Legislature(2003 - 2004)
04/15/2003 09:05 AM Senate STA
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SB 162-CIGARETTE SALES REQUIREMENTS
MIKE BARNHILL, Assistant Attorney General, spoke in support of
SB 162. His full testimony as well as the background and
sectional analysis are in the bill file.
The bill relates to the 1998 Tobacco Master Settlement Agreement
(MSA), which gives Alaska a stream of revenue that lasts
indefinitely. However, there are a number of ways the revenue
stream could be reduced, one of which is a non-participating
manufacturer adjustment (NPM). To avoid such an adjustment, a
model statute was adopted in 1999 to level the economic playing
field between tobacco manufacturers that participate in the MSA
and tobacco manufacturers that don't. It requires NPMs to
deposit approximately 1.5 cents into escrow for every cigarette
they sell in the state. The Department of Revenue advises NPMs
of their obligations under Alaska law and if they don't comply,
the case is referred to the Department of Law.
For example, a company in India makes candy flavored cigarettes
and about 100,000 were sold in Alaska without compliance. The
Department of Law filed a suit, which entailed hiring a process
server to carry the complaint summons to India. To avoid this
expense in the future, Alaska enacted complimentary legislation
designed to diligently enforce statutes. If a company failed to
comply with Alaska law, it went on to a list and their
cigarettes were labeled contraband and Alaska distributors were
prohibited from selling those cigarettes. Many states followed
suit but the legislation was a bit different in every state.
Finally the National Association of Attorneys General worked to
prepare a uniform bill and SB 162 is the product of that working
group. It has been introduced and passed in 12 states,
introduced in 20 other states including Alaska and 4 other
states are considering introduction.
A list of cigarettes and companies that are permitted in Alaska
would be created. A distributor could review the list on the
Department of Revenue website to determine which cigarettes they
are able to sell in the state, order them and sell them
accordingly. To get on the list, a tobacco manufacturer must
either certify they are a participating manufacturer under the
MSA or certify they are a NPM and they are in compliance with
the law. The bill provides penalties for non-compliance and
requires NPMs to register or appoint an in-state agent.
If a distributor brings in cigarettes that are on the permitted
list, but the manufacturer is subsequently removed from that
list there is a tax credit available for the distributor.
Finally, if a NPM refuses to comply and the department has to
sue, the department is able to carry the complaint to the
Department of Community and Economic Development.
CHAIR GARY STEVENS recapped the provisions of the bill.
SENATOR JOHN COWDERY asked if the state knew which companies
were trying to avoid paying.
MR. BARNHILL replied the department has a list of about 15
companies on a contraband list.
JOHANNA D. BALES, Department of Revenue, said she administers
the tobacco and cigarette products excise program and enforces
the NPM statute. In what appears to be an attempt to avoid the
escrow payment, new manufacturers and brands appear on a daily
basis. Under this law the manufacturers would be required to
give their information to the department prior to selling their
product. This year there are five or six new manufacturers and
it remains to be seen whether they will make their escrow
payments. From that standpoint, this is important legislation
because it places the responsibility on the manufacturers.
SENATOR COWDERY asked if residents could import personal use
cigarettes.
MS. BALES said they could if the manufacturer was on the list.
An individual who brings in tobacco for personal consumption is
treated no differently than any other taxpayer. They must be
licensed with the Department of Revenue prior to bringing the
cigarettes in under existing tobacco legislation.
SENATOR COWDERY asked about duty free purchases.
MS. BALES explained recent changes in both federal and state law
restrict those purchases for in-state use.
SENATOR COWDERY asked about tobacco sales other than cigarettes.
MS. BALES said just cigarettes and tobacco for roll-your-own
cigarettes are covered under the MSA.
CHAIR GARY STEVENS asked whether military personnel or fishermen
who buy substantial amounts of tobacco in Seattle and bring it
to Alaska were beyond the scope of the bill.
MS. BALES replied they would be subject to the same
requirements. If the cigarettes were brought within the three-
mile limit the tax would be due.
CHAIR GARY STEVENS verified that the wholesaler in Seattle would
be obliged to make sure the tax was paid.
MS. BALES agreed.
SENATOR COWDERY asked for the definition of a cigarette.
MS. BALES defined it as a tobacco product that is wrapped in
paper. Roll-your-own meets that definition if that product is
intended to make a cigarette. This bill wouldn't change the
definition.
There were no further questions.
SENATOR COWDERY made a motion to move SB 162 and attached fiscal
note from committee with individual recommendations. He asked
for unanimous consent. There being no objection, it was so
ordered.
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