Legislature(2015 - 2016)BARNES 124

02/22/2016 03:15 PM LABOR & COMMERCE

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Audio Topic
03:19:30 PM Start
03:20:05 PM HB304
04:04:26 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Testimony <Invitation Only> --
        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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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