Legislature(2003 - 2004)
05/11/2004 05:04 PM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
May 11, 2004
5:04 P.M.
TAPE HFC 04 - 114, Side A
CALL TO ORDER
Co-Chair Williams called the House Finance Committee meeting
to order at 5:04 P.M.
MEMBERS PRESENT
Representative John Harris, Co-Chair
Representative Bill Williams, Co-Chair
Representative Kevin Meyer, Vice-Chair
Representative Mike Chenault
Representative Eric Croft
Representative Hugh Fate
Representative Richard Foster
Representative Mike Hawker
Representative Reggie Joule
Representative Carl Moses
Representative Bill Stoltze
MEMBERS ABSENT
None
ALSO PRESENT
Joel Gilbertson, Commissioner, Department of Health & Social
Services; Pete Ecklund, Staff to Representative Williams;
Mark Hickey, American Cancer Society; Steve Porter, Deputy
Commissioner, Department of Revenue
PRESENT VIA TELECONFERENCE
Johanna Bales, Revenue Auditor, Tax Division, Department of
Revenue
SUMMARY
CS SB 302(FIN)
An Act relating to the authority to take oaths,
affirmations, and acknowledgments in the state, to
notarizations, to verifications, to acknowledgments, to
fees for issuing certificates with the seal of the
state affixed, and to notaries public; and providing
for an effective date.
HCS CSSB 302(STA) was REPORTED out of Committee with
individual recommendations and one previously published
fiscal impact note.
CS FOR SB 368(FIN) am
An Act relating to taxes on cigarettes and tobacco
products, to tax stamps on cigarettes, to forfeiture of
cigarettes and of property used in the manufacture,
transportation, or sale of unstamped cigarettes, and to
licenses and licensees under the Cigarette Tax Act; and
providing for an effective date.
HCS CSSB 368(FIN) was REPORTED out of Committee with a
title change, individual recommendations, and two
previously published fiscal impact notes.
CS FOR SENATE BILL NO. 302(FIN)
An Act relating to the authority to take oaths,
affirmations, and acknowledgments in the state, to
notarizations, to verifications, to acknowledgments, to
fees for issuing certificates with the seal of the
state affixed, and to notaries public; and providing
for an effective date.
Co-Chair Harris MOVED to report HCS CSSB 302(STA) out of
Committee with individual recommendations and the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
HCS CSSB 302(STA) was REPORTED out of Committee with
individual recommendations and one previously published
fiscal impact note.
CS FOR SENATE BILL NO. 368(FIN) am
An Act relating to taxes on cigarettes and tobacco
products, to tax stamps on cigarettes, to forfeiture of
cigarettes and of property used in the manufacture,
transportation, or sale of unstamped cigarettes, and to
licenses and licensees under the Cigarette Tax Act; and
providing for an effective date.
Co-Chair Harris MOVED to ADOPT Work Draft 23-GS2116, Version
V, Bullock, dated 5/10/04, as the version of legislation
before the Committee. There being NO OBJECTION, it was so
ordered.
PETE ECKLUND, STAFF TO REPRESENTATIVE WILLIAMS, explained
that the grammatical amendment would simply add the word
"that" on page 5, line 21.
The Amendment reads:
Page 5, lines 18-21:
"The department may not set the limit of stamps that a
licensee may purchase during that three-month period below
an amount equal to three times the average monthly stamp
purchases made by the licensee during the 12-month period
immediately preceding that three-month period."
Mr. Ecklund explained that Version V mirrors the House
version of the tobacco tax. The bill removes the floor tax
of earlier versions, and substitutes a stockpiling provision
on page 5, line 14. It removes the Other Tobacco Products
(OTP) tax from the current 75% to 100% of the wholesale
price so that in this version that tax remains at 75% of
wholesale price. The Committee Substitute removes a
provision added by the Senate known as the Internet sales
provision, and it adds a nonparticipating manufacturers tax
at 25 cents a pack higher than the new tax rate.
Mr. Ecklund explained that the new tax rate is a 60-cent
increase beginning on July 1, 2004, with increases in the
four following years to total a dollar a pack. The bill
clarifies the definition of unstamped cigarette to include
those cigarettes with an incorrect or lower tax stamp. At
the direction of the Department of Law, clarifying language
has been added to the minimum pricing. Version V also rolled
in the appeal bond limitation in HB 468. It amended page 14,
line 1, Section 4 of Chapter 48 of SLA 1997, so that in the
event that the previous tax increase of $1 is found to be
unconstitutional, it would be deposited into the General
Fund rather than the School Tax Fund.
