Legislature(2003 - 2004)

04/21/2004 09:09 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                          April 21, 2004                                                                                      
                              9:10 AM                                                                                         
                                                                                                                              
                                                                                                                                
                                                                                                                                
TAPES                                                                                                                       
                                                                                                                                
SFC-04 # 88,  Side A                                                                                                            
SFC 04 # 88,  Side B                                                                                                            
SFC 04 # 89,  Side A                                                                                                            
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair Gary Wilken convened  the meeting at approximately 9:10 AM.                                                            
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Lyda Green, Co-Chair                                                                                                    
Senator Con Bunde, Vice Chair                                                                                                   
Senator Ben Stevens                                                                                                             
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
Senator Fred Dyson                                                                                                              
                                                                                                                                
Also Attending:  SENATOR RALPH SEEKINS; JOHANNA BALES,  Excise Audit                                                          
Manager,  Tax  Division,  Department   of Revenue;   MIKE  ELERDING,                                                            
President  and  Owner,  Northern   Sales  Company  of  Alaska;  MIKE                                                            
BARNHILL,  Assistant  Attorney  General,  Commercial/Fair   Business                                                            
Section,  Civil Division  (Juneau), Department  of Law; KEITH  TEEL,                                                            
Attorney with Covington & Burling                                                                                               
                                                                                                                                
Attending  via  Teleconference:   From  Anchorage:  JAMES   BRENNAN,                                                          
Attorney, representing  Anchorage Taxicab Permit Owners Association;                                                            
ELI SCHOENBERG, Project  Citizen Student, Golden View Middle School;                                                            
ANNIE SNEED,  Project Citizen  Student, Golden  View Middle  School;                                                            
ALEENA  JOBE Project  Citizen Student,  Golden  View Middle  School;                                                            
KYLE STERSLE,  Project Citizen Student,  Golden View Middle  School;                                                            
MARIN CHAMBERS, Project  Citizen Student, Golden View Middle School;                                                            
JESSICA FAUST,  Project Citizen Student, Golden View  Middle School;                                                            
RUSSELL  JOHNSTON,  Project  Citizen  Student,  Golden  View  Middle                                                            
School;  CODY FLOERCHINGER,  Project  Citizen Student,  Golden  View                                                            
Middle School; MORGANE  EVANS-VOIGT, Project Citizen Student, Golden                                                            
View Middle School; SAMANTHA  NOVAK, Project Citizen Student, Golden                                                            
View Middle  School; From  Anchorage: EMILY  NENON, Alaska  Advocacy                                                            
Manager, American Cancer Society                                                                                                
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
HB 347-EXEMPT TAXIS FROM VEHICLE RENTAL TAX                                                                                     
                                                                                                                                
The Committee  rescinded previous  action on  an amendment  and held                                                            
the bill in Committee.                                                                                                          
                                                                                                                                
SB 368-TOBACCO TAX; LICENSING; PENALTIES                                                                                        
                                                                                                                                
The Committee  heard from the Department of Revenue,  the Department                                                            
of  Law,  and  the  industry.  Six  amendments   were  adopted;  one                                                            
amendment  failed to  be adopted;  and one amendment  was  withdrawn                                                            
from consideration. The bill was held in Committee.                                                                             
                                                                                                                                
SB 307-APPEAL BONDS: TOBACCO SETTLEMENT PARTIES                                                                                 
                                                                                                                                
The Committee heard from  the sponsor and the industry. The bill was                                                            
held in Committee.                                                                                                              
                                                                                                                                
SB 311-INSURANCE & WORKERS' COMPENSATION SYSTEM                                                                                 
                                                                                                                                
This bill was scheduled but not heard.                                                                                          
                                                                                                                                
AT EASE 9:12 AM / 9:13 AM                                                                                                       
                                                                                                                                
                                                                                                                                
     HOUSE BILL NO. 347                                                                                                         
     "An Act exempting taxicabs from the passenger vehicle rental                                                               
     tax; and providing for an effective date."                                                                                 
                                                                                                                                
                                                                                                                                
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Wilken  explained  that  this  legislation   would  exempt                                                            
taxicabs  from the  passenger vehicle  rental tax  by removing  them                                                            
from the definition  of a passenger  vehicle. He reminded  that this                                                            
tax, which specified that  a ten-percent vehicle would be imposed on                                                            
the rental and  lease of passenger vehicles, was enacted  during the                                                            
previous  Legislative Session.  He informed  the Committee  that the                                                            
fiscal "unintended consequence"  of adopting Amendment #1 during the                                                            
first hearing  on this bill was a $400,000 decrement  to the budget.                                                            
                                                                                                                                
Amendment  #1: This amendment  changes the  bill's title to  read as                                                            
follows.                                                                                                                        
                                                                                                                                
     "An  Act exempting taxicabs  and certain  other motor  vehicles                                                          
     from  the passenger vehicle  rental tax;  and providing  for an                                                            
     effective date."                                                                                                           
                                                                                                                                
In  addition,  the  amendment  deletes,  in  Section  1,  subsection                                                            
(2)(E), the word "or" on  page two, line two and inserts language on                                                            
page two,  line three following  the word  "taxicab." This  language                                                            
would read as follows.                                                                                                          
                                                                                                                                
     (E) a taxicab, [or]                                                                                                        
     (f)  a vehicle  that is  used exclusively  for  the hauling  or                                                          
     delivery of cargo;                                                                                                       
                                                                                                                                
Furthermore,  the amendment  inserts  new language  in Sec. 2,  page                                                            
two, line seven following "taxicabs" as follows.                                                                                
                                                                                                                                
     IMPLEMENTATION. The  Department of Revenue shall refund any tax                                                            
     collected  and remitted to the department under  AS 43.52.010 -                                                            
     43.52.099 on the rental  of taxicabs and other rentals that are                                                          
     exempt  from the passenger  vehicle rental  tax because  of the                                                          
     amendments  to AS 43.52.099(2)  made by  sec.1 of this  Act for                                                          
     rentals made on or after January 1, 2004,…                                                                               
                                                                                                                                
     New Text Underlined [DELETED TEXT BRACKETED]                                                                             
                                                                                                                                
Co-Chair Green  moved to rescind the March 9, 2004  Committee action                                                            
of adopting Amendment #1.                                                                                                       
                                                                                                                                
There  being  no  objection,   the  Committee  action   of  adopting                                                            
Amendment # 1 was RESCINDED.                                                                                                    
                                                                                                                                
Co-Chair  Wilken  specified, therefore,  that  HB 347,  Version  23-                                                            
LS1311\D is before the Committee.                                                                                               
                                                                                                                                
JAMES  BRENNAN,  Attorney,  representing  Anchorage  Taxicab  Permit                                                            
Owners Association, testified  via teleconference from Anchorage and                                                            
commented that he is available  to answer questions. He noted that a                                                            
copy  of his  April 7,  2004  letter [copy  on file],  addressed  to                                                            
Senator Wilken is included in Members' packets.                                                                                 
                                                                                                                                
Senator Olson  asked the Association's position on  the legislation.                                                            
                                                                                                                                
Mr. Brennan  responded that the Association  "is strongly  in favor"                                                            
of this legislation  as the tax "accidentally"  imposed a  burden on                                                            
taxicab  drivers.   He  explained  that  the  sponsor   of  the  tax                                                            
legislation that  was adopted the previous year, were  unaware that,                                                            
"imbedded   in  the  Anchorage  taxicab   industry"  was   a  rental                                                            
arrangement in which independent  drivers rent their taxicab vehicle                                                            
from "an  operator,"  who maintains  the taxicab  and pays for  such                                                            
things as liability insurance.  Therefore, he continued, the taxicab                                                            
drivers  rent the  vehicle and  are therefore  subject  to the  ten-                                                            
percent  tax.  Furthermore,  he  detailed  that  these  rentals  are                                                            
considered  daily rentals.  He  shared that  there  are 158  general                                                            
permits and that a taxicab  could be rented out for both a day shift                                                            
and night  shift. In all  cases, he continued,  the taxicab  drivers                                                            
are local Anchorage  residents. He stated that it  came to "a shock"                                                            
to  the  bill's  sponsor,  Representative  Pete  Kott,  and  to  the                                                            
Department  of Revenue that these  drivers would be subject  to this                                                            
tax. Therefore, he urged  that this legislation be adopted to remove                                                            
this burden from taxicab drivers.                                                                                               
                                                                                                                                
Co-Chair Wilken surmised  therefore, that the testifier is "strongly                                                            
in favor" of the legislation.                                                                                                   
                                                                                                                                
Mr. Brennan concurred.                                                                                                          
                                                                                                                                
The bill was HELD in Committee.                                                                                                 
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 368                                                                                                        
     "An Act relating  to taxes on cigarettes and  tobacco products;                                                            
     relating  to tax stamps on cigarettes;  relating to  forfeiture                                                            
     of  cigarettes  and  of  property   used  in the  manufacture,                                                             
     transportation,  or sale of unstamped  cigarettes; relating  to                                                            
     licenses  and  licensees  under  the  Cigarette  Tax  Act;  and                                                            
     providing for an effective date."                                                                                          
                                                                                                                                
                                                                                                                                
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Wilken  explained that the Senate Rules Committee  sponsors                                                            
this legislation  by request  of the Governor,  Frank Murkowski.  He                                                            
stated that  the legislation would  increase the cigarette  tax from                                                            
one dollar  per pack of twenty cigarettes  to two dollars  per pack.                                                            
Furthermore,  he  informed  that  the  Tobacco  Products  tax  would                                                            
increase from 76 percent to 100 percent of the wholesale cost.                                                                  
                                                                                                                                
JOHANNA  BALES,  Program Manager,  Cigarette  and  Tobacco  Products                                                            
Excise  Tax  and  Revenue  Auditor,  Tax  Division,   Department  of                                                            
Revenue,  noted  that she  would  respond  to questions  that  arose                                                            
during the first hearing on this bill.                                                                                          
                                                                                                                                
Senator  Bunde  informed  the Members  that  on  teleconference  are                                                            
students  from  Anchorage's  Golden  View  Middle  School,  who  are                                                            
participating  in  a public  interest  issue  school  project  named                                                            
"Project Citizen."  As part of the  project, he noted, the  students                                                            
elected to research and  testify regarding this tobacco tax bill, as                                                            
"it is a public policy  issue that is important to our State" and to                                                            
communities.  He shared that  Golden View  Middle School is  located                                                            
within the Anchorage district he represents.                                                                                    
                                                                                                                                
