Legislature(2001 - 2002)
04/26/2002 01:55 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
April 26, 2002
1:55 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chair
Representative Jeannette James
Representative John Coghill
Representative Kevin Meyer
MEMBERS ABSENT
Representative Scott Ogan, Vice Chair
Representative Ethan Berkowitz
Representative Albert Kookesh
COMMITTEE CALENDAR
SENATE BILL NO. 339
"An Act increasing fines for certain criminal offenses."
- HEARD AND HELD
HOUSE BILL NO. 429
"An Act relating to certain licenses for the sale of tobacco
products; relating to tobacco taxes and sales and cigarette tax
stamps; relating to provisions making certain cigarettes
contraband and subject to seizure and forfeiture; relating to
certain crimes, penalties, and interest concerning tobacco taxes
and sales; relating to notification regarding a cigarette
manufacturer's noncompliance with the tobacco product Master
Settlement Agreement or related statutory provisions and to
confiscation of the affected cigarettes; and providing for an
effective date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: SB 339
SHORT TITLE:INCREASE CRIMINAL FINES
SPONSOR(S): FINANCE
Jrn-Date Jrn-Page Action
02/20/02 2264 (S) READ THE FIRST TIME -
REFERRALS
02/20/02 2264 (S) FIN
03/15/02 (S) FIN AT 9:00 AM SENATE FINANCE
532
03/15/02 (S) Moved Out of Committee
03/15/02 (S) MINUTE(FIN)
03/18/02 2449 (S) FIN RPT 2DP 4NR
03/18/02 2449 (S) DP: DONLEY, WARD; NR: GREEN,
AUSTERMAN,
03/18/02 2449 (S) HOFFMAN, LEMAN
03/18/02 2449 (S) FN1: INDETERMINATE(LAW)
03/18/02 2449 (S) FN2: INDETERMINATE(ADM)
03/25/02 (S) RLS AT 10:30 AM FAHRENKAMP
203
03/25/02 (S) MINUTE(RLS)
03/25/02 2518 (S) RULES TO CALENDAR 3/25/02
03/25/02 2519 (S) READ THE SECOND TIME
03/25/02 2519 (S) ADVANCED TO THIRD READING
UNAN CONSENT
03/25/02 2519 (S) READ THE THIRD TIME SB 339
03/25/02 2519 (S) PASSED Y17 N2 A1
03/25/02 2520 (S) ELTON NOTICE OF
RECONSIDERATION
03/27/02 2545 (S) RECON TAKEN UP - IN THIRD
READING
03/27/02 2545 (S) PASSED ON RECONSIDERATION Y16
N4
03/27/02 2547 (S) TRANSMITTED TO (H)
03/27/02 2547 (S) VERSION: SB 339
04/01/02 2733 (H) READ THE FIRST TIME -
REFERRALS
04/01/02 2733 (H) JUD, FIN
04/26/02 (H) JUD AT 1:30 PM CAPITOL 120
BILL: HB 429
SHORT TITLE:TOBACCO TAXATION; LICENSING
SPONSOR(S): RLS BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
02/15/02 2282 (H) READ THE FIRST TIME -
REFERRALS
02/15/02 2282 (H) L&C, JUD, FIN
02/15/02 2282 (H) FN1: (REV)
02/15/02 2282 (H) GOVERNOR'S TRANSMITTAL LETTER
04/03/02 (H) L&C AT 3:15 PM CAPITOL 17
04/03/02 (H) Heard & Held
04/03/02 (H) MINUTE(L&C)
04/08/02 (H) L&C AT 3:15 PM CAPITOL 17
04/08/02 (H) Scheduled But Not Heard
04/10/02 (H) L&C AT 3:15 PM CAPITOL 17
04/10/02 (H) Heard & Held
MINUTE(L&C)
04/15/02 (H) L&C AT 3:15 PM CAPITOL 17
04/15/02 (H) Moved CSHB 429(L&C) Out of
Committee
MINUTE(L&C)
04/17/02 2969 (H) L&C RPT CS(L&C) NT 1DP 2DNP
4NR
04/17/02 2969 (H) DP: CRAWFORD; DNP: MEYER,
KOTT;
04/17/02 2969 (H) NR: ROKEBERG, HAYES, HALCRO,
MURKOWSKI
04/17/02 2970 (H) FN1: (REV)
04/17/02 2970 (H) REFERRED TO JUDICIARY
04/26/02 (H) JUD AT 1:30 PM CAPITOL 120
WITNESS REGISTER
MARILYN WILSON, Staff
to Senator Dave Donley
Senate Finance Committee
Alaska State Legislature
Capitol Building, Room 506
Juneau, Alaska 99801
POSITION STATEMENT: Presented SB 339 on behalf of the Senate
Finance Committee, sponsor.
