Legislature(2015 - 2016)BARNES 124
02/22/2016 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB304 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 304 | TELECONFERENCED | |
HB 304-ELECTRNC TAX RETURNS;TOBACCO & E-CIGS TAX
3:20:05 PM
CHAIR OLSON announced that the only order of business would be
HOUSE BILL NO. 304, "An Act requiring the electronic submission
of a tax return or report with the Department of Revenue;
relating to the taxes on cigarettes and tobacco products; taxing
electronic smoking products; adding a definition of 'electronic
smoking product'; and providing for an effective date."
3:20:35 PM
MARGE STONEKING, Executive Director, American Lung Association
in Alaska, provided information from a public health perspective
on the public health impact of increased taxes. Ms. Stoneking
said an increase of the tobacco tax by government is justified
by the offset of cost incurred by tobacco to society. According
to the Alaska Tobacco Prevention and Control Program, Division
of Public Health, Department of Health and Social Services, $20
in smoking direct medical costs are incurred by each pack of
cigarettes, which is currently taxed at $2 per pack. In
addition, in terms of public health, higher taxes reduce tobacco
use in the most price-sensitive segment of the population. For
every 10 percent increase in the price of tobacco products, use
by youth is reduced in the amount of 6 percent or 7 percent.
Furthermore, low-income users are price-sensitive.
REPRESENTATIVE LEDOUX asked whether he was saying that one of
the benefits of this is that it's so regressive, and it targets
low-income people.
MS. STONEKING said no. She explained that price-sensitive means
that a tobacco tax affects a certain population "in a good way
in terms of tobacco consumption, so they are more likely to cut
down their tobacco use and more likely, eventually, to quit."
She continued to say that the impact of reduced tobacco use is
highest on youth, and next highest on low-income.
CHAIR OLSON questioned whether Ms. Stoneking's statement
contradicts previous testimony heard by the committee.
REPRESENTATIVE LEDOUX said the foregoing also contradicts
statements by the bill sponsor which indicated that there would
not be a measurable effect on the number of people who smoke.
MS. STONEKING recalled that there have been two tobacco tax laws
implemented in Alaska. In 1997, Alaska tobacco taxes were the
highest in the nation, and in 2004, tobacco consumption fell
below the national average following each of the price
increases. As a direct effect of raising tobacco taxes in
general, adults cut down tobacco use and kids typically don't
begin smoking. Ms. Stoneking stated there is a formula to
estimate Medicaid savings associated with a decline in tobacco
use, and she offered to provide further information in this
regard.
3:25:16 PM
REPRESENTATIVE HUGHES asked for clarification on the direct
medical costs associated with tobacco use.
MS. STONEKING explained that the direct medical cost of tobacco
use in Alaska is $370 million per year, which equates to $20 per
pack sold. She turned to e-cigarettes, stating that electronic
nicotine delivery systems are new and lack long-term data on how
tax increases affect consumption. However, it appears that
their use "will follow suit with tobacco reductions as well."
In Alaska, 4 percent of adults use e-cigarettes, and 85 percent
of their use is in addition to traditional cigarettes. The
first year of data on e-cigarettes indicates that in Alaska, 18
percent of youth are using e-cigarettes, and nationally there
has been a nine-fold increase.
REPRESENTATIVE HUGHES asked of the 85 percent using e-
cigarettes, how many are in the process of trying to quit
smoking.
MS. STONEKING responded that a report indicated 72 percent of
dual users were using e-cigarettes either as a way to reduce
use, or to use when smoking is not allowed [report not
provided].
MS. STONEKING continued, noting that nationally, e-cigarette use
among youth increased nine-fold between 2011 and 2014. She
characterized this as an epidemic of youth using a completely
unregulated product. There are claims by e-cigarette purveyors
that e-cigarettes are used for cessation purposes, although they
are not approved as cessation devices by the U.S. Food and Drug
Administration (FDA). Ms. Stoneking noted that no independent
e-cigarette company has filed with FDA to be considered as a
cessation product. In addition to widespread use by youth,
youth transition to traditional cigarettes, as do adults who
have never smoked, or who have quit traditional cigarettes. She
concluded that e-cigarettes should be taxed as other tobacco
products.
REPRESENTATIVE HUGHES asked how the cost of e-cigarettes
compares with the cost of traditional cigarettes, including tax.
3:31:25 PM
REPRESENTATIVE JOSEPHSON has heard that a 25-cigarette pack
costs about $11, and the tax is an additional $1.20.
REPRESENTATIVE HUGHES questioned whether the tax on e-cigarettes
was higher.
REPRESENTATIVE JOSEPHSON asked whether there is definitive proof
that e-cigarettes are dangerous, and if so, for the source of
said proof.