ELI SCHOENBERG, Project  Citizen Student, Golden View Middle School,                                                            
testified  via  teleconference   from  Anchorage   and  shared  that                                                            
"Project Citizen" is a  civic education program that allows students                                                            
to work  on a policy  or issue  that would affect  the students  and                                                            
their community.  He stated  that the issue  chosen by the  students                                                            
was tobacco enforcement;  particularly focusing on minors' access to                                                            
tobacco  and solutions  to counteract  the problem.  He stated  that                                                            
this tobacco tax  legislation was chosen, as it was  determined that                                                            
"this was the  best chance to solve  the problem and save  lives for                                                            
generations to come."                                                                                                           
                                                                                                                                
Senator   Hoffman,   noting  that   this   tax  would   generate   a                                                            
"substantial"  amount of money  for the State,  asked the  testifier                                                            
whether  a portion of  these funds  should be  earmarked to  support                                                            
advertising campaigns geared to prevent kids from smoking.                                                                      
                                                                                                                                
Mr. Schoenberg responded in the affirmative.                                                                                    
                                                                                                                                
ANNIE SNEED,  Project Citizen  Student, Golden  View Middle  School,                                                            
testified  via teleconference  from Anchorage  and avowed that  this                                                            
bill  could  save lives.  She  referenced  statistics  generated  by                                                            
Tobacco Free Kids  that indicate that enactment of  this legislation                                                            
would save  2,900 youth from premature  smoking related deaths.  She                                                            
calculated that  this would equate to one percent  of the population                                                            
of the  Municipality  of Anchorage's  population  or  to the  entire                                                            
student population of Anchorage's Service High School.                                                                          
                                                                                                                                
ALEENA  JOBE Project  Citizen Student,  Golden  View Middle  School,                                                            
testified  via teleconference  from Anchorage  and pointed  out that                                                            
were the  cigarette tax  raised by  one dollar  per pack, the  State                                                            
would save, over  a five-year period, $1.6 million  as the result of                                                            
fewer  smoking  related  pregnancy  and  birth  complications.  This                                                            
money,  she continued,  would  then be  available  to support  other                                                            
State programs.                                                                                                                 
                                                                                                                                
Senator  Hoffman  asked  the  testifier  whether  a portion  of  the                                                            
anticipated  revenue should  be used  to discourage  teenagers  from                                                            
smoking.                                                                                                                        
                                                                                                                                
Ms. Jobe responded in the affirmative.                                                                                          
                                                                                                                                
KYLE STERSLE,  Project Citizen Student,  Golden View Middle  School,                                                            
testified  via  teleconference   from  Anchorage  and  informed  the                                                            
Committee  that "the  State Medicaid  program  currently spends  $60                                                            
million on smokers"  and smoking related health problems  each year.                                                            
Were this  legislation  adopted, he  declared, less  money would  be                                                            
required to address associated  health care costs. He noted that the                                                            
additional revenue generated  from this tax could be used to provide                                                            
for the balance of Medicaid expenses.                                                                                           
                                                                                                                                
MARIN CHAMBERS, Project  Citizen Student, Golden View Middle School,                                                            
testified via  teleconference from  Anchorage and declared  that the                                                            
number  of smokers would  decrease  were a one-dollar  per pack  tax                                                            
increase to  occur. She shared that  Governor Murkowski stated  that                                                            
3,500  current smokers  would  quit smoking,  and as  a result,  800                                                            
lives would  be saved. She also quoted  the Governor as saying  that                                                            
within  the  first  year  of  the  current  one-dollar  a  pack  tax                                                            
implementation,  the number  of cigarettes  consumed  in the  State,                                                            
declined  by 15-percent  and  still  has not  risen  to its  pre-tax                                                            
level. She noted that numerous  legislators and health organizations                                                            
such  as the  American Heart  Association  and the  American  Cancer                                                            
Society support increasing this tax level.                                                                                      
                                                                                                                                
JESSICA FAUST,  Project Citizen Student, Golden View  Middle School,                                                            
testified  via teleconference  from  Anchorage and  urged that  this                                                            
legislation  be adopted as,  she noted, the  Alaska Tobacco  Control                                                            
Alliance estimates  that were the tax to increase,  there would be a                                                            
15-percent  decrease  in  youth  smokers.  She  attested  that  this                                                            
reduction would  result in 15 out of 100 youth having  fewer tobacco                                                            
related illnesses in the  future. She also noted that a reduction in                                                            
the number  of people who smoke would  reduce the $130 million  that                                                            
is, according  to the American Heart Association,  spent annually on                                                            
tobacco health  related illnesses.  Furthermore, she noted  that the                                                            
proposed tax  increase would generate  in excess of $35 million  per                                                            
year. She concluded  that increasing  the price of cigarettes  would                                                            
be the  most effective  approach  to lowering  the  number of  youth                                                            
smokers.  She  urged  the Committee  to  pass  this  legislation  by                                                            
noting, "that adults don't start smoking, kids do."                                                                             
                                                                                                                                
Senator Hoffman asked the  testifier whether she would support using                                                            
a portion  of the  $35 million  generated  by the  tax increase  for                                                            
anti-smoking advertising messages directed at youth.                                                                            
                                                                                                                                
Ms. Faust responded  that she would  support using a portion  of the                                                            
funds for an advertising campaign as well as for education.                                                                     
                                                                                                                                
RUSSELL  JOHNSTON,  Project  Citizen  Student,  Golden  View  Middle                                                            
School,  testified  via teleconference   from Anchorage  and  stated                                                            
that,  in addition  to generating  more  revenue for  the State,  an                                                            
increased  tobacco  tax would  further reduce  the  number of  youth                                                            
smokers as  attested by the decline  in youth smokers that  occurred                                                            
after the  one-dollar a pack  tax was implemented.  He urged  that a                                                            
portion  of the money  be used  to support  teen smoking  prevention                                                            
enforcement, were the legislation enacted.                                                                                      
                                                                                                                                
CODY  FLOERCHINGER,  Project  Citizen Student,  Golden  View  Middle                                                            
School, testified via teleconference  from Anchorage and pointed out                                                            
that the "immediate  problem" is that currently there  is no penalty                                                            
imposed upon  an underage person who  attempts to purchase  tobacco.                                                            
Therefore,   he  urged  the  Committee   to  consider  implementing                                                             
legislation such as a penalty  of up to a $300 fine were an underage                                                            
person to do so.  He attested that this would make  a difference. He                                                            
also suggested  that some of the revenue generated  by this proposed                                                            
tax  be used  to support  enforcement  efforts associated  with  the                                                            
"purchase attempt"  legislation. He declared that  teen smoking is a                                                            
serious issue,  and that a purchase attempt violation  combined with                                                            
the higher  price per  pack would  further efforts  to control  teen                                                            
smoking.                                                                                                                        
                                                                                                                                
MORGANE  EVANS-VOIGT, Project  Citizen Student,  Golden View  Middle                                                            
School, testified  via teleconference  from Anchorage and  addressed                                                            
the argument that imposing  a cigarette tax is un-Constitutional "as                                                            
it prohibits  and  represses the  smokers rights"  by stating  that,                                                            
while  a smoker  has rights,  so does  the rest  of the population.                                                             
Continuing,  she stated  that people  who make the  choice to  smoke                                                            
should assume the consequences  of their decision. She declared that                                                            
non-smokers'  health should not be  negatively affected by  smokers'                                                            
second-hand  smoke.  She stated  that  this  bill, by  reducing  the                                                            
number  of people  who smoke, would  assist  non-smokers with  their                                                            
right to live healthier lives.                                                                                                  
                                                                                                                                
SAMANTHA NOVAK, Project  Citizen Student, Golden View Middle School,                                                            
testified  via  teleconference   from  Anchorage   and  thanked  the                                                            
Committee for allowing  the students to present their testimony. She                                                            
urged the Committee to  consider the concerns brought forward today.                                                            
                                                                                                                                
Senator Bunde  voiced appreciation for the organization  and thought                                                            
that has been exerted by these students.                                                                                        
                                                                                                                                
Senator  Hoffman voiced  support for  using a portion  of the  money                                                            
that might be  generated by this bill to support tobacco  prevention                                                            
efforts. He  concluded that the students,  rather than desiring  the                                                            
State to use all the money,  would support some of the funding going                                                            
toward prevention efforts to assist in reducing teen smoking.                                                                   
                                                                                                                                
Co-Chair  Wilken pointed out  that SB 368,  Version 23-GS2116\A,  is                                                            
before the Committee.                                                                                                           
                                                                                                                                
Amendment #1: This amendment proposes to insert a new bill section                                                              
on page eight, line nine, as follows.                                                                                           
                                                                                                                                