LINDA WILSON, Deputy Director
Public Defender Agency (PDA)
Department of Administration
900 West 5th Avenue, Suite 200
Anchorage, Alaska 99501-2090
POSITION STATEMENT: Provided comments during discussion of SB
339.
NEIL SLOTNICK, Deputy Commissioner
Treasury Division
Department of Revenue (DOR)
PO Box 110405
Juneau, Alaska 99811-0405
POSITION STATEMENT: Presented HB 429 on behalf of the
administration.
JOHANNA BALES, Revenue Auditor V
Department of Revenue (DOR)
550 West 7th Avenue, Suite 500
Anchorage, Alaska 99501
POSITION STATEMENT: During discussion of HB 429 responded to
questions.
JAYNE ANDREEN, Tobacco Prevention and Control Program
Division of Public Health
Department of Health & and Social Services (DHSS)
PO Box 110616
Juneau, Alaska 99811-0616
POSITION STATEMENT: Provided a comment during discussion of HB
429.
JOHN AYERS, Chairman
Chief Executive Officer
Keystone Distribution Service, Inc.
2320 North Post Road
Anchorage, Alaska 99501
POSITION STATEMENT: Provided comments during discussion of HB
429 and suggested an amendment.
TOMAS T. ANDERSON, Owner
Alaska Strategic Consultants
PO Box 240714
Anchorage, Alaska 99524-0714
POSITION STATEMENT: Provided comments during discussion of HB
429.
BOBBY SCOTT, Jan's Distributing, Inc.
1807 West 47th Avenue
Anchorage, Alaska 99517
POSITION STATEMENT: Provided comments during discussion of HB
429.
ACTION NARRATIVE
TAPE 02-56, SIDE A
Number 0001
CHAIR NORMAN ROKEBERG called the House Judiciary Standing
Committee meeting to order at 1:55 p.m. Representatives
Rokeberg, James, Coghill, and Meyer were present at the call to
order.
SB 339 - INCREASE CRIMINAL FINES
Number 0038
CHAIR ROKEBERG announced that the first order of business would
be SENATE BILL NO. 339, "An Act increasing fines for certain
criminal offenses."
Number 0065
MARILYN WILSON, Staff to Senator Dave Donley, Senate Finance
Committee, Alaska State Legislature, said on behalf of the
Senate Finance Committee, sponsor, that SB 339 increases maximum
criminal fines that may be imposed on an individual or
organization for certain criminal offenses. The maximum
criminal fine amounts for an individual have not been increased
since the revision of the Alaska Criminal Code in 1978 - 24
years ago. The maximum criminal fine amounts for an
organization have not been increased since 1990. She noted that
the fine amounts [proposed by SB 339] are not mandatory; they
would simply become the maximum fine allowed, and judges would
retain their discretion to set the fines based on the conditions
surrounding individual offenses. Most criminals will not be
able to pay the higher of these increased fines, but those that
can pay, should pay. She expressed the hope that increasing the
maximum allowable fines will help deter crime. Additionally,
she noted, these higher fines will help reimburse the state for
the costs of the criminal justice system.
