Legislature(1997 - 1998)
05/01/1998 06:35 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 299
"An Act reducing excise tax rates for pipe tobacco and
certain cigars, cheroots, and stogies."
Members were provided with a proposed committee substitute
for HB 299, #O-LS1212\F, 5/1/98(copy on file).
KYLE JOHANSEN, STAFF, REPRESENTATIVE WILLIAMS testified in
support of SB 13. He observed that last session Senate Bill
13 was passed in an effort to reduce the use of cigarettes
by minors. Included in the legislation was a tripling of
the wholesale tax on "other tobacco products." He noted the
negative effects of SB 13 on small businesses dealing with
cigars and pipe tobacco. House Bill 299 was introduced to
lower the tax rate on cigars and pipe tobacco. Currently
the state taxes the wholesale price of cigars and pipe
tobacco at 75%. Since the implementation of the tax
increase (from 25%) on October 1, 1997 businesses that sell
cigars and pipe tobacco have seen a large drop in sales.
Consequently, many small businesses are struggling to stay
profitable under the new tax structure.
Mr. Johansen observed that cigars and pipe tobacco are
generally sold in tobacco shops, liquor stores and bars.
These establishments are closely monitored by their
proprietors or are already off limits to minors. In
addition, AS 11.76.100 and AS 11.76.107 prohibit the sale to
or possession of tobacco by a person under the age of 19.
Mr. Johansen emphasized that revenues derived from taxes on
cigars and pipe tobacco are deposited into the state general
fund. He asserted that the 75% tax rate is an extreme
contribution to the general fund by these particular
businesses in Alaska.
BOB BARTHOLOMEW, ASSISTANT DEPUTY DIRECTOR, INCOME AND
EXCISE AUDIT DIVISION, DEPARTMENT OF REVENUE reviewed the
legislation. He noted that the legislation expands the
definition of cigarette. The definition was taken from the
federal Internal Revenue Services. It adds as a new area
what would now fall under cigar. Section 2 changes the tax
rate on other tobacco products from 75 percent of the
wholesale price to 25 percent of the wholesale price. Under
the proposed committee substitute, a hand rolled cigar or
tobacco in any form suitable for smoking in a pipe would
qualify at the lower tax rate. He observed that pouch
tobacco can be used for cigarettes or pipes. He stressed
that it will be difficult to determine the intended purpose
of pouched tobacco. Section 3 reorganizes how other tobacco
products would be defined. He observed that subsection (D)
on page 2 of the proposed committee substitute defines other
tobacco as "chewing tobacco, including cavendish, twist,
plug, scrap, and tobacco suitable for chewing." He observed
that this could be used to define cigarette or pipe tobacco
and emphasized the difficulty of determining the use. He
observed that cigars are addressed as a tax rate on line 4
and 6, page 2 of the proposed committee substitute.
Representative Davies interpreted the proposed committee
substitute to place hand rolled cigars at the 25 percent tax
rate and all other cigars at the 75 percent rate. A cigar
would be taxed in two different ways. b. agreed and added
that the Department would have to break cigars out into
different rates. He reiterated that the Department would
have a compliance problem.
Mr. Bartholomew discussed the fiscal note. He observed that
the fiscal note was based on the previous version. The
Department's estimate included the assumption that if the
rate were dropped that consumption would increase. There
would be a loss of general fund revenue of $728.7 thousand
dollars annually.
Representative Mulder observed that the product is taxed as
it enters the state. He questioned if a seller would be
able to have the tax refunded if they were unable to sell
the product in the state. b. stated that statutes do not
provide for refunds.
GREG CONLEY, PHYSICIAN, BOSTON, MASSACHUSETTS testified via
teleconference. He noted that he had worked has worked with
the Surgeon General on tobacco use issues. He concluded
that cigar smoking increases the risk of oral and lung
cancer. He maintained that cigars are not a safe
alternative to cigarettes. He observed that there is a
sharp increase in cigar use, especially in adolescent males.
He emphasized that there are no warning labels on cigars.