     *Sec.  15. AS 43.50.710 is amended  by adding a new  subsection                                                            
     to read:                                                                                                                   
          (e) A wholesaler or retailer may not sell cigarettes at                                                               
     less than  the presumptive cost  to the wholesaler or  retailer                                                            
     unless the wholesaler  or retailer receives prior approval from                                                            
     the  department. The  department may  not grant prior  approval                                                            
     for  sale of cigarettes  at less than  the presumptive  cost as                                                            
     described  under  this  subsection,  unless the  wholesaler  or                                                            
     retailer  provides proof  satisfactory  to the department  that                                                            
     the  wholesaler's or  retailer's actual  cost is less  that the                                                            
     presumptive  cost for the wholesaler or retailer.  Approval for                                                            
     cigarette  sales at less than  the presumptive cost  authorized                                                            
     under  this subsection may not  be granted for a period  longer                                                            
     than one year.                                                                                                             
     *Sec. 16.  AS 43.50.800(a) is amended to read:(a)  For purposes                                                            
     of AS 43.50.710-43.50.849,                                                                                                 
          (1) the basic cost of cigarettes is equal to the [LOWER                                                               
     OF THE TWO FOLLOWING AMOUNTS];                                                                                             
                (A)[THE} invoice cost of cigarettes to the                                                                      
     wholesaler  [OR  RETAILER},   less any  off-invoice   allowance                                                          
     required  to be passed on to the retailer [ALL  TRADE DISCOUNTS                                                          
     INCLUDING  CUSTOMARY DISCOUNTS  FOR CASH  ACTUALLY TAKEN,  PLUS                                                            
     THE  FULL FACE VALUE  OF ANY TAX THAT  MAY BE REQUIRED  BY THIS                                                            
     CHAPTER  IF NOT  ALREADY INCLUDED  IN THE INVOICE  COST  OF THE                                                            
     CIGARETTES TO THE WHOLESALER OR RETAILER]; and [OR]                                                                      
                (B) invoice cost of cigarettes to the retailer [THE                                                           
     LOWEST  REPLACEMENT  COST OF  CIGARETTES TO  THE WHOLESALER  OR                                                            
     RETAILER,  WITHIN  30 DAYS  BEFORE  THE DATE  OF  SALE, IN  THE                                                            
     QUANTITY  LAST PURCHASED, WITHIN  OR BEFORE THE 30-DAY  PERIOD,                                                            
     LESS  ALL TRADE  DISCOUNTS  INCLUDING CUSTOMARY  DISCOUNTS  FOR                                                            
     CASH ACTUALLY  TAKEN, PLUS THE FULL FACE VALUE  OF ANY TAX THAT                                                            
     MAY BE REQUIRED BY  THIS CHAPTER IF NOT ALREADY INCLUDED IN THE                                                            
     INVOICE COST OF THE  CIGARETTES TO THE WHOLESALER OR RETAILER];                                                            
          (2) the actual cost to the wholesaler is equal to the                                                                 
     presumptive  cost  determined by  the department  under (b)  of                                                            
     this section.                                                                                                              
          (3) IN THE ABSENSE OF PROOF OF A LESSER OR HIGHER COST OF                                                             
     DOING BUSINESS BY  THE WHOLESALER MAKING THE SALE,] the cost of                                                            
     doing  business by the  wholesaler is  presumed to be  four and                                                            
     one-half  percent of the  basic cost of  the cigarettes  to the                                                            
     wholesaler; a fraction  of a cent used in computing the cost of                                                            
     doing business  shall be rounded off to the next  highest cent;                                                            
          (4) the actual cost to the retailer is equal to the lower                                                           
     of                                                                                                                       
                (A) the basic cost of the cigarettes plus the cost                                                            
     of doing  business by the retailer; the cost  of doing business                                                            
     may  be  proven  by regular  [THE]  standards  and  methods  of                                                          
     accounting  [REGULARLY  EMPLOYED  BY  THE  RETAILER]  and  must                                                            
     include  labor   costs,  rent,  depreciation,  selling   costs,                                                            
     maintenance   of  equipment,  delivery  costs,   all  types  of                                                            
     licenses, taxes, insurance, and advertising; or                                                                          
                (B) The presumptive cost determined by the                                                                    
     department under (b) of this section;                                                                                    
          (5) In the absence of proof of a lesser or higher cost of                                                             
     doing  business by the  retailer making  the sale, the  cost of                                                            
     doing  business by the retailer  is presumed to be six  percent                                                            
     of the basic cost  of cigarettes to the retailer; a fraction of                                                            
     a cent  used in computing the  cost of doing business  shall be                                                            
     rounded off to the next highest cent.                                                                                      
                                                                                                                                
     New Text Underlined [DELETED TEXT BRACKETED]                                                                             
                                                                                                                                
Co-Chair Wilken noted that Amendment # 1, which he had sponsored,                                                               
by request, would not be offered for consideration.                                                                             
                                                                                                                                
Amendment #2: This amendment proposes to change language in the                                                                 
bill as follows.                                                                                                                
                                                                                                                                
On page three, line 16, the word "or" is deleted and replaced with                                                              
"[OR]"                                                                                                                          
                                                                                                                                
In addition, the amendment inserts the following language on page                                                               
three, line 18 following "retailer".                                                                                            
                                                                                                                                
     "or to an individual for personal consumption; or                                                                        
     (4)  brings, or causes  to be brought,  a tobacco product  into                                                          
     the state from outside the state for personal consumption.                                                               
                                                                                                                                
Furthermore, this amendment would insert a new bill section on page                                                             
three, following line 18 as follows.                                                                                            
                                                                                                                                
     *Sec. 10. AS 43.50.320 is repealed and reenacted to read:                                                                  
          Sec. 43.50.320. Licensing. (a) Except as provided in (i)                                                              
     of this section, a  person must be licensed as a distributor by                                                            
     the department  if the person engages in an activity  described                                                            
     in AS  43.50.300(1) - (3) or  as a buyer if the person  engages                                                            
     in an activity described in AS 43.50.300(4).                                                                               
          (b) The department, upon application and payment of a fee                                                             
     of  $50, shall issue  a license  for one year  to a person  who                                                            
     applies  for a distributor license  under (a) of this  section.                                                            
          (c) The department, upon application and payment of a fee                                                             
     of  $25, shall issue  a license  for one year  to a person  who                                                            
      applies for a buyer license under (a) of this section.                                                                    
          (d) The department may refuse to issue a license under                                                                
     this  section  if there  is  reasonable  cause to  believe  the                                                            
     information   submitted   in  the  application   is  false   or                                                            
     misleading and is not made in good faith.                                                                                  
          (e) A distributor license issued under this section must                                                              
     include  the name  and address  of  the licensee,  the type  of                                                            
     business  to be conducted, and  the year for which the  license                                                            
     is issued.                                                                                                                 
          (f) The department may renew a distributor license issued                                                             
     under this section for a fee of $50.                                                                                       
          (g) The department may renew a buyer license issued under                                                             
     this section for a fee of $25.                                                                                             
          (h) The department may suspend, revoke, or refuse to                                                                  
     renew  a license issued  under this section  as provided  in AS                                                            
     43.50.070.                                                                                                                 
          (i) A license required by this section is in addition to                                                              
     any other license  required by law, except that a person who is                                                            
     licensed  under  AS  43.50.010-43.50.180  is  exempt  from  the                                                            
     licensing requirements of this section.                                                                                    
          (j) A license issued under this section is not assignable                                                             
     or transferable, except  that in the case of death, bankruptcy,                                                            
     receivership,  or  incompetency  of  the  licensee,  or if  the                                                            
     business   of  the  licensee  is  transferred   to  another  by                                                            
     operation  of law, the department may extend  the license for a                                                            
     limited   time  to   the  executor,   administrator,   trustee,                                                            
     receiver, or the transferee.                                                                                               
     * Sec 11. AS 43.50.330(a) is amended to read:                                                                              
          AS 43.50.330. Returns. (a) On or before the last day of                                                               
     each calendar  month, a licensee  shall file a return  with the                                                            
     department.  The  return must  state  the number  or amount  of                                                            
     tobacco products  sold or imported for personal  consumption by                                                          
     the licensee  during the preceding calendar month,  the selling                                                            
     or purchase  price of the tobacco  products, and the  amount of                                                          
     tax imposed on the tobacco products.                                                                                       
     *Sec. 12. AS 43.50.390(2) is amended to read:                                                                              
        (2) "licensee" means a distributor or buyer who is                                                                    
                (A) licensed under AS 43.50.320; or                                                                             
                (B) exempted by AS 43.50.320(i)(g) from licensing                                                             
     under      AS 43.50.320;                                                                                                   
     *Sec.  13. AS 43.50.390 is amended  by adding a new  subsection                                                            
     to read:                                                                                                                   
          (6) "buyer" means a person who imports tobacco products                                                               
     for the person's  own consumption from any source  other than a                                                            
     distributor.                                                                                                               
                                                                                                                                
     New Text Underlined  [DELETED TEXT BRACKETED]                                                                            
                                                                                                                                
Senator Bunde moved for the adoption of Amendment #2.                                                                           
                                                                                                                                
Co-Chair Green objected for discussion.                                                                                         
                                                                                                                                
Senator  Bunde explained  that this amendment  would require  people                                                            
who transport tobacco products  into the State for distribution, via                                                            
such  methods as  mail order  or Internet  purchases,  be  licensed.                                                            
This, he continued, would  ensure that the tobacco tax would be paid                                                            
and that Alaskan  distributors would be protected  from out-of-State                                                            
entities.  He asserted that  when taxes rise,  these types  of sales                                                            
increase as people attempt to circumvent price increases.                                                                       
                                                                                                                                
Ms. Bales  informed  the Committee  that the  Department of  Revenue                                                            
supports  this amendment,  as  it would  serve to  protect both  the                                                            
revenue  stream to the  State as  well as in-State  businesses  that                                                            
could be  harmed by people  choosing to  purchase out-of-State.  She                                                            
noted that,  while it  is currently  "not illegal"  for Alaskans  to                                                            
purchase  tobacco products  out-of-State or  via the Internet,  this                                                            
situation  does allow  those people  to avoid paying  the State  tax                                                            
imposed  on those  products and,  thereby, she  continued,  reducing                                                            
revenue to  the State as  well as diverting  those sales from  local                                                            
retailers.                                                                                                                      
                                                                                                                                
Ms. Bales  shared that  the primary reason  the Department  supports                                                            
this amendment is the fact  that since the Tobacco Master Settlement                                                            
Agreement  (MSA)  was approved,  there  has been  an  influx of  new                                                            
businesses introducing  such things as "'little cigars' which do not                                                            
meet the  definition of  cigarettes for  tax purposes." Continuing,                                                             
she noted that  while these products  could meet the definition  for                                                            
MSA payments,  they would not qualify  unless the State were  to tax                                                            
them.  Those  tobacco  manufacturers   who  did  not  sign  the  MSA                                                            
agreement, she explained,  agreed upon this tax condition guideline.                                                            
She  displayed a  product  that is  currently  being  offered as  "a                                                            
substitute for  cigarettes," and she noted that while  it looks like                                                            
a cigarette in that it  is filtered, machine made, and smoked like a                                                            
cigarette,  it is  less expensive  and  non-taxable  because, it  is                                                            
"wrapped  in tobacco  and not in  paper." Therefore,  she  stressed,                                                            
while the intent of this  legislation is to increase prices in order                                                            
to  encourage  people  to quit  smoking,  that  objective  is  being                                                            
circumvented by  products such as this that "are becoming  much more                                                            
prevalent."                                                                                                                     
                                                                                                                                
Ms. Bales stated  that someone could purchase these  "little cigars"                                                            
over the Internet  for approximately ten to twenty  dollars a carton                                                            
less than cigarettes.  She voiced  that the Department is  concerned                                                            
as it  has  observed that  these products  are  replacing  cigarette                                                            
usage.  She  disclosed  that  a similar  brand  called  "Prime  Time                                                            
Cigarettes,"  which is sold in the  State as a cigar, is  advertised                                                            
on its  website as  being "just  like a cigarette."  She also  noted                                                            
that  roll-your-own  tobacco kits  are available  in  the State  for                                                            
approximately  $26 including the other  Tobacco Products  tax (OTP).                                                            
These  kits,  she   attested,  allow  someone  to   make  their  own                                                            
cigarettes at a significantly  lower price than were one to purchase                                                            
a pack of cigarettes. She  noted that the kit could be purchased via                                                            
the Internet  for $15. This  purchase, she  continued, would  not be                                                            
subject  to  the   State  tax  as  tobacco  products   imported  for                                                            
individual  consumption are currently  legally exempt from  the tax.                                                            
She attested  that new products are  continually being developed  to                                                            
circumvent  the tax,  and she  attested  that the  only method  with                                                            
which  to address  this  trend "is  to  make individuals  who  bring                                                            
products  into  the  State  for  personal  consumption,  liable  for                                                            
taxes."                                                                                                                         
                                                                                                                                