CHAIR ROKEBERG, referring to the chart provided by the sponsor
comparing current fines with those proposed by SB 339, asked why
the particular amounts proposed in SB 339 were chosen.
MS. MARILYN WILSON indicated that those amounts were chosen as a
result of researching what other states have as their maximum
fines.
CHAIR ROKEBERG noted that the maximum fine in Texas for [an
unclassified felony] is $10,000, but in Kansas [an unclassified
felony] carries a $500,000 fine.
REPRESENTATIVE MEYER asked if there are any statistics showing
"how many people actually pay these fines." He said he has
heard that with regard to "driving while intoxicated" (DWI)
fines, if fines are set too high, people just don't pay them.
He pondered whether, by keeping the fines reasonable, more of
them would be paid.
MS. MARILYN WILSON said that according to the court system,
approximately 30 to 33 percent of criminal fines are collected.
Number 0327
REPRESENTATIVE MEYER ventured that raising the fines will not
increase the collection rate.
MS. MARILYN WILSON pointed out that SB 339 pertains to criminal
fines, not motor vehicle fines.
REPRESENTATIVE JAMES observed that perhaps this is an issue for
which statistics alone will not bear out. She offered that
there could possibly be some increase in the amount collected,
though perhaps not proportionate to the increase in the fines.
She indicated that perhaps the increase in fines would act as a
deterrent for some people, though perhaps not for the majority
of people intent on committing crimes, since penalties are not
foremost on peoples' minds when they are breaking the law. She
posited that the increase in fines might result in more money to
the state, though for those people who do not currently pay
their fines, the increase won't make any difference.
REPRESENTATIVE MEYER asked whether SB 339 would help fill the
fiscal gap.
MS. MARILYN WILSON pointed out that the fiscal notes are
indeterminate.
REPRESENTATIVE JAMES surmised that increasing the fines will not
increase the cost of collections; thus it is to the state's
advantage to attempt to collect more whenever possible.
CHAIR ROKEBERG indicated that the Department of Law (DOL) is
attempting to be more aggressive in its collection of [criminal
fines]. He surmised that even the increase in misdemeanor fines
will result in more revenue.
REPRESENTATIVE JAMES agreed. She also pointed out that with the
pending upgrade of the court systems' computer system,
collection of fines and surcharges should increase.
REPRESENTATIVE MEYER asked what happens to the cash confiscated
during drug busts.
REPRESENTATIVE JAMES posited that although she is not sure how
it is accounted for, such money is probably forfeited, and if it
is counted as a forfeited asset, it is probably not applied to
fines owed.
CHAIR ROKEBERG said he assumes such money winds up in the
general fund (GF) eventually.
Number 0658
LINDA WILSON, Deputy Director, Public Defender Agency (PDA),
Department of Administration, testified via teleconference, and
after mentioning that she does not know the answer to
Representative Meyer's question regarding money confiscated
during drug busts, said that generally the PDA is not in favor
of legislation that increases fines. She noted, however, that
this particular bill will not have much of an impact on the
PDA's clientele, since whether the fine is $75,000 or $500,000,
it is still an unreachable amount, as was stated by the
sponsor's representative. She also mentioned, however, that
[increasing fines] can have a trickledown effect in that judges
might be influenced by the larger maximums into imposing higher
fines compared to what is currently being imposed. If so, the
PDA's clientele would be affected by SB 339.
MS. LINDA WILSON mentioned that [increasing fines] can result in
petitions to revoke probation and parole for nonpayment of a
fine. Generally those petitions are not filed alone; she
explained that if there is another violation, it can bring those
in as well. She said that according to her understanding of
conversations she's had with "the probation people," they
generally do not file petitions just for a nonpayment of fine.
To summarize, she said that although generally the PDA opposes
such measures, SB 339 will probably not have a big effect on
PDA's clientele, other than its effect on petitions to revoke
probation and parole.