MS. STONEKING acknowledged that long-term health consequences
will be unknown for decades; however, it is known that e-
cigarettes are a tobacco-derived product, marketed and used in a
similar manner to tobacco products, and thus should be taxed in
the same way.
REPRESENTATIVE LEDOUX commented that some taxes are regressive,
such as a general sales tax, although it does affect everyone.
However, she expressed her concern about testimony in support of
a tax that "actually targets poorer people because they're the
people who are going to be the most price-sensitive on some
things."
MS. STONEKING responded that the low-income population carries a
cost to the Medicaid program and smokes at a higher rate; she
pointed out that the state is "looking for cost savings in that
area."
CHAIR OLSON recalled that the director of the tax division said
the tax is regressive geographically and as pertains to income.
3:35:51 PM
MS. STONEKING stated that the difference between the tobacco tax
and other taxes is that the tobacco tax provides a public health
and economic benefit to the state and to society.
REPRESENTATIVE TILTON inquired as to the percentage of kids who
smoke traditional cigarettes.
MS. STONEKING said 11 percent in Alaska, which is a reduction
from over 30 percent, and she attributed the reduction to the
tobacco tax increase in 1997.
REPRESENTATIVE HUGHES surmised that minors are not restricted
from using e-cigarettes in Alaska.
MS. STONEKING stated that prior legislation decreed that any
product containing nicotine is legal only for those 19 years of
age and above; however, retailers who sell e-cigarettes and [e-
liquids] are not required to hold a tobacco license endorsement,
which is the basis for the underage sales enforcement program,
and therefore are not obligated to check ages.
REPRESENTATIVE HUGHES asked whether the use of e-cigarettes by
minors would decline if there is legislation to prohibit minors
from using include e-cigarettes.
MS. STONEKING advised that a combination of several strategies
is needed to reduce tobacco use, including underage sales
enforcement, taxes, a comprehensive program, and smoke-free
places. In further response to Representative Hughes, she said
she will research the question of how much prohibiting minors
from legal use would affect total use by minors.
3:38:35 PM
ALEX MCDONALD, Owner, Ice Fog Vapor, Inc., and a member of the
Smoke-Free Alternatives Trade Association, informed the
committee that he has been vaping for three years and opened his
shop in July, 2014. Finding an alternative to combustible
tobacco allowed him to quit after nineteen years of traditional
tobacco use. The proposed tax on e-liquid and devices differs
from a tax on tobacco in that all of the items are available
online. Previous testimony has indicated that tobacco smuggling
is becoming a problem in states with high tax rates on tobacco
products. Mr. McDonald warned that consumers will shop online,
skirting taxes and [age] checks. He stated that every shop that
is a member of the Smoke-Free Alternatives Trade Association
agrees that consumers must be over 19 years of age. Shops will
not be able to compete with online pricing and will close,
punishing those who have found an alternative to combustible
tobacco products. He cited a report from England that stop-
smoking services should support smokers who switch to vapor
products [report not provided]. Mr. McDonald stated that the
bill would harm small businesses and force Alaskans to return to
combustible tobacco products, or shop out of state.
REPRESENTATIVE TILTON asked how many shops are open in Alaska.
MR. MCDONALD said approximately 25, and there are also juice
manufacturers that make e-liquid, which is a substance of
vegetable glycerin, propylene glycol, nicotine, and flavoring.
In further response to Representative Tilton, he estimated 100
persons are employed in e-cigarette retail sales.
MR. MCDONALD continued, noting shops check identification and
instruct consumers on the safe use of devices. The shops also
provide a sense of community for those switching from
traditional tobacco use to vaping. He again referenced a report
from England that said most vaporizer use is by former or
current tobacco users, which is his experience also. Mr.
McDonald pointed out that unlike online stores, e-cigarette
shops seek to ensure that minors do not have access to devices,
and he expressed his support of proposed legislation that will
limit access by minors. In response to Chair Olson, he said the
online market is supported by military members, and with the
tax, the local shops could not compete.
3:45:14 PM
GREGORY CONLEY, President, American Vaping Association (AVA),
said he has been a leading voice for vapor products since August
2010, after he quit traditional smoking with e-cigarettes, and
later formed ACA to advocate for fair and sensible policies
toward vapor products. He stated his opposition to HB 304 and
asked for the committee's consideration of the following: the
debate about vapor products is not about good or evil, as was
the previous debate of "big tobacco" versus public health; there
are experts on both sides of this public health question, for
example, a report from Public Health England said vapors help
people quit and vapors are at least 95 percent less hazardous
than smoking; nicotine does not kill, but smoke, carbon
monoxide, and tar do kill. Mr. Conley encouraged skepticism and
urged for legislators to look at the evidence; in fact, big
tobacco and cigarette companies did not create the vapor
industry and 65 percent of the U.S. market is controlled by
small- and medium-sized businesses, which will be impacted by
the proposed tax. Regarding adult usage, he said the Centers
for Disease Control and Prevention (CDC) released a survey that
found 22 percent of smokers who quit in the past year were using
e-cigarettes, and smokers who quit potentially save billions of
dollars in Medicaid expenses [survey not provided]. He urged
the committee to closely review data on vapor use by youth,
because as youth experimentation with vaping rose, there was a
dramatic decline in teen smoking, which belies evidence that
vaping is a gateway to traditional tobacco use. Furthermore,
nationwide, only 2 percent of American youth reported using e-
cigarettes over twenty days per month. He concluded that a 100
percent tax is not justified, and agreed that the tax will
negatively affect low-income users because vaping will be more
expensive. Also, Mr. Conley cautioned that the tax will
negatively affect future marijuana retail sales.