Senator Bunde asked whether  this amendment would apply to smokeless                                                            
tobacco.                                                                                                                        
                                                                                                                                
Ms. Bales verified that it would.                                                                                               
                                                                                                                                
Co-Chair  Green asked  whether all  the language  in Section  10, as                                                            
specified in the amendment, is new language.                                                                                    
                                                                                                                                
Ms. Bales responded that  not all of the language in that section is                                                            
new. She clarified  that the language  in the section applying  to a                                                            
$25 buyer license  is new in that  it would require those  who would                                                            
import other tobacco  products for personal consumption  to purchase                                                            
a buyer  license.  She stated  that  currently this  requirement  is                                                            
limited to  people who import cigarettes  for personal consumption.                                                             
                                                                                                                                
Co-Chair  Green   questioned  the  reason  for  this   change  being                                                            
presented  in  the   amendment  in  this  format  rather   than  the                                                            
traditional  manner of  deleting or  adding language  into  existing                                                            
wording. That  method, she attested, makes new language  more easily                                                            
identifiable.                                                                                                                   
                                                                                                                                
Ms. Bales  further pointed  out that new  language in the  amendment                                                            
includes  "or  as a  buyer  if the  person  engages in  an  activity                                                            
described  in  AS  43.50.300(4)"  which  is  the  section  regarding                                                            
importation  of a  tobacco  product  for personal  consumption  that                                                            
would be inserted were this amendment adopted.                                                                                  
                                                                                                                                
Ms. Bales  continued  that subsection  (c) of  the amendment,  which                                                            
pertains  to the  $25 buyer  license  fee, is  a new  section as  is                                                            
subsection (g) that refers to license renewal.                                                                                  
                                                                                                                                
Co-Chair Green commented  that were the entire section new language,                                                            
she  would  have  required  a  line-by-line   review;  however,  she                                                            
continued,  as the new sections are  limited, this discussion  would                                                            
suffice.                                                                                                                        
                                                                                                                                
Senator Hoffman inquired  to the cost of implementing subsection (c)                                                            
of the amendment.                                                                                                               
                                                                                                                                
Ms. Bales understood  that the costs  would be "very minimal".  Upon                                                            
further  questioning from  Senator  Hoffman, she  stated that  there                                                            
would  be  no  additional  expense  associated   with  the  section,                                                            
because, she continued,  no one has of yet purchased a buyer license                                                            
to import  cigarettes for  personal consumption.  This is the  case,                                                            
she attested,  because when the cost of the license  is factored in,                                                            
most people decide to purchase from an in-State distributor.                                                                    
                                                                                                                                
Senator  Hoffman  asked how  someone  would be  aware  that a  buyer                                                            
license would be required.                                                                                                      
                                                                                                                                
Ms.  Bales  responded  that  the Department  would  be  required  to                                                            
educate the public regarding this requirement.                                                                                  
                                                                                                                                
Senator Hoffman asked for  confirmation that the expenses associated                                                            
with  the education  process  to include  the  application  process,                                                            
advertising, and enforcement, would incur minimal expense.                                                                      
                                                                                                                                
Ms.  Bales responded  that  while  there  would be  some  additional                                                            
enforcement   required  where   the  other   tobacco  products   are                                                            
concerned,  the Department  does not  feel that  additional  funding                                                            
would  be necessary  as  these things  are  currently  in place  for                                                            
cigarettes.                                                                                                                     
                                                                                                                                
Senator Hoffman  stated that while the expenses would  be minimal in                                                            
comparison to the projected  $35 million in new revenue that the tax                                                            
would  raise,  he  could  not  agree  that   the  expense  would  be                                                            
considered  minimal  to  the  Senate  Finance   Committee,  who,  he                                                            
attested  has argued  over  $35,000  amounts. Therefore,  he  stated                                                            
there  is concern  regarding  how much  money would  be required  to                                                            
implement this requirement.                                                                                                     
                                                                                                                                
Co-Chair  Wilken understood  the expense to  range from "minimal  to                                                            
zero." Continuing, he stated  that a more detailed fiscal note could                                                            
be developed, as the bill  progresses, were the concern to continue.                                                            
                                                                                                                                
Co-Chair Green removed her objection.                                                                                           
                                                                                                                                
Senator Olson understood  that the alternate products exampled would                                                            
be subject to the tax were Amendment #2 adopted.                                                                                
                                                                                                                                
Ms.  Bales  affirmed.  She stated  that  while  these  products  are                                                            
currently taxable when  purchased in the State, this amendment would                                                            
ensure that they would  be subject to the tax when imported into the                                                            
State.                                                                                                                          
                                                                                                                                
There being no further objection, Amendment #2 was ADOPTED.                                                                     
                                                                                                                                
          AS 43.50.330. Returns. (a) On or before the last day of                                                               
     each calendar  month, a licensee  shall file a return  with the                                                            
     department.  The  return must  state  the number  or amount  of                                                            
     tobacco products  sold or imported for personal  consumption by                                                          
     the licensee  during the preceding calendar month,  the selling                                                            
     or purchase  price of the tobacco  products, and the  amount of                                                          
     tax imposed on the tobacco products.                                                                                       
                                                                                                                                
Co-Chair Green  asked whether language in Sec. 11,  AS 43.50.330 (a)                                                            
on page  three, line  seven, specifically  means  that the  products                                                            
being imported would be for the licensee's personal consumption.                                                                
                                                                                                                                
Ms.  Bales  responded that  were  a  licensee  to import  items  for                                                            
personal consumption, they  would be required to report the quantity                                                            
and  value of  the  product imported  in  order for  the  tax to  be                                                            
calculated.  She stated  that a  licensee who  imports products  for                                                            
resale would also be required to report this information.                                                                       
                                                                                                                                
Co-Chair Green  asked for verification that there  are licensees who                                                            
import only for personal consumption.                                                                                           
                                                                                                                                
Ms. Bales responded that  there have been people, "in the past under                                                            
the cigarette  tax," who were licensed in this regard;  however, she                                                            
reiterated,  once they realized  that paying  the tax increased  the                                                            
price to  a comparable  level at  which they could  buy it  locally,                                                            
they did not renew their licenses.                                                                                              
                                                                                                                                
Co-Chair Green  asked for further  explanation regarding  the report                                                            
individual licensees must file.                                                                                                 
                                                                                                                                
Ms. Bales stated that all  licensees "are required to file a monthly                                                            
return and report your  activity of importation of product for sale,                                                            
and in this  case, for personal consumption."  She stated  that this                                                            
language  "mirrors"  the existing  requirements  for  cigarette  tax                                                            
licensees.  She furthered  that these returns  are required  because                                                            
they provide information  necessary to determine the tax that should                                                            
be remitted to the Department.                                                                                                  
                                                                                                                                
Amendment #3:  This amendment would  insert a new bill section  into                                                            
the bill on page three, following line 30 as follows.                                                                           
                                                                                                                                
     Sec. 11. AS 43.50.550(b) is amended to read:                                                                               
          (b) A licensee who submits an application for the                                                                     
     purchase  of stamps  on a  deferred-payment  basis shall,  as a                                                          
     condition   of  approval  of  the  application,   post  a  bond                                                          
     acceptable to the department in an amount equal to                                                                         
                (1) 200 percent of the maximum dollar amount of                                                               
     allowed monthly purchases under this section; or                                                                           
                (2) 100 percent of the maximum dollar amount of                                                               
     allowed  monthly purchases under  this section if the  licensee                                                          
                     (A) holds a license issued under AS 43.50.010                                                            
     for a physical location in this state; and                                                                               
                     (B) has been in full compliance with the                                                                 
     provisions  of this  title and regulations  adopted under  this                                                          
     title  during  the preceding  60  months [  AS  A CONDITION  OF                                                          
     APPROVAL OF THE APPLICATION].                                                                                              
                                                                                                                                
     New Text Underlined  [DELETED TEXT BRACKETED]                                                                            
                                                                                                                                
Co-Chair  Wilken  moved  for  the  adoption  of  the  amendment  and                                                            
objected for discussion.  He stated that Members' packets contain an                                                            
April  4, 2004  letter  [copy on  file] he  had received  from  Mike                                                            
Elerding,  an  operator  of  a  wholesale  distribution  company  in                                                            
Ketchikan,   who,  he  noted,  has   assisted  "in  defining"   this                                                            
legislation and who would  be commenting on how some of the proposed                                                            
amendments would effect the business community.                                                                                 
                                                                                                                                
Ms. Bales explained  the amendment in that, under  current law, when                                                            
a licensee  such  as a  wholesale  distributing  company,  purchases                                                            
cigarette tax stamps, they  have the option of either paying for the                                                            
stamps upfront  and thereby  eliminating the  requirement to  post a                                                            
bond or they could  defer payment to the end of the  following month                                                            
in which  they purchased  the tax  stamp. In this  latter case,  she                                                            
continued,  it is required  that a bond equating  to 200 percent  of                                                            
the amount  of the cigarette tax stamps  being purchased  be posted.                                                            
She  explained  that this  bonding  level  is required  because  two                                                            
month's worth  of cigarette  tax stamps could  be purchased  in this                                                            
scenario "before  the first payment  would be due." She stated  that                                                            
this 200-percent bond "is actually 100 percent of what you owe."                                                                
                                                                                                                                
Ms. Bales  noted that were  the cigarette  tax stamp rate  increased                                                            
there  is   concern  among  the  distributors   that  "the   bonding                                                            
requirement would  be difficult for them to obtain."  Therefore, she                                                            
noted, they  have requested  that the Department  lower the  bonding                                                            
requirement to 100 percent  of the amount being purchased. This, she                                                            
explained,  would  equate  "to 100  percent  of  one month  and  the                                                            
Department  would extend  credit to  them for the  purchase for  the                                                            
second month of cigarette tax stamps."                                                                                          
                                                                                                                                
Ms. Bales continued  that in order  for this scenario to  occur, the                                                            
licensee  would  be  required  "to  be in  good  standing  with  the                                                            
Department  for  the previous  five  years  and also  have  physical                                                            
presence in the State."  She concluded that the Department, "at this                                                            
time, is comfortable" with Amendment #3.                                                                                        
                                                                                                                                