CHAIR ROKEBERG asked who files petitions to revoke. The courts
or the DOL?
MS. LINDA WILSON said that it is generally done by the DOL; the
probation/parole officer files the petition to revoke, either in
front of the parole board, if it is parole that is being
revoked, or in court, if it is probation that is being revoked.
She added that petitions can be filed simultaneously in both
places for the same conduct if the person is on both parole and
probation. In response to a question, she reiterated that
generally petitions are not filed solely on nonpayment of a
fine.
CHAIR ROKEBERG, noting that no one else wished to testify on SB
339, closed the public testimony and announced that SB 339 would
be held over.
HB 429 - TOBACCO TAXATION; LICENSING
Number 0892
CHAIR ROKEBERG announced that the next order of business would
be HOUSE BILL NO. 429, "An Act relating to certain licenses for
the sale of tobacco products; relating to tobacco taxes and
sales and cigarette tax stamps; relating to provisions making
certain cigarettes contraband and subject to seizure and
forfeiture; relating to certain crimes, penalties, and interest
concerning tobacco taxes and sales; relating to notification
regarding a cigarette manufacturer's noncompliance with the
tobacco product Master Settlement Agreement or related statutory
provisions and to confiscation of the affected cigarettes; and
providing for an effective date." [Before the committee was
CSHB 429(L&C).]
Number 0915
NEIL SLOTNICK, Deputy Commissioner, Treasury Division,
Department of Revenue (DOR), presented HB 429 on behalf of the
administration. He said that HB 429 will require adherence of a
stamp on cigarette packages, showing that the tax on those
cigarettes has in fact been paid. He brought forth a pack of
cigarettes with the aforementioned stamp affixed. He relayed
that 46 other states require stamps on cigarette packs, and that
the reason for this requirement is that without the stamp, one
package of cigarettes looks just like another and the
departments of revenue in those states have a great deal of
difficulty enforcing the tax statutes. He said:
If we receive a complaint that a retailer's
distributing untaxed cigarettes, and we send our
investigators out into the field, they have no way of
knowing whether any particular package of cigarettes
has had the tax paid or not. They can make a buy,
they can ask to look at invoices, but, again, it's
very difficult to distinguish because one invoice can
list various cigarettes and ... there's no serial
number, there's no tracking - obviously - for the kind
of volume that we do with cigarettes. And that means
that that retailer can either sell those cigarettes at
below market price, which then defeats the whole point
of having the tax statute, or they can keep the
difference, and then the law-abiding retailers are the
ones who are hurt as a consequence because their
competition can make more money on the cigarettes.
Now, do we think that smuggling is a major problem in
this state? The answer is no, we don't think so.
But, again, we have no way knowing without having the
ability to track the cigarettes in which "the stamps
have been paid." Well, we do track them; we know how
much tax money we're receiving. And ... obviously
it's been in steep decline since we had a tax increase
back in '97, and we think a great deal of that is due
to the fact that fewer cigarettes are being consumed
in this state because of the increase in tax. We do
know there is some sale of untaxed cigarettes; we have
had a couple enforcement actions, ... but it really
takes a great deal of luck for those to work without
having the ability to trace the tax paid by the stamp.
Number 1089
MR. SLOTNICK continued:
What we have seen, however, is two other states that
recently adopted a stamp Act, and they had a
tremendous recovery of additional tax as a consequence
of requiring the stamp. One of those was Hawaii,
which, like us, doesn't have any contiguous border
states where the tax was much cheaper so that there
could be influx of either untaxed or lower-tax-paid
cigarettes. Hawaii is just like [Alaska]; there is no
contiguous border states. And yet after they adopted
their tax increase and then subsequently waited a year
to adopt the stamp Act, their tobacco-tax stamp
increased their collection of revenue by 25 percent.
Michigan, which has border states, had a similar
experience - not nearly that dramatic; I believe that
was about a 12 percent increase in tax revenue when
they adopted a requirement of stamping.