3:51:53 PM
REPRESENTATIVE KITO asked Mr. Conley whether he quit smoking and
vaping.
MR. CONLEY said he vapes. He expressed his belief that there
are benefits from nicotine use.
REPRESENTATIVE KITO inquired as to the source of nicotine used
in vaping products.
MR. CONLEY said products that contain nicotine are derived from
tobacco or made synthetically in a lab.
REPRESENTATIVE KITO observed that tobacco companies will benefit
from vaping if they are supplying nicotine, and asked whether
tobacco companies are also producing synthetic nicotine.
MR. CONLEY said big tobacco is not publicly running operations
that take nicotine from tobacco plants, but farmers in Sweden,
Switzerland, and perhaps India are benefitting from the vapor
industry right now, and are also the sources for nicotine used
in nicotine patches and gum.
REPRESENTATIVE HUGHES asked whether the tax would cause e-
cigarette consumers to return to traditional cigarettes because
of the cost.
MR. CONLEY opined that smokers who have already switched from
traditional cigarettes would buy products online, use the black
market, or make their own; however, others would not strive to
quit and will return to traditional cigarettes. The biggest
threat is to a smoker who would not pay a high price to begin
the process of quitting.
REPRESENTATIVE HUGHES asked for the price of one e-cigarette
compared to the price of one traditional cigarette if the bill
passes.
3:56:33 PM
MR. CONLEY advised that convenience stores sell e-cigarettes
with a refill cartridge for $7 to $8, which would be equivalent
to three-quarters of a pack of traditional cigarettes.
Therefore, if the tax doubles the cost, e-cigarettes would be
more expensive. In further response to Representative Hughes,
he said any change in smoking rates would affect the cost of
Medicaid over time.
REPRESENTATIVE HUGHES surmised that if the bill passes, Medicaid
costs would go up because low-income smokers will return to
traditional cigarettes.
MR. CONLEY opined that Alaska would pay higher Medicaid costs
than a state that allows adults to "switch unimpeded."
REPRESENTATIVE HUGHES asked what percentage of e-liquids do not
contain nicotine.
MR. CONLEY referred to a survey that found in the United Kingdom
(U.K.) 15 percent of adult vapor product users were using zero-
nicotine, and he estimated from his own experience that the
percentage in the U.S. is in a similar range [survey not
provided]. He stated his strong opposition to taxing products
that do not contain nicotine.
REPRESENTATIVE JOSEPHSON asked for information on regulation and
the excise tax rate on e-cigarettes in other states.
MR. CONLEY said the first state to tax vapor products was
Minnesota in 2010. Minnesota redefined tobacco products to
include anything that contains nicotine, but the tax does not
include devices. In-state manufacturers pay a 95 percent tax
when the nicotine comes into the state, and the manufacturers
supply nearly the entire vapor market. North Carolina and
Louisiana assess a tax of $0.05 per milliliter of nicotine-
containing liquid, and Kansas has delayed its proposed tax of
$0.20. In further response to Representative Josephson, he
explained that four states impact the industry; in addition,
Washington, DC passed a tax of approximately 68 percent of
wholesale on all vapor products, including devices, which
resulted in the closure of two out of five vape shops.
CHAIR OLSON recalled testimony from the tax division that if a
vaping device is packaged without a product, it would not be
taxed, however, if the device and product are packaged together
the tax would apply.
MR. CONLEY pointed out that the bill is vague in that batteries
are not to be taxed, thus a device without a battery would
garner a 100 percent tax.
CHAIR OLSON will get clarification from tax division.
[HB 304 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB304 Fiscal Note-DHSS-CDPHP-02-18-16.pdf |
HL&C 2/22/2016 3:15:00 PM |
HB 304 |
| HB304 Opposing Documents-Emails-Mike Coons 02-21-16.pdf |
HL&C 2/22/2016 3:15:00 PM |
HB 304 |
| HB304 Opposing Documents-Letter-Clear the Air Alaska 02-19-16.docx.pdf |
HL&C 2/22/2016 3:15:00 PM |
HB 304 |