He noted that the current tax is approximately the same for
manufactured cigars and cigarettes per pound. The tax on
premium cigars is higher per pound then cigarettes.
Research in the National Cancer Institute Monograph
indicated that product sales go up when taxes go down. One
large cigar has more tobacco then a pack of cigarettes and
has higher doses of toxic substances. The maximum federal
tax on cigars is 3 percent. He emphasized that the same
standards for regulation and taxation should apply for
cigars and cigarettes.
CHRISTIE MCINTIRE, ANCHORAGE CHAPTER, AMERICAN LUNG
ASSOCIATION spoke against the legislation. She stressed
that cigars are harmful and pose a risk to nonsmokers from
second hand smoke.
SHARI SMOLE, SCHOOL NURSE, ANCHORAGE testified via
teleconference against the legislation. She asserted that
the tobacco tax increase has been successful in reducing
teen smoking. She did an informal survey in her school with
students age 14 to 17. Of 46 students; 17 were full-time
smokers, 36 had tried cigars at least one time, and 12 were
regular cigar smokers. Students preferred smaller cigars.
She noted that none of the students she interviewed rolled
their own cigarettes.
JUDITH BENDERSKY, RURALCAP, ANCHORAGE testified via
teleconference in opposition to the legislation. She works
in the Child Development Division coordinating health
services in rural communities. She stressed that the
legislation would be regressive. She maintained that the
tobacco industry is trying to make cigars and pipes
attractive.
NEAL MATSON, AMERICAN CANCER SOCIETY, FAIRBANKS testified
via teleconference in opposition to HB 299. He stressed
that the tobacco tax is working. He counsels people who
want to quit smoking. He smoked for 30 years. He observed
that cigars are a fast growing fad.
ELLEN GANLEY, PRESIDENT, ALASKA PUBLIC HEALTH ASSOCIATION,
FAIRBANKS testified via teleconference in opposition to the
legislation. She emphasized tobacco has an adverse affect
on health and increased use will cost more in state funded
health care.
DIANA CAMPBELL, TANANA CHIEF CONFERENCE testified via
teleconference in opposition to HB 299. She recounted the
story of a child who started smoking when they were 6 and
could not stop. She observed that tobacco related cancer is
responsible for 30 percent of cancer deaths among Alaskan
Natives.
NATHAN BAILY, TOBACCO ALLIANCE IN THE PENINSULA, KENAI
testified via teleconference in opposition to HB 299. He
emphasized that the legislation sends the wrong message. He
maintained that tobacco use, especially hand rolled
cigarettes, promotes to drug use.
JUDY DOWNS, TOBACCO ALLIANCE IN THE PENINSULA, KENAI
testified via teleconference in opposition to HB 299. She
noted that she works with students on a daily basis. She
expressed concern over the number of middle school students
struggling with tobacco addiction. She questioned if the
message is that pipe and cigar tobacco is less dangerous and
harmful. She observed that local convenience stores have
cigars for sell on their counters.
(Tape Change, HFC 98 - 141, Side 2)
MARSHA MOROIELLI, COMMUNITY PARTNERSHIPS, NOME testified via
teleconference in opposition to HB 299. She stated that
there has been an increase in cigar use among 8th and 9th
grade boys.
SUSAN MASON-BOUTERSE, DIVISION OF PUBLIC HEALTH, DEPARTMENT
OF HEALTH AND SOCIAL SERVICES testified in opposition. She
provided members with a handout, "Cigars and Pipe Tobacco:
Health Effects (copy on file). Since 1993, cigar use has
increased by nearly 50 percent. This has coincided with
promotional activities, such as cigar parties and magazines.
There are many misperceptions regarding cigar and pipe
tobacco use. Most new cigar users are teenagers and young
adult males who smoke occasionally. Cigar smoking causes a
variety of cancers: esophagus, oral cavity, larynx and lung.
Pipe smoking increases the risk of developing lung disease
and cancers of the lung, esophagus, oral cavity and larynx.