We do not anticipate - here in this state - anywhere
near that level of revenue increase; we don't think we
have that level of contraband cigarette problem....
One of the things, though, that I want to emphasize
is, we don't want to see that kind of problem develop.
Clearly there is an "arbitrage opportunity" here,
given that we have a tobacco tax of [$1] a pack; there
are states out there that have much lower tobacco tax
than that. That creates an "arbitrage opportunity"
for the kind of operatives that Hawaii saw or that
Michigan saw or [that] were working in their states at
the time of their tobacco tax increases. We don't
want that to occur here, and we don't think it's
occurred yet, and we don't want it to happen. And the
only way that we can really enforce our statutes is to
have the stamp on the cigarettes.
Once we get that, then we can have the assistance of
law enforcement personnel, whether it's village public
safety officers [VPSOs] or municipal or state police
officers, or [the] Department of Health & Social
Services [DHSS] has a tobacco inspection program -
youth tobacco program; they can be trained to look for
the stamp, as well as [others]: our gaming
investigators or other state investigators, for
example, with the Department of [Community and
Economic Development].
Number 1224
MR. SLOTNICK went on to say:
One thing I would like to explain ... would be the
fiscal note. Now, the way this bill is written, ...
[it] does allow for a discount for the wholesalers who
would be ... charged with the applying of the stamp;
they would have to purchase the stamp from the state,
and then they would apply it themselves - they'd open
the "package" of cigarettes, apply the stamp - and
then ship them out to the various retailers.
Obviously that's going to cost them; they're going to
have to have personnel to do that. We recognize that,
and so we have provided a discount back to them, in
this bill, to cover some but not all of their costs,
because we think they should share in the cost because
they will be the beneficiaries - they are the law-
abiding wholesalers ... - if there are additional
sales as a consequence of having the stamp.
But I will say to it's strictly a policy matter as to
how large that discount should be. What we have done
here is we've recognized that there are economies of
scale, that the larger wholesalers are going to be
able to buy more automated equipment, [and] have lower
costs for application. And, as a consequence, we
don't want to change the market dynamics that exist
right now, so what we've done is given a greater
discount for all wholesalers on their first purchases,
and then it gradually ... lessens down where, at the
end, they would have no discount.
MR. SLOTNICK concluded:
I will point out that Hawaii not only has no discount,
they actually charge ... for sale of the stamp. Other
states have a more generous discount than what the
[DOR] has proposed here, but we think this is a very
fair compromise for recognizing that this is going to
create a burden on wholesalers, but at the same time
there should be a benefit to them. But it's a policy
call that this committee could address; the previous
committee actually did address that and did change the
discount structure to more closely reflect the
economies of scale that the larger wholesalers do
receive in stamping.
Number 1343
REPRESENTATIVE MEYER opined that perhaps tax revenue from
tobacco sales is going down because people are now buying their
tobacco products from other sources such as the Internet, other
states, or military bases. He remarked that applying stamps
will only assist the DOR in tracking wholesalers, and that there
would still be no way of knowing whether an individual bought
cigarettes from other sources.
MR. SLOTNICK said he would tend to agree that's accurate. On
the other hand, he remarked, the DOR feels that the decline in
revenues can be explained, for the most part, by the fact that
cigarette consumption has fallen off throughout the United
States as a whole, and by the increase in the tobacco tax.
These two factors, rather than smuggling, are most likely
responsible for the decrease in revenues, although the DOR is
aware that there are untaxed cigarette sales taking place, he
added. He also said:
There is a federal law that doesn't even kick into
place unless you have a stamp requirement. There's
the federal "contraband cigarette Act," under which
the Bureau of [Alcohol, Tobacco and Firearms (ATF)]
would come to our assistance and ... enforce a federal
law which makes it a felony to transport unstamped
cigarettes across a state line. Well, if we don't
have a stamp Act, we can't use that [federal] law.
