                      Page 2229
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                                     
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.                                                                         

2002-02-19                     Senate Journal                      Page 2230
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.                                                                                     
Tony Knowles