Senator Olson asked regarding the cost of the bond.                                                                             
                                                                                                                                
MIKE  ELERDING,  President  and Owner,  Northern  Sales  Company  of                                                            
Alaska, responded  that a nine-month, one million  dollar bond costs                                                            
his company $3,500.  Continuing, he noted that rather  than the cost                                                            
being  a factor,  it is the  availability  of the bond  that is  the                                                            
issue as currently, he  noted, the insurance market is "a little bit                                                            
jittery about  Alaska in general and the availability  of bonding in                                                            
particular   for  in-State  distributors   is  difficult   to  get."                                                            
Therefore,  he summarized, were the  bonding requirement  to double,                                                            
the ability to secure a bond "would more difficult."                                                                            
                                                                                                                                
Co-Chair Wilken removed his objection.                                                                                          
                                                                                                                                
There being no further objection, Amendment #3 was ADOPTED.                                                                     
                                                                                                                                
Amendment  #4: This amendment  inserts  ", as amended  by sec.  8 of                                                            
this Act," following "AS 43.50.190" on page eight, line 17.                                                                     
                                                                                                                                
In addition, this  amendment deletes, in Sec. 8 on  page eight, line                                                            
25, the language "no later  than 30 days after the effective date of                                                            
this Act" and  inserts "in six sequential monthly  installments. The                                                            
first installment  shall be paid not later than the  last day of the                                                            
month in which this Act takes effect."                                                                                          
                                                                                                                                
Co-Chair  Wilken  moved  for  the  adoption  of  Amendment  #4,  and                                                            
objected  for  explanation.  He  noted  that  this  amendment  would                                                            
address the floor tax.                                                                                                          
                                                                                                                                
Ms.  Bales  stated   that  SB  368,  Version  "A",   states  that  a                                                            
distributor  or retailer must conduct  an inventory on the  date the                                                            
bill becomes effective  and remit the difference between the new tax                                                            
rate  and the  old  tax  rate within  30  days  of that  date.  This                                                            
amendment,  she  noted, would  allow  those  entities  to remit  the                                                            
difference  in six monthly  installments in  order to alleviate  the                                                            
burden of one lump sum  cash payment. She stated that the Department                                                            
"is comfortable" with Amendment #4.                                                                                             
                                                                                                                                
Mr. Elerding noted that,  while the industry supports the amendment,                                                            
it would  prefer  that the  section of  the bill  pertaining to  the                                                            
floor  stock tax be  deleted. [NOTE:  The testifier's  reference  to                                                            
Section  25 is in  error as  there is  no Section  25 in Version  A;                                                            
however,  the floor  stock tax  is addressed  in Section  15 of  the                                                            
bill.] He acknowledged  that wholesalers and retailers did stockpile                                                            
cigarettes  in 1997  before the  State cigarette  tax was  increased                                                            
from $2.90 to ten dollars  per carton. However, he stated that since                                                            
that time, the cost of  cigarettes has escalated due to excise taxes                                                            
and the  cost of  goods as  well as  the fact  that cigarettes  have                                                            
increasingly  become a target  of counter  fitters and bootleggers.                                                             
These  circumstances,   he  continued,  have  resulted   in  tobacco                                                            
manufacturers  tightly controlling  "the distribution and  supply of                                                            
cigarettes  in the retail  trade." He shared  that due to  cigarette                                                            
supply constraints,  when his company recently opened  a facility in                                                            
Anchorage,  they were  unable to  acquire sufficient  quantities  of                                                            
cigarettes to meet demand.  Therefore, he concluded, the marketplace                                                            
is   different  from   that   experienced   in  1997,   as   tobacco                                                            
manufacturers are not "allowing  wholesalers and/or retailers to buy                                                            
additional product."  Therefore, he assured that the  opportunity to                                                            
stockpile would be difficult.                                                                                                   
                                                                                                                                
Mr.  Elerding  also  suggested  that  the  Legislature   approve  an                                                            
"immediate  or shortly  thereafter"  effective  date  were the  bill                                                            
enacted as,  he communicated, following  the bill's passage  in 1997                                                            
there was  a six to eight  month effective  date delay that  allowed                                                            
stockpiling  to occur. He  stated that an  immediate effective  date                                                            
would further negate the stockpiling concern.                                                                                   
                                                                                                                                
Mr.  Elerding  commented  that  the State  has  further  control  in                                                            
regards  to the  stockpiling concern  by the  fact that  it, as  the                                                            
seller  of the  tax  stamps, would  be  able to  monitor  suspicious                                                            
activity,  based on  the quantities  of stamps  being purchased.  He                                                            
disclosed  that as  a result  of the  1997 cigarette  tax  increase,                                                            
Alaska-based  distributors'  costs  of carrying  inventory  and  the                                                            
level of accounts receivables  increased by approximately one-third,                                                            
bonding requirements  increased, and  security on facilities  had to                                                            
be increased because cigarettes became a target of theft.                                                                       
                                                                                                                                
                                                                                                                                
SFC 04 # 88, Side B 09:58 AM                                                                                                    
                                                                                                                                
                                                                                                                                
Mr.  Elerding  requested  therefore  that  the floor  stock  tax  be                                                            
eliminated in  order to allow distributors "to gain  a little bit of                                                            
capital, to increase  our ability to carry the inventory,  carry the                                                            
receivables,   and  cover   the  other   costs."  He  characterized                                                             
distributors  as partners with  the State in  that they collect  the                                                            
excise tax, and he stressed  that elimination of the floor stock tax                                                            
would  enable  distributors   to continue   "to  be  strong,  viable                                                            
economic partners with the State."                                                                                              
                                                                                                                                
Co-Chair Wilken removed his objection.                                                                                          
                                                                                                                                
There being no further objection, Amendment #4 was ADOPTED.                                                                     
                                                                                                                                
Amendment  #5:  This  technical  amendment  proposes  the  following                                                            
changes.                                                                                                                        
                                                                                                                                
On page one, line  14, following "state" insert "who";  on page one,                                                            
line  14, following  "and", insert  "who";  on page  two, line  one,                                                            
following  "chapter" delete  ", must"  and insert  "shall"; on  page                                                            
two. Line three, delete  "distributions" and insert "distributions";                                                            
on page two, line  12, following "43.50.700," insert  "who"; on page                                                        
two, line 13,  following "and" insert  "who"; on page two,  line 26,                                                        
delete  "brings  or causes  to  be brought  cigarettes"  and  insert                                                            
"brings   cigarettes   or   causes    cigarettes   to   be   brought                                                        
[CIGARETTES]"; on page  three, line one delete "per cent" and insert                                                            
"percent  [PER  CENT]"; on  page  three,  line five,  following  "AS                                                          
43.50.010," delete  "but" and insert "and"; on page  three, line 24,                                                        
following  "stamps" insert  "."; on page  three, lines 24-25  delete                                                            
"[AND ALL RISKS  OF POSSIBLE LOSS OR DAMAGE WHILE  IN TRANSIT]."; on                                                            
page three,  line 30, following "them"  delete "." and insert  "[AND                                                          
ALL RISKS OF POSSIBLE LOSS OR DAMAGE WHILE IN TRANSIT]."                                                                        
                                                                                                                                
In addition, this amendment  changes the following language: on page                                                            
four, line five,  delete "(i)" and insert "(A)"; on  page four, line                                                        
seven delete "ii"  and insert "(B)"; on page four  line eight delete                                                        
"it" and insert  "the licensee"; on  page five, line 21 delete  "no"                                                        
and insert  "not"; on  page five,  line 28,  following "and"  insert                                                            
","; on  page five, line  29 following "forfeiture"  insert  ","; on                                                            
page five,  line 31 delete  "no" and insert  "a" and following  "is"                                                            
insert "not";  on page six, line 12 and line 14 delete  "had no" and                                                            
insert "did  not have"; on  page six, line  15 delete "had";  and on                                                            
page six, line 16, following "(A)" insert "had".                                                                                
                                                                                                                                
Furthermore, this amendment  changes the following language: on page                                                            
six, line 19 delete  the second occurrence of "to"  and insert "of";                                                            
on page six, line 22, following  "that" insert "the person"; on page                                                            
six, line 23 following  "I" delete "the person"; on  page six, lines                                                            
25 and 27 delete  "had no" and insert  "did not have"; on  page six,                                                            
line 28 delete  "had"; on page six, line 29, following  "(A)" insert                                                            
"had"; on  page six,  line 31 delete  "no" insert  "not a";  on page                                                            
seven, line  12, following  "43.50.650" insert  ","; on page  seven,                                                            
line 13 delete "the court";  on page seven, line 14 delete "and" and                                                            
following the second occurrence  of "section" insert "the court"; on                                                            
page  seven,  line  24, delete  "it"  and  insert  "the  vehicle  or                                                            
vessel"; on  page eight, line four  delete ","; on page eight,  line                                                            
eight delete  "As used in" and insert  "in"; on page eight,  line 17                                                            
following  "AS 43.50.190"  insert ",  as amended by  sec. 8  of this                                                            
Act,"; on page eight, line 25, delete "no" and insert "not"; and on                                                             
page eight, line 30 delete "heading" and insert "catchline".                                                                    
                                                                                                                                
Co-Chair Wilken moved for the adoption of technical Amendment #5.                                                               
                                                                                                                                
There being no objection, Amendment #5 was ADOPTED.                                                                             
                                                                                                                                
Amendment #6: This amendment inserts new bill sections on page                                                                  
eight, line nine that read as follows.                                                                                          
                                                                                                                                