MR. SLOTNICK said that the ATF is very good at providing
assistance with tobacco-tax law enforcement, but without
legislation such as HB 429, the state cannot call upon the ATF
for assistance.
REPRESENTATIVE MEYER asked what happens when people purchase
cigarettes through friends that work on military bases. Would
those cigarettes have to be stamped, or would they be exempt
from "stamping," he also asked.
MR. SLOTNICK indicated that those cigarettes would be exempt
from taxation, although military bases are required to price
their cigarettes within 90 percent of the prevailing state
price.
Number 1528
JOHANNA BALES, Revenue Auditor V, Department of Revenue (DOR),
testified via teleconference. She said:
As far as the military bases are concerned, we do
receive information from manufacturers that show the
levels of cigarettes that they import and sell in the
state, and since the tax increase went into effect in
October of '97, they have also seen a decline in the
number of cigarettes that they sell, because the
military has mandated that their products have to be
sold [for] at least 90 percent of the market value in
the surrounding community. So, we do not see a
problem at all with the military bases.
REPRESENTATIVE MEYER expressed interest in receiving information
about cigars and smokeless tobacco. He asked whether it would
be possible to put stamps on those products as well, noting that
it can't be known whether a problem with those products exists
unless a stamp is also required for those products.
MR. SLOTNICK agreed. He noted, however, that under current law,
there is no requirement to pay tax on other tobacco products
imported by an individual; thus the DOR is not actually losing
revenue on those products. That's not true of cigarettes,
however; if an individual imports cigarettes, the tax is still
due.
REPRESENTATIVE MEYER indicated that he would prefer not to give
a discount for applying the stamp, with the understanding that
the cost would simply be passed on to consumers. He noted that
the discount provision was included in the current version of HB
429 so that individual Alaska wholesalers won't be put at a
disadvantage.
MR. SLOTNICK agreed. He said that another reason for including
the discount provision is that the DOR didn't want to have a tax
increase that wasn't clearly labeled as such. "To our mind,
it's a policy call that the legislature could make, but we're
going to come forward with a bill that's relatively close to tax
neutral to the consumer, and then leave it to the legislature to
decide whether you should pass that cost on or not," he added.
Number 1702
REPRESENTATIVE JAMES recalled that she raised many of these same
issues during the original hearings on the tobacco tax increase.
She mentioned that one of those issues dealt with requiring the
stamp to be applied in such a way that it could not be salvaged
and applied to a different pack of cigarettes. She asked
whether it would be possible to have the stamp applied by the
cigarette manufacturers before the product is sold to the
wholesalers. She indicated that what she has heard is that
although cigarette use in general is down, cigarette use among
youth is increasing, particularly among young girls. She then
asked for a response to her comments.
MS. BALES said:
As far as the stamping is concerned, the way that
works is, manufactures do not stamp. That would be
[Philip Morris U.S.A. ("Philip Morris"), Brown &
Williamson Tobacco Corporation ("Brown & Williamson"),
R.J. Reynolds Tobacco Company ("R.J. Reynolds")].
What they do is they sell their product to the
distributors, and then wherever that distributor is
conducting business or wherever they're shipping
cigarettes, they will stamp for each particular state.
We do have distributors in Alaska who purchase direct
from the manufacturer, and so those distributors in
the state would be required to do the stamping for
Alaska. Or, if it was a distributor that's licensed
in Alaska to do business that has a presence or does
business in other states, they would be stamping as
well for Alaska, possibly out of state, maybe in
Washington or wherever they have their stamping
equipment right now.
I have been told by [Costco Wholesale Corporation
("Costco")] that if we were to have a stamp, that they
would more than likely stamp within the state. Now,
one of the reasons ... it wouldn't be good for a
distributor ... in the state to try to purchase from
someone out of state that's already stamping, is
because then you've already inserted another middleman
in the whole process, and our distributors, then,
wouldn't be buying direct from the manufacturers, and
the price of their cigarettes would go up for them as
well. So that's the way the stamping works.
