04/09/2009 03:00 PM House HEALTH & SOCIAL SERVICES

HB 188-TAX ON MOIST SNUFF                                                                                                     
                                                                                                                                
3:06:01 PM                                                                                                                    
                                                                                                                                
CO-CHAIR KELLER announced  that the first order  of business would                                                              
be HOUSE BILL NO.  188, "An Act relating to the  taxation of moist                                                              
snuff tobacco,  and amending the  definition of 'tobacco  product'                                                              
in provisions levying an excise tax on those products."                                                                         
                                                                                                                                
3:07:08 PM                                                                                                                    
                                                                                                                                
CO-CHAIR HERRON  moved to adopt the proposed  Committee Substitute                                                              
(CS)  for HB  188, Version  26-LS0714\N, Bullock,  4/9/09, as  the                                                              
working document.                                                                                                               
                                                                                                                                
CO-CHAIR KELLER objected for the purpose of discussion.                                                                         
                                                                                                                                
CO-CHAIR  HERRON said that  his intent  was to  reduce the  use of                                                              
snus and moist  snuff tobacco, especially by young  people, and to                                                              
increase  the revenue  for cessation  grants.   He said that  this                                                              
Committee Substitute,  Version N, changed  the tax on  moist snuff                                                              
tobacco to a weight  based tax, and changed the tax  on snus to an                                                              
ad  valorem  tax  of  100%.    He   shared  his  desire  to  craft                                                              
legislation  that  impacted  the   smokeless  products,  which  he                                                              
opined was a crisis in his district.                                                                                            
                                                                                                                                
3:09:28 PM                                                                                                                    
                                                                                                                                
ROB  EARL,  Staff  to  Representative  Bob  Herron,  Alaska  State                                                              
Legislature, read from a prepared statement:                                                                                    
                                                                                                                                
     Currently  in  state law,  cigarettes  are taxed  at  10                                                                   
     cents per  cigarette ($2 a  pack) and all other  tobacco                                                                   
     products  (OTP) are  taxed ad  valorem at  75% of  their                                                                   
     wholesale  price.   Moist snuff  tobacco (more  commonly                                                                 
     called  "dipping  tobacco")  presently falls  under  the                                                                   
     OTP tax regime.                                                                                                            
                                                                                                                                
     HB 188  distinguishes between  two types of  moist snuff                                                                   
     tobacco   (MST):  spitless  MST   and  all  other   MST.                                                                   
     Spitless  MST are these  new light-weight products  that                                                                   
     come  in teabag-like  pouches and obviate  the need  for                                                                   
     spitting.   (Like  the Camel  Snus tin we  saw a  couple                                                                   
     weeks  ago when  this bill  was  first heard.)   HB  188                                                                   
     taxes this spitless  MST at 100% ad valorem.   All other                                                                   
     MST  (mostly  the circular  tins)  will  be taxed  on  a                                                                   
     weight-based  system  of $1.88  per  ounce.   All  other                                                                   
     OTPs (everything  besides cigarettes  and both  types of                                                                   
     MST) will remain taxed at an ad valorem rate of 75%.                                                                       
                                                                                                                                
     Taxing  MST  (excluding spitless  MST)  at a  $1.88  per                                                                   
     ounce  is   designed  to  reduce  the   price  disparity                                                                   
     between discount  and premium  MST products.   $1.88 per                                                                   
     ounce  is currently  roughly equal to  what the  premium                                                                   
     brands  currently  pay  under  the  ad  valorem  system.                                                                   
     With HB  188, the tax  on discount brands will  increase                                                                   
     dramatically  and   the  tax  on  premium   brands  will                                                                   
     initially be  about the same.   The bill does  include a                                                                   
     sunset  provision, whereby  the $1.88  per ounce tax  on                                                                   
     non-spitless MST  products, barring further  legislative                                                                   
     action,  would revert  back  to a  75%  ad valorem  rate                                                                   
     after 3 years.                                                                                                             
                                                                                                                                
     This new  taxation system will produce  additional state                                                                   
     revenue, mostly  by raising  the taxes paid  by discount                                                                   
     MST  brands.   The Dept.  of Revenue  has estimated  tax                                                                   
     revenue  would   increase  by  $1.1  million,   although                                                                   
     that's   assuming  the   same  amount   of  product   is                                                                   
     purchased  as  before  the  tax increase.    Also,  some                                                                   
     popular  MST companies lowered  prices recently,  having                                                                   
     the net  effect that this bill  might result in  as much                                                                   
     as $1.8 million in additional revenue.                                                                                     
                                                                                                                                