     *Sec.  15. AS 43.50.710 is amended  to add a new subsection  to                                                            
     read:                                                                                                                      
          (e) Nothing in this section prohibits a manufacturer from                                                             
     offering promotions  to a wholesaler or a retailer provided the                                                            
     wholesale   promotion  is  the   same  for  all  participating                                                             
     wholesalers  and  the  retail promotion  is  the  same for  all                                                            
     participating retailers.                                                                                                   
     *Sec. 16. AS 43.50.770 is amended to read:                                                                                 
          In establishing the actual [BASIC} cost of cigarettes to                                                            
     a  wholesaler  or retailer,  the invoice  cost  [OR THE  ACTUAL                                                            
     COST]  of  cigarettes  purchased  at  a  forced,  bankrupt,  or                                                            
     closeout  sale, or other sale outside the ordinary  channels of                                                            
     trade may not be used.                                                                                                     
     *Sec. 17. AS 43.50.800 is repealed and reenacted to read:                                                                  
          (a) For purposes of AS 43.50.7104-43.50.849, actual cost                                                              
     is presumed to be                                                                                                          
          (1)  for wholesalers,  the presumptive  wholesale  cost as                                                            
          determined  by  the department  plus  the  costs of  doing                                                            
          business   which is  presumed  to  be  four  and  one-half                                                            
          percent  of the presumptive  wholesale cost; for  purposes                                                            
          of   this   section   presumptive    wholesale   cost   is                                                            
          manufacturer's  list price, less trade discounts, plus the                                                            
          full face value of all cigarette taxes;                                                                               
          (2)  for retailers,  the  presumptive retail  cost is  the                                                            
          presumptive   wholesale  cost  plus  the  costs  of  doing                                                            
          business  which  is  presumed  to be  six percent  of  the                                                            
          presumptive wholesale cost.                                                                                           
          (b)(1)  A  wholesaler  or  retailer  shall  request  prior                                                            
          approval  from the department to establish  an actual cost                                                            
          that  is less than  presumed in (a)  of this section.  The                                                            
          department  may grant such approval only upon provision of                                                            
          proof   satisfactory  to  the  department   regarding  the                                                            
          wholesaler's  or retailer's presumptive costs set forth in                                                            
          (a)  of this section. Approval for cigarette sales at less                                                            
          than  the actual cost authorized under this subsection may                                                            
          not be granted for a period longer than one year.                                                                     
          (2)  In making  the determinations  under this  subsection                                                            
          the department                                                                                                        
                (i) with respect to  the presumptive wholesale  cost                                                            
                or presumptive retail  cost, may consider  the costs                                                            
                reflected  on  the  actual  invoice,   but  may  not                                                            
                consider cash discounts;                                                                                        
                (ii) with respect to the wholesaler's  or retailer's                                                            
                presumed costs of  doing business, may consider  the                                                            
                standards  and  methods   of  accounting   regularly                                                            
                employed,  and  must  include  labor  costs,  rents,                                                            
                depreciation,   selling   costs,    maintenance   of                                                            
                equipment, delivery  costs, all  types of  licenses,                                                            
                taxes, insurance, advertising,  preopening expenses,                                                            
                provision  for impaired  assets and  closing  costs,                                                            
                interest  expense,  and  provision  for  merger  and                                                            
                restructuring   expenses.   The   department   shall                                                            
                implement regulations to determine  the wholesaler's                                                            
                and retailer's costs of doing  business for purposes                                                            
                of this section.                                                                                                
     *Sec. 17. AS 43.50.790(a) (3), and AS 43.50.849(1), (6), and                                                               
     (7) are repealed.                                                                                                          
                                                                                                                                
Co-Chair  Wilken  moved  for  the  adoption  of  Amendment  #6,  and                                                            
objected for explanation.  He stated that this amendment pertains to                                                            
minimum pricing.                                                                                                                
                                                                                                                                
Ms.  Bales  characterized  minimum  pricing "as  a  very  convoluted                                                            
issue." She  stated that,  in 2003, the Legislature  adopted  SB 168                                                            
that was sponsored by Senator  Bunde and specified that distributors                                                            
and retailers  could not sell cigarettes  in the State, below  cost.                                                            
This amendment,  she noted, attempts to refine that  bill's language                                                            
and address issues  that the Department of Revenue  and the industry                                                            
have identified  since that bill became  effective. Continuing,  she                                                            
shared  that  SB  168 directed  the  Department  to  post  on  their                                                            
Internet  website a  minimum wholesale  and retail  cigarette  price                                                            
"based on the  manufacturer's list  price less any trade  discounts"                                                            
that  a  manufacturer   provides  to  all  their  wholesalers.   The                                                            
resulting  amount,  she continued,  is then  multiplied  by cost  of                                                            
doing business factor of  4.5 percent for wholesalers or six percent                                                            
for retailers.  In conclusion, she noted that were  a distributor or                                                            
retailer  to sell cigarettes  at the website's  posted prices,  they                                                            
would not  be in violation  of the law. In  lieu of selling  at that                                                            
price,  she  continued,  a distributor  or  retailer  could  provide                                                            
information  indicating that  their cost of  doing business  is less                                                            
than  the  level  used  by  the  Department.  She  stated  that  the                                                            
Department's issue  with the current language is that  a business is                                                            
not required  to obtain approval to  sell at a price lower  than the                                                            
posted price.  This amendment,  she declared  would require  that an                                                            
entity receive  prior approval  from the  Department before  selling                                                            
product at  a lower price. She noted  that the amendment  would also                                                            
disallow  the  "customary  discounts   for  cash"  factor  from  the                                                            
calculation.  She noted that 65 percent  of the 25 states  that have                                                            
minimum pricing  laws do not allow  customary discounts for  cash in                                                            
their determination.                                                                                                            
                                                                                                                                
Ms. Bales expressed  that the price regulation serves  to maintain a                                                            
high  price on  cigarettes,  which,  she  noted, would  support  the                                                            
overall goal  of reducing  smoking. In addition,  she declared  that                                                            
the minimum  pricing component also  provides an even playing  field                                                            
for distributors.  She concluded that the Department  is comfortable                                                            
with the amendment.                                                                                                             
                                                                                                                                
Senator Bunde voiced support  for the amendment as he stated that it                                                            
would allow small  retailers to compete with large  national stores.                                                            
                                                                                                                                
Mr. Elerding voiced  support for the amendment and  acknowledged the                                                            
efforts of  the Department of Law  and the Department of  Revenue in                                                            
developing the appropriate  language. He agreed with Senator Bunde's                                                            
comments and noted  that allowing cigarette prices  to be lowered as                                                            
an  incentive  to  increase  purchases  would  be  contrary  to  the                                                            
Governor's  intent and the State's  efforts to decrease consumption                                                             
by raising the  price, as furthered in SB 368. Therefore,  he voiced                                                            
strong support for the amendment.                                                                                               
                                                                                                                                
Co-Chair  Green asked  whether other  products are  subject to  this                                                            
sort of arrangement.                                                                                                            
                                                                                                                                
Ms.  Bales  affirmed  that  this  particular  statute  does  address                                                            
cigarettes,  however,  she  was unaware  as  to whether  "there  are                                                            
specific  laws that target  other specific  products." However,  she                                                            
noted that  the State  does have  an unfair  trade practice  statute                                                            
that specifies that no  commodity could be sold at a price "with the                                                            
intent to injure competition."                                                                                                  
                                                                                                                                
Co-Chair Wilken removed his objection.                                                                                          
                                                                                                                                
There being no further objection, Amendment #6 was ADOPTED.                                                                     
                                                                                                                                
Mr. Elerding referred Amendment  #2, and declared that the amendment                                                            
would serve to  close an existing loophole through  which an out-of-                                                            
State entity  could sell  products to Alaskans  much cheaper  than a                                                            
licensed  entity such as  his would  be able to  sell it due  to the                                                            
fact that un-licensed,  out-of-state  entities are not be  obligated                                                            
to pay the Alaska  tax. The amendment therefore, he  attested, would                                                            
allow Alaskan  businesses to compete  on a level playing  field with                                                            
out-of-state  distributors who are  not otherwise subject  to Alaska                                                            
tax. He voiced strong support for Amendment #2.                                                                                 
                                                                                                                                
Mr. Elerding  also commented that,  under current law, a  person who                                                            
imports 100 cigarettes  or less per month is exempt  from the excise                                                            
tax.  He concurred  that this  is a  sufficient  quantity. He  noted                                                            
however,   that  there  has   been  discussion   in  the  House   of                                                            
Representatives'  companion  bill to  SB 368 that  would raise  this                                                            
"incidental"  limit to  600. This  he communicated  would equate  to                                                            
three cartons. He stated  that the industry views this as setting as                                                            
"very dangerous  precedent,"  as allowing  the consumer to  purchase                                                            
that quantity, exempt from  the State tax, would serve to defeat the                                                            
purpose  of the  bill  as people  would  purchase quantity  via  the                                                            
Internet  and/or  buy cigarettes  directly.  He clarified  that  the                                                            
House bill does contain  language that would require the consumer to                                                            
personally  transport  the product  from out-of-state  to  in-State;                                                            
however, he warned that  "a liberal interpretation of this language"                                                            
might result  in a  broadening scope  of the  consumer's ability  to                                                            
import those  products. He urged strong  language to be included  to                                                            
clarify that  component if it were  adopted. He also urged  that the                                                            
current limit of 100 cigarettes be maintained.                                                                                  
                                                                                                                                
Amendment #7: This amendment  deletes Sec.13 on page four, lines 24-                                                            
27. The language being deleted reads as follows.                                                                                
                                                                                                                                
     Sec. 13. AS 43.50.610  is amended be adding a new subsection to                                                            
     read:                                                                                                                      
          (b) Cigarettes seized under AS 43.50.500 - 43.580.700 are                                                             
     forfeited  to the state. After notice and an  opportunity for a                                                            
     hearing,   the  commissioner   shall  destroy  the   cigarettes                                                            
     forfeited under this section.                                                                                              
                                                                                                                                
In addition,  on page four, line 28,  "AS 43.50.620 is repealed  and                                                            
reenacted"  is deleted  and replaced  with "AS 43.50  is amended  by                                                            
adding a  new section"; on  page four, line  29, "Sec.43.50.620"  is                                                            
deleted and replaced  with "Sec. 43.50.625"; on page  four, line 30,                                                            
"if" is deleted;  and on page four,  lines 30 and 31, "would  not be                                                            
entitled to remission, they" is deleted.                                                                                        
                                                                                                                                
Finally,  the amendment  deletes Section  16, in  its entirety.  The                                                            
language being  deleted in located  on page eight, lines  27 through                                                            
31 and reads as follows.                                                                                                        
                                                                                                                                
     Sec. 16.  The uncodified law of the State of  Alaska is amended                                                            
     by adding a new section to read:                                                                                           
          REVISOR'S INSTRUCTION. The revisor of statutes is                                                                     
     instructed   to  change  the  heading  of  AS  43.50.610   from                                                            
     "Unstamped   cigarettes as contraband;  seizure" to  "Unstamped                                                            
     cigarettes as contraband; seizure; forfeiture."                                                                            
                                                                                                                                
Co-Chair Wilken moved for  the adoption of Amendment #7 and objected                                                            
for explanation.                                                                                                                
                                                                                                                                
Co-Chair  Wilken  noted  that  this  amendment   is  recommended  by                                                            
Legislative  Legal  Services  in order  to  clarify  the  forfeiture                                                            
section of the  bill in order to make it easier to  read and conform                                                            
to Alaska statutes. He  noted that the Department of Revenue has not                                                            
had an opportunity to review this amendment.                                                                                    
                                                                                                                                