Number 1891
REPRESENTATIVE JAMES remarked that they oughtn't to care how
much it costs distributors to buy cigarettes. On the issue of
requiring a stamp, she noted that the state doesn't subsidize
other businesses in their efforts to meet state requirements
regarding product identification; therefore, the state shouldn't
subsidize the cigarette [industry] either.
MS. BALES, on that point, added that Hawaii actually charges
their distributors 1.7 percent to pay for the costs that the
state incurs to have those stamps manufactured. So that always
is an option, she noted. On the issue of who is smoking, she
said it is hard to tell; she added that the DOR doesn't have any
demographic data that would show which age groups are smoking
more and which are smoking less. She remarked that [the DOR]
occasionally gets information from out of state companies
regarding individuals within the state who get their cigarettes
shipped to them, and with that information, the DOR attempts to
collect tax from those individuals. She mentioned that the DHSS
has conducted surveys which indicate that in many cases, people
have either quit smoking or have cut back. She relayed that
from information obtained from a few vendors that comply with
federal reporting laws, the DOR is aware of approximately 1,000
individuals who have purchased cigarettes through the mail. She
pointed out that one of the advantages of requiring a stamp, as
is proposed in HB 429, is that the DOR would then be able to
confiscate unstamped cigarettes on the spot, whereas currently,
even if the DOR knows and can prove that the tax has not been
paid, it has no ability to seize the cigarettes.
REPRESENTATIVE JAMES said she supports requiring a stamp on
cigarettes, adding that she did not know why such a provision
was not instituted at the time of the tax increase. She
remarked that she doesn't have any interest in allowing a
discount for affixing the stamps. "If that's the rule, they
should just do it," she opined. She mentioned that her staff
has done research and found that cigarettes can be purchased by
the case on the Internet, and that she is aware that when people
travel outside of Alaska, they purchase cigarettes and bring
them back home. She also surmised that since the military is
required to charge close to market value, the military probably
makes a fair amount of money reselling cigarettes.
Number 2037
JAYNE ANDREEN, Tobacco Prevention and Control Program, Division
of Public Health, Department of Health & and Social Services
(DHSS), said simply that she is available to answer questions,
and then shared an anecdotal story about someone's cat who
ordered cigarettes over the Internet, didn't even use the cat's
own credit card to pay for the cigarettes, and did receive those
cigarettes.
Number 2055
JOHN AYERS, Chairman, Chief Executive Officer, Keystone
Distribution Service, Inc. ("Keystone"), testified via
teleconference. He explained that Keystone is a public
warehouse that currently houses the cigarette inventory from
R.J. Reynolds, Philip Morris, and Brown & Williamson for a
number of distributors in Anchorage including Costco. On the
issue of how allowing the stamp to be applied out of state would
affect his company, he said that contrary to what Ms. Bales has
indicated, Costco provides the stamping in Kirkland [Washington]
for five states and has specifically told Keystone that it would
stamp cigarettes destined for Alaska in Kirkland rather than
Alaska. This could result in a yearly loss of revenue for
Keystone of approximately $250,000, and, hence, Keystone would
have to reduce staff.
MR. AYERS suggested amending HB 429 to include a requirement
that stamping be done in Alaska. He opined that such a
requirement would add both revenue and jobs in the state. In
response to a question, he indicated that with such a
requirement, he would not expect the state to provide a discount
for the cost of stamping.
Number 2150
TOMAS T. ANDERSON, Owner, Alaska Strategic Consultants,
testified via teleconference noting that he is "working with
Jan's Distributing [Inc.] on this issue." He remarked that HB
429 appears to be unwarranted, since the DOR cannot provide any
statistics to substantiate its concerns. He said that
statements made by the DOR - that it "has no way of knowing" -
alarm distributors and suggest that the problems are just
speculative. He opined that the approach taken via HB 429 will
cost more money than it will generate. Referring to AS
43.50.090(c), which exempts military "exchange, commissary, or
ship's stores" from taxes, he remarked that this still provides
people with a way to avoid paying taxes when purchasing bulk
cigarettes.