Even if cigar smokers do not inhale they have higher levels
of risk for oral, throat, and esophageal cancers. Most
former cigarette smokers continue to inhale smoke when they
switch to cigars. The relapse rate of former cigarette
smokers who smoke cigars was twice as great as in those who
did not smoke cigars. The nicotine from cigars is absorbed
into the body through the blood vessels in the mouth. Cigar
smokers are twice as likely to take up cigarette smoking for
the first time than non-cigar smokers. A large cigar emits
20 times the ammonia, 5-10 times the cadmium, and up to 89-
90 times the highly carcinogenic nitrosamines as a
cigarette. Youth usage of cigars is on the rise. She
reviewed findings from the National Cancer Institute
Monograph:
? About 6 million U.S. teenagers 14-19 years old smoked
at least one cigar within the last year.
? According to a recent national survey, 1 0f 4 high
school students smoked at least one cigar with the past
year.
? Some school-based studies report that adolescent boys
use of cigars exceed their use of smokeless tobacco.
Ms. Mason-Bouterse stressed that using tobacco in any form
causes health problems. Consumers tend to move to lower
cost products. If the cost of cigars and pipe tobacco
decreases, the use of these products can be expected to
increase. Teenage cigar use is on the rise across the
country. Lowering the price may make the product more
accessible to our youth.
JEFF MORENO, STUDENT, JUNEAU testified against the HB 299.
He agreed that lowering the price would increase usage. He
noted that he has smoked cigarettes for six years and is
attempting to stop. He started smoking cigars because of
the cost. He observed that cigars are displayed in areas
that allow them to be stolen. He stressed that cigars
should be put behind counters. He emphasized the addictive
properties of tobacco. He mistakenly thought that cigars
were safer to smoke because they don't have warning labels.
He emphasized that nicotine patches and classes to stop
smoking should be more available.
In response to a question by Representative Martin, Mr.
Moreno noted that cigars are readily available.
In response to a question by Representative Davies, Mr.
Moreno stated that adolescents still believe that cigars are
less harmful.
ANNE MARIE HOLEN, CITIZENS TO PROTECT KIDS FROM TOBACCO,
ANCHORAGE testified against HB 200. She observed that the
legislation comes at a time of increasing alarm over the
rising rates of cigar smoking and the astonishing popularity
of cigars among kids. She referred to the report by the
National Cancer Institute, "Cigars Health Effects and
Trends." There is an article in the May 1998 issue of
Consumer Report titled, "Seductive Cigars: New ways to
addict the next generation." She noted that the article
states: "Tobacco is tobacco, so any legislation or
regulation that does not include all tobacco products will
be far from complete." She emphasized that there has been a
dramatic increase in cigar use. Most of the new users are
teenagers and young adults. The health risk from cigar
smoking is significant.
Ms. Holen displayed tobacco products. She pointed out that
the biggest, fattest cigars with the most nicotine and
cancer-causing nitrosamines, which cause the most carbon
monoxide and ammonia are okay. Some of the cigar products
are more affordable. She maintained that the majority of
adults that smoke want to quit. Increased costs provide
added incentive to quit.
Ms. Holen asserted that the tobacco tax has reduced the
demand for tobacco products. She maintained that arguments
that the tax has contributed to a smuggling problem are
unsubstantiated. The state of Washington has had a tax rate
of 75 percent of the wholesale price since 1993.
Ms. Holen pointed out that the tobacco industry is lobbying
for reductions in the tax. She maintained that the tobacco
industry would attempt to reduce the tax on cigarettes if
they are successful in reduction the tax on cigars and
smokeless tobacco. She observed that the legislation would
reduce $780 thousand dollars from the general fund that
could be appropriated for tobacco prevention and control.
ROSIE SLOTNICK, STUDENT, TEENS AGAINST TOBACCO USE, JUNEAU
testified against HB 299. She stressed that there are young
women that are experimenting with cigars. She observed that
a lot of teens roll their own cigarettes. She maintained
that a repeal of the cigar tax reinforces the image that
cigars and pipes do not have the same adverse effect as
other tobacco products. She asserted that it "would not be
fair to the young people of Alaska to repeal the cigar and
pipe portion of the tobacco tax, because it sends the wrong
message."