Therefore, Co-Chair  Wilken offered to withdraw the  motion in order                                                            
to provide the  Department of Revenue time to review  the amendment.                                                            
                                                                                                                                
There being no objection, Amendment #7 was WITHDRAWN.                                                                           
                                                                                                                                
Amendment  #8: This amendment  adds intent  language to the  bill as                                                            
follows.                                                                                                                        
                                                                                                                                
     It is the intent of Legislature that twenty percent of the                                                                 
     funds collected under this legislation is allocated to                                                                     
     education/cessation programs.                                                                                              
                                                                                                                                
Senator Hoffman moved for  the adoption of Amendment #8 and objected                                                            
for explanation.                                                                                                                
                                                                                                                                
Senator  Hoffman  stated  that  during  the first  hearing  on  this                                                            
legislation,   it  was   noted  that  the   Administration   opposes                                                            
additional funding  for cessation programs. However,  he stated that                                                            
were  the  Legislature   "to  really  be  interesting   in  lowering                                                            
consumption  of  cigarettes,  we need  to put  our money  where  our                                                            
mouths are." He acknowledged  that the Committee has heard testimony                                                            
stating that increasing  the price of cigarettes would  result in "a                                                            
drastic  reduction in cigarette  consumption."  However, he  pointed                                                            
out that the "Cigarette  Importation FY 1996 - FY 2002 and Cigarette                                                            
Stockpiling in FY 1998"  chart [copy on file] depicts that while the                                                            
quantities  initially decreased,  the amount  has continued  to rise                                                            
since that  time as  people who tried  to stop  smoking or tried  to                                                            
limit their  smoking due to the expense,  failed and began  to smoke                                                            
again.                                                                                                                          
                                                                                                                                
Senator Hoffman  also stated that  people stockpiling cigarettes  in                                                            
anticipation of  the tax increase in 1997, was also  a factor in the                                                            
chart's numbers.  Continuing, he declared that while  price might be                                                            
a determent,  such things as advertising  campaigns must  be used to                                                            
reinforce  people's decisions  to  refrain from  smoking. He  stated                                                            
that  this amendment  "is intent  language  only" in  that it  would                                                            
specify the  intent to use a portion  of the revenue for  education,                                                            
and would not  be required to be a  component of the law.  He opined                                                            
that  the  students  in "Project  Citizen"  desire  this  course  of                                                            
action.  Therefore,  he  stated that  rather  than  just  increasing                                                            
revenue, the Legislature  should use that revenue "to really have an                                                            
impact on the reduction of cigarette consumption."                                                                              
                                                                                                                                
Co-Chair  Green voiced  her objection  to the  amendment by  stating                                                            
that she has "witnessed"  the end result of other  "intent languages                                                            
that have been  added to taxation on various products."  She stated,                                                            
"that it ends  up being the expectation,  and the campaign,  and the                                                            
entire  conversation  that  goes on  from  that time  forward."  She                                                            
stressed  that  Legislators  "have  a  huge  task,  every  year"  of                                                            
determining  a budget  based  on priorities,  and  furthermore,  she                                                            
continued,  "while  some  might  personally   feel  that  a  tobacco                                                            
education program"  is important, "it is not the only  thing that we                                                            
need to consider."  She also voiced  being "conflicted" in  that the                                                            
aforementioned  chart  "could  be  interpreted  in many  ways."  She                                                            
stated, therefore, that  were the price of tobacco a critical factor                                                            
in affecting a  person's behavior, and were the educational  efforts                                                            
of the Alaska Tobacco Alliance  and other entities being successful,                                                            
then the chart  should reflect a continuing decline  and the need to                                                            
fund further advertising campaigns should be diminishing.                                                                       
                                                                                                                                
Co-Chair Green  stated that "the hope" of a tax increase  is that it                                                            
would  cause people  to  buy  less tobacco  and  therefore,  "change                                                            
behavior."  She asked  whether any  calculations  have been done  to                                                            
support this position.                                                                                                          
                                                                                                                                
Ms. Bales stated  that Senator Hoffman has interpreted  the chart is                                                            
a manner which was not  intended. She stated that the chart has been                                                            
provided to reflect  what monthly average consumption  has been from                                                            
1997 through  2003 in that it indicates  that consumption  is higher                                                            
in  the summer  months  than  other  months.  The graph  lines,  she                                                            
continued, portray  the difference incurred by the  tax increase and                                                            
the stockpiling  activity. She stated that, "the chart  was prepared                                                            
to support  the Department's  position  that we  would like a  floor                                                            
stock tax so  that the State," rather  than the distributors,  would                                                            
benefit from receipt of the tax on floor stock.                                                                                 
                                                                                                                                
Ms. Bales stated that another  chart titled "Alaska Reported Taxable                                                            
Cigarettes" [copy on file]  has been provided that reflects that the                                                            
tax  implemented in  1997  has resulted  in 22-percent  decrease  in                                                            
taxable cigarettes  consumed in the  State. She informed  that it is                                                            
anticipated  that this  proposed  tax increase  would  result in  an                                                            
additional  eight-to-ten percent reduction.  She apologized  for the                                                            
confusion  associated  with  the first  chart  and stated  that  the                                                            
"Alaska  Reported  Taxable  Cigarettes"  chart better  reflects  the                                                            
decline in consumption, by year.                                                                                                
                                                                                                                                
Co-Chair Green  asked for verification that the one-dollar  per pack                                                            
increase  would be  expected to  result in  a further  eight to  ten                                                            
percent decrease  in consumption.  She suggested that the  Committee                                                            
amend this  bill to implement  an eight to  ten dollar per  pack tax                                                            
and call it a  punitive tax. She stated that she would  propose this                                                            
as Amendment #9.                                                                                                                
                                                                                                                                
Co-Chair  Wilken stated  that Co-Chair  Green's  amendment would  be                                                            
addressed upon conclusion of action on Amendment #8.                                                                            
                                                                                                                                
Senator Olson  voiced his  support of Amendment  #8. He stated  that                                                            
were the Legislature  to be serious about curbing  tobacco use, then                                                            
support of "effective" education programs should be continued.                                                                  
                                                                                                                                
Senator  Hoffman removed  his  objection.  He noted  that while  the                                                            
adoption of  this amendment and the  spending of money on  cessation                                                            
programs  might  negate  the  ability to  generate  $35  million  as                                                            
reflected  in the  fiscal  notes, the  "underlying  motive" of  this                                                            
legislation is to stop  people from smoking cigarettes and smokeless                                                            
tobacco;  specifically to  prevent "newcomers"  from joining  in the                                                            
smoking arena.  He urged the members "to adopt these  words that are                                                            
not law."                                                                                                                       
                                                                                                                                
Co-Chair Wilken  objected to the amendment  for sake of discussion.                                                             
                                                                                                                                
Senator  B. Stevens  asked  how much  money  is currently  spent  on                                                            
cessation efforts.                                                                                                              
                                                                                                                                
Ms.  Bales responded  that  currently  "20  percent of  the  Tobacco                                                            
Master Settlement  agreement payments  go the Tobacco Use  Education                                                            
and Cessation  Fund." She stated that this equates  to approximately                                                            
$5  million  per  year.  She  voiced  the  understanding   that  the                                                            
Department  of Health  and  Social Services  and  the United  States                                                            
Social  Services   have  estimated  that  the  State   should  spend                                                            
approximately $8 million each year on these efforts.                                                                            
                                                                                                                                
Senator  B.  Stevens asked  for  confirmation  that  currently  five                                                            
million  dollars  is spent  and  that the  national  and  Department                                                            
recommendation is that eight million be spent.                                                                                  
                                                                                                                                
Ms. Bales concurred, and  furthered that this is the level suggested                                                            
by the Center for Disease Control (CDC).                                                                                        
                                                                                                                                
Senator  B.  Stevens asked  whether  that  number  is based  on  the                                                            
State's population and the level of cigarette sales.                                                                            
                                                                                                                                
Ms. Bales replied that it is.                                                                                                   
                                                                                                                                
Senator B.  Stevens whether  this "would be  an additional  seven to                                                            
the five."                                                                                                                      
                                                                                                                                
Senator Hoffman affirmed  and further argued that were the State "to                                                            
be at the  upper end of  the taxation level,"  it should also  be at                                                            
the upper end of the efforts to curb smoking.                                                                                   
                                                                                                                                
Co-Chair Green recalled  that, "the greatest expense the State bears                                                            
currently is in  the Medicaid arena, in the funds  that are paid" to                                                            
support  of health  care and  assistance  for those  who smoked  "in                                                            
their earlier  life." She asserted,  "we spend more than  20 percent                                                            
of our budget, in total…in that one line item. "                                                                                
                                                                                                                                
Co-Chair  Green stated  that  the Department  of  Health and  Social                                                            
Services does  not support the level  of funding recommended  by the                                                            
CDC.                                                                                                                            
                                                                                                                                
Senator Olson  asked for confirmation that the eight  million dollar                                                            
recommendation was issued by the CDC.                                                                                           
                                                                                                                                
Ms.  Bales affirmed  and  stated that  it is  presented  on the  CDC                                                            
website.                                                                                                                        
                                                                                                                                
Senator  Olson noted  that,  contrary to  this information,  he  had                                                            
received information  from the American Cancer Society  that the CDC                                                            
has recommended $16 million  be spent. He noted that currently $4.89                                                            
million is spent on cessation programs.                                                                                         
                                                                                                                                
EMILY  NENON,  Alaska Advocacy  Manager,  American  Cancer  Society,                                                            
testified via  teleconference from  Anchorage, and stated  that "the                                                            
CDC  recommends  a minimum  level  of funding  for  a comprehensive                                                             
tobacco  control  program in  Alaska  to be  $8.1 million"  with  an                                                            
optimum level  to be $16.5 million.  She stressed that the  American                                                            
Cancer Society "recognizes  that the tobacco tax has value in and of                                                            
itself."  [NOTE:  Due  to  coughing,  her  remaining   remarks  were                                                            
indiscernible.]                                                                                                                 
                                                                                                                                