Co-Chair Williams commented that he and his staff had been
working with people on both sides of the issue, and had
reached agreement on this version of the bill over the past
week.
Representative Chenault asked about the tax stair stepping.
Mr. Ecklund pointed out that the language begins on page 4,
line 13.
Vice-Chair Meyer asked how the mil works. Mr. Ecklund
answered that one-mil equals two cents per pack. The
current tax rate is 12 mils, and the first year increase to
30 mils would equal a 60-cent per pack increase.
Vice-Chair Meyer asked how the tax schedule of a dollar
increase was determined.
Co-Chair Williams reiterated that he'd negotiated with
tobacco and anti-tobacco people.
Vice-Chair Meyer noted that the anticipated revenue for a $1
a pack increase was $35.5 million [Fiscal Note #1, Component
2476 dated 3/19/04]. Co-Chair Williams clarified that the
revenue expected for a 60-cent increase would be 60% of
$35.5 million. Mr. Ecklund pointed out that an updated
fiscal note was expected.
Co-Chair Harris asked if the bill includes provisions to
direct revenues to smoking cessation programs. Mr. Ecklund
affirmed, and noted that Version V uses the House language
directing 8.9% of the proceeds of the tax to smoking
cessation programs. The language begins on page 4, line 24.
Co-Chair Harris asked if the bill addresses smokeless
tobacco or cigars. Mr. Ecklund said that the OTP, or Other
Tobacco Products, were proposed to increase to 100% of the
wholesale price, but this version retains the current 75% of
the wholesale price.
Vice-Chair Meyer asked for the definition of cigarettes and
cigars that would avoid creating a tax loophole.
JOEL GILBERTSON, COMMISSIONER, DEPARTMENT OF HEALTH & SOCIAL
SERVICES (DHSS), explained that a cigarette is defined as
tobacco wrapped in paper.
Co-Chair Harris asked the Department's position on this
modification of the Senate bill. Commissioner Gilbertson
replied that the primary concern of the DHSS relates to the
public health impact. This version would accomplish the goal
of raising the tax by a dollar a pack, with the largest
portion of the tax levy [60 cents] achieved in first year.
Co-Chair Harris asked if the Administration intends to
further increase the tax in future years, or to simply stair
step the tax in this legislation to achieve the long-term
goal. Commissioner Gilbertson replied that the
Administration has not taken a position on whether or not to
increase the cigarette tax in future years. The Governor's
goal is to ensure a climate where cigarette products are
cost prohibitive for consumption by Alaskan youth.
Co-Chair Harris asked about the Department's coordination
with tobacco manufacturers and others to keep tobacco
products from minors. Commissioner Gilbertson explained that
the greatest cooperation is through the Master Settlement
Agreement, which helps finance the tobacco control program
through the State of Alaska. He felt that a solution would
rely on the continuing cooperation of the manufacturers, the
retailers, the State, the Tobacco Control Alliance and local
communities. He pointed out that the reduction in the
illegal sale rate from 30.2% to 10% last year would not have
been accomplished without retailer compliance.
Representative Chenault commented on the health issues
related to smoking, noting that one solution is to continue
to tax tobacco products. He said that obesity is a leading
cause of death in the United States, and he was curious if
there would be a tax on fast foods next year. The tobacco
tax singles out one group of people "because it's easy," and
does not address other problems. He asked if the DHSS is
considering future taxes on other health-related issues.
Commissioner Gilbertson replied that there are a number of
public health concerns, and he did not feel that the
Department is ignoring the large impact of diabetes and
obesity, noting that the DHSS is in the middle of a multi-
year Federal grant on obesity prevention. He was not aware
of proposals to impose a tax levy on the consumption of high
fat products even though it is a public health threat. The
Department has worked with the Alaska Native population
through education efforts in the schools, and with the
Tribal Health Consortium.
STEVE PORTER, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,
stated that the Department is not currently reviewing the
imposition of taxes on Twinkies or similar foods, but it is
always willing to provide facts and information to
legislators to assist in pursuing tax proposals.
Vice-Chair Meyer noted that the appeals bond was merged with
the tobacco bill and asked the Administration's position on
it.