MR. ANDERSON also pointed out that proposed Sec. 43.50.580
offers an exemption to certain entities such as Indian tribal
organizations, and opined that such a potential loophole might
enable a Native corporation to take undue advantage. He
reiterated his belief that claims by the DOR are merely
speculation, adding that many of the variables are undefined.
After mentioning that he is not in favor of HB 429, he said he
agrees with Mr. Ayers's suggestion that the bill should require
that the stamps be applied in Alaska. In response to a
question, he indicated that he is in favor of the discount
provision.
Number 2353
BOBBY SCOTT, Jan's Distributing, Inc. ["Jan's"], testified via
teleconference. He noted that his company is a "direct buy
customer" serving Anchorage, Wasilla, Eagle River, Fairbanks,
Homer, Nikiski, and some Bush communities. He said that he is
concerned about whether the two additional employees mentioned
in the DOR's fiscal note will be sufficient for enforcement of
the stamp program, and if not, then the fiscal note needs to
reflect more personnel.
TAPE 02-56, SIDE B
Number 2400
MR. SCOTT remarked that although his company experienced a
decline in sales when the tax increase first took effect, sales
have since improved to the point that last year Jan's paid just
under $2 million in taxes on tobacco products and yet, in
comparison, Jan's is one of the smaller distributors in Alaska.
He indicated that he questions whether there has really been
such a decline in tax revenue that it warrants legislation such
as HB 429. In response to a question, he confirmed that he
would rather HB 429 did not become law.
REPRESENTATIVE JAMES questioned whether, particularly during a
budget crunch, hiring two additional people to enforce a stamp
program will engender additional revenues for the state. She
opined that the provisions of HB 429 ought to have been
instituted at the same time as the tobacco tax increase. She
indicated that she, too, has concerns about potential loopholes.
MR. AYERS pointed out that one of the hidden costs to Alaskan
distributors and wholesalers "is the time to pay" and is tied in
with whether Keystone continues to be a warehouse on behalf of
the manufacturers. He said, "Like liqueur, you don't get a lot
of float on how long you can take to pay for the product;
typically on cigarettes it's ten days." Thus, when a company
places an order with a manufacturer, that order gets sent to
Keystone, for example, which then delivers the product to the
distributor, whose "clock starts when that order" gets to
Keystone; if, on the other hand, the cigarettes are stamped out
of state, "the clock starts" that much sooner, and the
distributor would loss anywhere from five to seven of those ten
days. He warned that although the cash flow implications have
not yet been quantified, they will affect distributors
financially.
REPRESENTATIVE JAMES asked whether insurance costs for
wholesalers have risen because of the increase in tobacco tax.
MR. AYERS said that Keystone did not experience any increase in
insurance costs as a result of that tax increase, but mentioned
that perhaps distributors or transportation companies might
have.
MR. SCOTT indicated that his insurance costs did go up, adding
that he would have to research that information and get the
exact figures to the committee at a later date. He also
mentioned that bonding costs have increased as well because of
the increase in tobacco tax.
Number 2154
REPRESENTATIVE MEYER said he did not like HB 429; he said,
however, that if it is adopted, he would like it to contain a
requirement that the stamping be done in Alaska. He asked
whether it would be possible to institute such a requirement.
MR. SLOTNICK said that both the DOR and the Department of Law
(DOL) have looked at that issue and have concluded that,
legally, it would be a very tenuous proposition. He posited
that the courts would view such a requirement as "protectionist
legislation in violation of the commerce clause," which will not
allow a state to use its taxing authority to favor in-state
commerce over out-of-state commerce.
CHAIR ROKEBERG closed the public hearing. [HB 429 was held
over.]
ADJOURNMENT
Number 2083
There being no further business before the committee, the House
Judiciary Standing Committee meeting was adjourned at 2:49 p.m.
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