JENNIFER ANDREWS, BETHEL TEEN AND ADULT CENTER, BETHEL
testified via teleconference in opposition to HB 299. She
works with young adults that are addicted to nicotine. She
stressed that passage of the legislation would send a mixed
message.
DAN BERLINER, PHYSICIAN, BETHEL HEALTH, BETHEL testified via
teleconference in opposition to HB 299. He observed the
increase in tobacco use among young people. He stressed
that increased tobacco use results in increased health care
resources.
GRETCHEN BARNES, DIRECTOR OF NURSING, PUBLIC HEALTH NURSE,
BETHEL testified via teleconference in opposition to HB 299.
She stressed the deleterious affects of tobacco use and
second hand smoke. She noted that tobacco use has declined
since the implementation of the tobacco tax.
RICHARD WHITE, PUFFIN PIPE, KETCHIKAN testified via
teleconference in support of HB 299. He observed that his
business has been negatively impacted by the tobacco tax.
He maintained that the increase is out of line. He spoke in
support of a 25 percent tax. He observed that only one
minor has tried to purchase products in his store since they
opened. He maintained that the average age of cigar and
pipe smokers is 34 years of age. He pointed out that
Alaskans could bypass the tax by ordering cigars and pipe
tobacco through the mail. He stressed that if tobacco
businesses fail that jobs will be lost and the state of
Alaska will receive less revenue.
JANETTE SHACKLES, PHYSICIAN, MANILLAQ HEALTH SERVICE,
KOTZEBUE testified via teleconference in opposition to HB
299. She pointed out that cigars and pipes are not safe
alternatives to cigarette smoking. She expressed concern
that use of smokeless tobacco will in juveniles will
increase if the legislation is passed.
REX GARVER, SITKA testified via teleconference in opposition
to HB 299. He noted that the tobacco tax has been in effect
for less than a year.
BOB DIXON, Anchorage testified via teleconference on behalf
of Pete Switzer and Pete's Tobacco Shop in support of the HB
299. He stated that business in Pete's Tobacco Shop has
declined by 60 percent in sales since the tobacco tax was
implemented. He maintained that consumption has not
declined. He stressed that cigars can be purchased through
the mail. He observed that the large hand rolled cigars are
not being smoked by juveniles. He asserted that consumption
is going out of state. He maintained that legitimate
Alaskan businesses that do not sell to kids are being put
out of business. He suggested that the tax be based on the
price of the cigar. He pointed out that no one under the
age of 21 is allowed in Pete's Tobacco Shop. He emphasized
that parents should control their children.
(Tape Change, HFC 98 -142, Side 1)
KANDACE WILLIAMS, PROFESSOR OF CANCER RESEARCHER, UNIVERSITY
OF ALASKA, ANCHORAGE testified via teleconference in
opposition to HB 299. She spoke in support of the tobacco
tax. She emphasized that cigars and pipe tobacco do not
have less carcinogens or are less addictive. She stressed
that teenage consumption will increase if the tax is
reduced. She maintained that smokers should pay their fair
share of health costs if they smoke.
JONATHON GALIN, ALASKA DISTRIBUTORS, ANCHORAGE testified via
teleconference in support of HB 299. He maintained that the
tobacco tax penalizes adults that smoke cigars. He
emphasized that underage people are not allowed to purchase
tobacco products. He maintained that the tobacco tax is
regressive.
DELISA CULPEPPER, MUNICIPALITY OF ANCHORAGE, DEPARTMENT OF
HEALTH AND SOCIAL SERVICES, ANCHORAGE testified via
teleconference in opposition to HB 299. She observed that
the Municipality of Anchorage has an additional 15 percent
tax on cigars. She stressed that it is risky to reduce the
tax on all cigars.
PAUL BARRETT, AMERICAN CANCER SOCIETY, FAIRBANKS testified
via teleconference in opposition to HB 299. He stressed
that costs of the harmful affects of tobacco are born
throughout society, not just by the consumers of the
product. He expressed doubt that children would purchase
tobacco products through catalog sales. He maintained that
a partial roll back of the tax would be a slap in the face
to all the people that supported the tax a year ago.