     This  bill  also  increases   funding  for  the  tobacco                                                                   
     education  and  cessation fund  by  sending 25%  of  the                                                                   
     annual  tax revenue  collected  on all  MST products  to                                                                   
     this fund, which  may be used for tobacco  education and                                                                   
     cessation programs.                                                                                                        
                                                                                                                                
     Currently,  if you  order  cigarettes  for personal  use                                                                   
     over the  Internet, you  must pay  state taxes on  those                                                                   
     purchases.   But in current  state law, you do  not have                                                                   
     to pay taxes  on any OTP products imported  for personal                                                                   
     use.  HB 188 closes that loophole.                                                                                         
                                                                                                                                
     The bill also  requires that cigars be sold  in packages                                                                   
     of  at  least  five;  that  loose  tobacco  be  sold  in                                                                   
     packages weighing  at least  one ounce; and  that single                                                                   
     dose   units   be  sold   in   original   manufacturer's                                                                   
     packaging.                                                                                                                 
                                                                                                                                
                                                                                                                                
3:13:34 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  HERRON said  that snus  was only  available on  military                                                              
bases in Alaska.   He said that it was outlawed  everywhere in the                                                              
European Union, except Sweden.                                                                                                  
                                                                                                                                
3:14:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE    SEATON   introduced    three   amendments    for                                                              
discussion.   He began  discussion of  the first amendment,  which                                                              
read [original punctuation provided]:                                                                                           
                                                                                                                                
     Page  3, line  19 following  "sold only  in" insert  "no                                                               
     less than units of 10"                                                                                                 
                                                                                                                                
He  said  that  this  would  eliminate   very  small  packages  of                                                              
smokeless  tobacco.   He  discussed  the second  amendment,  which                                                              
read [original punctuation provided]:                                                                                           
                                                                                                                                
     Page  3, line 1  following "subsection  is" delete  "75"                                                                   
     insert "100"                                                                                                           
                                                                                                                                
     Page 3,  line 10 following  "subsection is"  delete "75"                                                                   
     insert "100"                                                                                                           
                                                                                                                                
He referred to  this second amendment and explained  that this was                                                              
an  increase to  the tax  rate from  75 percent  of the  wholesale                                                              
price  of the  tobacco product  to  100 percent  of the  wholesale                                                              
price.   He brought attention to  the third amendment,  which read                                                              
[original punctuation provided]:                                                                                                
                                                                                                                                
     Page 1 line, 10 insert:                                                                                                    
                                                                                                                                
     Sec. 11.76.100. Selling or giving tobacco to a minor.                                                                      
               (a) A person commits the offense of selling                                                                      
     or giving tobacco to a minor if the person                                                                                 
               (1) negligently sells a cigarette, a cigar,                                                                      
     tobacco,  or a  product containing  tobacco or  nicotine                                                               
     to a person under 19 years of age;                                                                                         
               (2) is 19 years of age or older and                                                                              
     negligently  exchanges or  gives a  cigarette, a  cigar,                                                                   
     tobacco,  or a  product containing  tobacco or  nicotine                                                               
     to a person under 19 years of age;                                                                                         
              (3) maintains a vending machine that                                                                              
       dispenses cigarettes, cigars, tobacco, or products                                                                       
     containing tobacco or nicotine ; or                                                                                    
               (4) holds a business license endorsement                                                                         
     under AS  43.70.075 and allows  a person under  19 years                                                                   
     of  age to  sell  a cigarette,  a  cigar,  tobacco or  a                                                                   
     product containing tobacco or nicotine.                                                                                
                                                                                                                                
He  explained that  this would  regulate  products that  contained                                                              
either  tobacco or  nicotine.   He  said that  the issue  revolved                                                              
around  two  methods  for  taxes  on tobacco,  and  he  asked  the                                                              
sponsor  to  formulate  a  per nicotine  dose  tax,  so  that  the                                                              
committee  could   achieve  a  balanced  discouragement   to  each                                                              
nicotine delivery system.                                                                                                       
                                                                                                                                
3:19:21 PM                                                                                                                    
                                                                                                                                
CO-CHAIR KELLER closed testimony.                                                                                               
                                                                                                                                
[HB  188  was held  over.    Co-Chair Keller's  objection  to  the                                                              
motion  to  adopt  the  committee  substitute  (CS)  for  HB  188,                                                              
Version  26-LS0714\N, Bullock,  4/9/09, as  the working  document,                                                              
was left pending.]