Mr. Porter indicated that Ms. Bales would address the issue.
He said that she has been active in both the administration
and enforcement of the Master Settlement Agreement.
JOHANNA BALES, REVENUE AUDITOR, TAX DIVISION, DEPARTMENT OF
REVENUE, VIA TELECONFERENCE, stated that she is the program
manager for the tobacco tax in Alaska. She explained that
the appeals bond provision in HB 468 is rolled into this
bill. The language evolved because of litigation in Illinois
and Florida in which judgments against tobacco manufacturers
were so large that there was potential to bankrupt them,
putting state revenue payments at risk. This provision
preserves the manufacturer's right to appeal while still
securing any judgment in favor of a plaintiff who might be
injured by a manufacturer of tobacco products. The
Administration is neutral on this provision.
Representative Stoltze pointed out that two issues are
involved, and asked for guidance in achieving a balance.
MARK HICKEY, AMERICAN CANCER SOCIETY (ACS), expressed
support for the bill by the public health community and the
cancer coalition, which includes the ACS, the Heart
Association, the Lung Association, and the Alaska Native
Health Board. He noted that although the bill includes
provisions the cancer coalition doesn't support, the ACS
urges that it be passed and signed into law. He explained
that the ACS doesn't support the appeal bond provision, and
sees no compelling need for that change because a current
court rule allows a judge that discretion. He thought that
the tobacco lobbyists would agree that minimal likelihood
exists of an issue being raised in Alaska requiring the
appeal bond. Mr. Hickey reiterated that the American Cancer
Society doesn't support those provisions although it
supports the bill.
Vice-Chair Meyer commented on tobacco distributors
stockpiling inventory, and asked if that would be a concern
since tobacco products have a shelf life. Mr. Hickey said
that the provision was debated and deleted in earlier
legislation, and deleted in this version as well. An
alternative section has been drafted to allow the Department
discretion to limit the number of sales of stamps over a
month's period if there appears to be an attempt to
stockpile. It is a significant revenue issue. He said that
the public health community feels that it was a reasonable
provision, but the Department may have other ideas on how to
limit it. The effective date in this version is July 1,
2004, and the bill includes some regulatory authority.
Vice-Chair Meyer asked the estimated number of kids who
wouldn't start smoking and adults who would stop after
passage of this tax. Mr. Hickey didn't have those figures,
but he said that the preference would be to see the $1 [per
pack] impact all at once. He thought that the statistics
would show a 7% reduction of children's cigarette
consumption from the immediate 60-cent tax increase, which
would amount to a 10% price increase. A dollar tax would
have nearly doubled that reduction in consumption. The
Center for Disease Control and the Campaign for Tobacco Free
Kids estimated that a $1 tax would result in saving 2900
kids' lives. He said that passage of this bill would bring
Alaska closer to that number, and the American Cancer
Society views the legislation as a "public policy win."
Representative Chenault noted that the last increase of a
dollar a pack included estimates that 30% of kids would not
smoke. He questioned the rationale for the new estimate that
the dollar a pack increase would stop only 14% of kids from
smoking.
Mr. Hickey replied that it is a function of price and total
change in price. Since the Master Settlement Agreement, the
industry has increased prices by about $1.12. The total
price is higher now and the effect of the dollar isn't as
great. These numbers are in line with the study in 1997
indicating that a 10% price increase leads to a 4% or higher
general consumption decrease. The youth consumption decrease
is higher because ages 12 to 14 are targeted before they
begin smoking. He pointed to a Department "youth at risk"
behavioral survey demonstrating a 50% reduction of high
school age youth smoking between 1995-2003. He expressed
that this resulted from the 71-cent tax and the program, and
said that the Legislature played a significant role in that
achievement.
Representative Chenault MOVED to ADOPT his Amendment #1. Co-
Chair Williams OBJECTED.
At Ease: 5:34 P.M.
Reconvene: 5:35 P.M.
Representative Chenault WITHDREW Amendment #1.
Co-Chair Harris MOVED to report HCS CSSB 368(FIN) out of
Committee with individual recommendations and the
accompanying fiscal notes.
HCS CSSB 368(FIN) was REPORTED out of Committee with a title
change, individual recommendations, and two previously
published fiscal impact notes.
ADJOURNMENT
The meeting was adjourned at 5:40 P.M.
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