GLENN HACKNEY, FAIRBANKS testified via teleconference in
opposition to HB 299. He observed that the legislation on
received one committee referral.
Representative Kelly observed that the legislation was
introduced on the 12th of January.
BONNIE JACK, ANCHORAGE testified via teleconference in
opposition to the legislation. She recounted personal
experiences with tobacco related deaths. She observed that
young women smoke cigars.
KEN JACOBUS, TOBACCO EDUCATOR, ANCHORAGE testified via
teleconference in support to HB 299. He maintained that
teenagers do not consume premium cigars. He felt that the
tax should be deleted because it does not address the
problem of teenage consumer. He stressed that funding
collected from a tax on tobacco should target tobacco
prevention programs.
BILL BOUWENS, TOBACCO EDUCATOR, ANCHORAGE testified via
teleconference testified via teleconference in opposition to
HB 299. He pointed out that 90 percent of tobacco users
begin before the age of 21.
JENNY MURRAY, TOBACCO POLICY COORDINATOR, AMERICAN CANCER
SOCIETY, ANCHORAGE testified via teleconference in
opposition to HB 299. She emphasized that the increase in
cigar consumption is the result of a sophisticated
advertising campaign by the tobacco industry. She quoted a
report in the Baltimore Sun, January 1998. The article
stated that the cigar industry began a resurrection of cigar
smoking two decades ago. Successful strategies included
manipulation of the media. She observed the increased
presence of cigars in Alaskan convenience stores.
BUFF BURTIS, PHYSICIAN, ANCHORAGE provided written testimony
in opposition to HB 299 (copy on file). Nicholas Kittleson,
Anchorage, read his testimony. Dr. Burtis stated that he
works with patients suffering from tobacco related
illnesses. He stressed that hospitalization for these
patients cost approximately $1,000 dollars per day. He sees
at least one new case a month of tobacco related bronchogen
lung cancer.
NICHOLAS KITTLESON, ANCHORAGE testified via teleconference
in opposition to HB 299. He suggested that tobacco tax
revenues be used to redirect tobacco businesses.
BOYD MCFAIL, ANCHORAGE testified via teleconference in
support of HB 299. He noted that he purchases his cigars
from out-of-state because of the tobacco tax. He maintained
that Alaska businesses will go out of business and that
state revenues will be decreased. He observed that the
tobacco tax is used for school maintenance.
Co-Chair Therriault MOVED to ADOPT work draft #O-LS1212\F,
Glover, 5/1/98. Representative Davies OBJECTED.
KYLE JOHANSEN, STAFF, REPRESENTATIVE WILLIAMS explained that
the only change from the previous version occurred on page
2, line 4. "Hand rolled cigars" was added in the work draft
in order to narrow the legislation to the specialty, high-
end cigars. The change was made in response to concern
regarding low-end cigars. He explained that "perique" is a
type of cigar.
There being NO further OBJECTION, ADOPT work draft #O-
LS1212\F, Glover, 5/1/98 was adopted.
Representative Davies MOVED to ADOPT Amendment 1, delete
page 2, line 5 "(B) tobacco in any form suitable for
smoking in a pipe.
Mr. Johansen spoke against the amendment. He noted that
cigarette and pipe tobacco is clearly marked. He stressed
that there is a distinguish between tobacco used for
cigarettes and pipes.
Representative Davies WITHDREW the MOTION.
Representative Kohring MOVED to report CSHB 299 (FIN) out of
Committee with the accompanying fiscal note. Representative
Davies OBJECTED. He spoke against passage of the
legislation. He emphasized that the legislation sends the
wrong message and will invite youth to begin or continue to
use tobacco. He emphasized the medical affects of tobacco
smoking and second hand smoke. He estimated that there
would be more money available to deal with tobacco related
issues if the tax remains even though it is deposited into
the general fund.
(Tape Change, HFC 98 - 142, Side 2)
Representative Kohring WITHDREW the MOTION to move HB 299.
HB 299 was HELD in Committee for further consideration.
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