Senator Bunde  stated that while recognizing that  letters of intent                                                            
usually have a  short life span per the administrations'  historical                                                            
record in this  regard, there has  been "considerable discussion  in                                                            
the past as to how much  money Alaska's various health organizations                                                            
could  absorb and  use productively."  He opined  that this  concern                                                            
should  be part of  the funding  equation. He  also echoed  Co-Chair                                                            
Green's comments regarding  "the major cost" incurred to the State's                                                            
Medicaid program as a result  of smoking, and communicated that this                                                            
is his typical  response to  people who say  that they are  an adult                                                            
engaging in a  legal activity. He stated that his  argument would be                                                            
"disarmed"  were someone  to  indemnify the  State  from the  health                                                            
costs incurred  by use of tobacco. However, were this  not to occur,                                                            
he continued,  this  letter of intent  would probably  have a  short                                                            
life  span  and  frequent  arguments  would  continue  in  favor  of                                                            
providing the Legislature  with sufficient budgeting flexibility "to                                                            
address issues  as they ebb and flow" in the State.  He concluded by                                                            
stating that  he is not in favor of  the letter of intent  even were                                                            
it to have a longer life span that one usually has.                                                                             
                                                                                                                                
Senator Hoffman  acknowledged that the State does  receive money and                                                            
funds for  tobacco cessation;  however, he  continued some  of those                                                            
funds are used  by the Department  of Health and Social Services  to                                                            
address smoking  related illnesses. He noted that  the line item for                                                            
tobacco prevention control  in the House of Representatives proposed                                                            
FY 05 budget is  $4.424 million, and the Senate's  is $4.58 million.                                                            
These numbers,  he calculated are  at the fifty percent mark  of the                                                            
DCD recommendation  of $8.8  million and  25-percent of the  optimum                                                            
$16 million  level. He reiterated  that were the Legislature  "truly                                                            
interested in deterring  smoking," this amendment should be adopted.                                                            
                                                                                                                                
A roll call was taken on the motion.                                                                                            
                                                                                                                                
IN FAVOR: Senator Olson, Senator B. Stevens, and Senator Hoffman                                                                
                                                                                                                                
OPPOSED: Senator Bunde, Co-Chair Green, and Co-Chair Wilken                                                                     
                                                                                                                                
ABSENT: Senator Dyson                                                                                                           
                                                                                                                                
The motion FAILED (3-3-1)                                                                                                       
                                                                                                                                
Amendment #8 FAILED to be adopted.                                                                                              
                                                                                                                                
Amendment #7: This amendment  deletes Sec.13 on page four, lines 24-                                                            
27. The language being deleted reads as follows.                                                                                
                                                                                                                                
     Sec. 13. AS 43.50.610 is amended be adding a new subsection to                                                             
     read:                                                                                                                      
          (b) Cigarettes seized under AS 43.50.500 - 43.580.700 are                                                             
     forfeited  to the state. After notice and an  opportunity for a                                                            
     hearing,   the  commissioner   shall  destroy  the   cigarettes                                                            
     forfeited under this section.                                                                                              
                                                                                                                                
In addition,  on page four, line 28,  "AS 43.50.620 is repealed  and                                                            
reenacted"  is deleted  and replaced  with "AS 43.50  is amended  by                                                            
adding a  new section"; on  page four, line  29, "Sec.43.50.620"  is                                                            
deleted and replaced  with "Sec. 43.50.625"; on page  four, line 30,                                                            
"if" is deleted;  and on page four,  lines 30 and 31, "would  not be                                                            
entitled to remission, they" is deleted.                                                                                        
                                                                                                                                
Finally,  the amendment  deletes Section  16, in  its entirety.  The                                                            
language being  deleted in located  on page eight, lines  27 through                                                            
31 and reads as follows.                                                                                                        
                                                                                                                                
     Sec. 16.  The uncodified law of the State of  Alaska is amended                                                            
     by adding a new section to read:                                                                                           
          REVISOR'S INSTRUCTION. The revisor of statutes is                                                                     
     instructed   to  change  the  heading  of  AS  43.50.610   from                                                            
     "Unstamped  cigarettes  as contraband;  seizure" to  "Unstamped                                                            
     cigarettes as contraband; seizure; forfeiture."                                                                            
                                                                                                                                
Co-Chair  Wilken  noted  that   Amendment  #7,  having  to  do  with                                                            
forfeiture, is again before the Committee for consideration.                                                                    
                                                                                                                                
MIKE BARNHILL, Assistant  Attorney General, Commercial/Fair Business                                                            
Section,  Civil Division  (Juneau), Department  of Law, stated  that                                                            
this  amendment   addresses  some   drafting  issues  in   that  the                                                            
forfeiture  provision,  AS  43.56.20,  that  exclusively   addresses                                                            
cigarettes  was rolled  into 43.50.625.  Continuing,  he noted  that                                                            
Legislative  Council  suggests  that  that provision  remain  as  it                                                            
currently  is, and  therefore, he  contended,  this amendment  would                                                            
delete the language in  the bill that moves that section. He advised                                                            
that this would  be acceptable to  the Department of Law.  The other                                                            
language  being  addressed  in  this  amendment,  he  continued,  is                                                            
located  in  Section  14,  subsection   (j)  on  page  seven,  which                                                            
addresses  the  provision  of  forfeiture   "regarding  relief  from                                                            
mandatory  forfeiture."   He stated   that  Legislative  Council  is                                                            
suggesting  "minor word changes  that would  enhance the clarity  of                                                            
the statute." He stated  that the Department does not object to this                                                            
change.                                                                                                                         
                                                                                                                                
Mr. Barnhill  continued that the last  change proposed in  Amendment                                                            
#7 would  delete language  on page  eight of the  bill, which  would                                                            
instruct  the  reviser   to  rename  the  heading  from   "Unstamped                                                            
Cigarettes  as  Contraband   Seizure  to  Unstamped   Cigarettes  as                                                            
Contraband  Seizure/Forfeiture." He  stated that this is  conforming                                                            
language and that the Department is not opposed to this change.                                                                 
                                                                                                                                
Co-Chair  Green  asked  whether  Section  14, regarding   forfeiture                                                            
provisions, beginning on page four, line 28 is new language.                                                                    
                                                                                                                                
     Sec. 14. AS 43.50.620 is repealed and reenacted to read:                                                                   
          Sec. 43.50.620. Forfeiture of other property. (a) The                                                                 
     following are subject to forfeiture.                                                                                       
                (1) material and equipment used in the manufacture,                                                             
     sale,  offering  for  sale, possession   for sale,  barter,  or                                                            
     exchange of cigarettes  for goods and services in this state in                                                            
     violation of AS 43.50.500 - 43.50.700;                                                                                     
                (2) aircraft, vehicles, or vessels used to transport                                                            
     or facilitate  the transportation  of cigarettes manufactured,                                                             
     sold,  offered for  sale, possessed  for sale,  or bartered  or                                                            
     exchanged for goods  and services in this state in violation of                                                            
     AS 43.50.500 - 43.50.700;                                                                                                  
                (3) money, securities, negotiable instrument, or                                                                
     other  things of value used in  financial transactions  derived                                                            
     from activity prohibited under AS 43.50.500 - 43.50.700.                                                                   
          (b) Property subject to forfeiture under this section may                                                             
     be actually  or constructively seized under an  order issued by                                                            
     the superior  court upon a showing  of probable cause  that the                                                            
     property   is  subject  to  forfeiture   under  this   section.                                                            
     Constructive  seizure is effected upon posting  a signed notice                                                            
     of seizure  on the item to be forfeited, stating  the violation                                                            
     and  the date and  place of  seizure. Seizure  without a  court                                                            
     order may be made if                                                                                                       
                (1) the seizure is incident to a valid arrest or                                                                
     search;                                                                                                                    
                (2) the property subject to seizures is the subject                                                             
     of a prior judgment in favor of the state; or                                                                              
                (3) there is probable cause to believe that the                                                                 
     property  is subject to forfeiture  under (1) of this  section;                                                            
     property  seized under this paragraph  may be held for  no more                                                            
     than 48  hours unless an order  of forfeiture is issued  by the                                                            
     court before the end of that time period.                                                                                  
          (c) Within 30 days after a seizure under this section,                                                                
     the Department  of Public Safety shall make reasonable  efforts                                                            
     to  ascertain  the  identity  and  whereabouts  of  any  person                                                            
     holding  an interest,  or an  assignee of a  person holding  an                                                            
     interest,  in  the  property   seized,  including  a  right  to                                                            
     possession,   or  a  lien,  mortgage,   or  conditional   sales                                                            
     contract.  The Department  of  Public Safety  shall notify  the                                                            
     person ascertained  to have an interest in the  seized property                                                            
     of  the  impending   forfeiture,  and  before  forfeiture   the                                                            
     Department   of  Law  shall  publish,  once  a  week  for  four                                                            
     consecutive   calendar  weeks,   a  notice  of  the   impending                                                            
     forfeiture  in  a  newspaper  of  general  circulation  in  the                                                            
     judicial  district  in which  the seizure  was made,  or if  no                                                            
     newspaper  is  published   in  that  judicial  district,  in  a                                                            
     newspaper  published  in  the  state and  distributed  in  that                                                            
     judicial district.                                                                                                         
          (d) Property subject to forfeiture under (a) of this                                                                  
     section may be forfeited                                                                                                   
                (1) upon conviction of a person for a violation of                                                              
     AS 43.50.640 or 43.50.650; or                                                                                              
                (2) upon judgment by the superior court in a                                                                    
     proceeding  in  rem that  the  property was  used  in a  manner                                                            
      subjecting it to forfeiture under (a) of this section.                                                                    
          (e) The owner of property subject to forfeiture under (a)                                                             
     of this  section is entitled  to relief from the forfeiture  in                                                            
     the  nature of  remission of  the forfeiture  if, in an  action                                                            
     under (d) of this section, the owner shows that the owner                                                                  
                (1) was not a party to the violation;                                                                           
                (2) had no actual knowledge or reasonable cause to                                                              
     believe  that  the property  was  used  or was  to  be used  in                                                            
     violation of the law; and                                                                                                  
                (3) had no actual knowledge or reasonable cause to                                                              
     believe that the person committing the violation had                                                                       
                     (A) a criminal record for violating this                                                                   
     chapter; or                                                                                                                
                     (B) committed other violations of this chapter.                                                            
          (f) A person other than the owner holding, or the                                                                     
     assignee  of, a lien, mortgage,  or conditional sales  contract                                                            
     on,  or  the  right  to  possession   to  property  subject  to                                                            
     forfeiture  under  (a) of this  section is  entitled to  relief                                                            
     from  the  forfeiture   in  the  nature  of  remission  of  the                                                            
     forfeiture  if, in  an action  under (d) of  this section,  the                                                            
     persons shows that                                                                                                         
                (1) the person was not a party to the violation                                                                 
     subjecting the property to forfeiture;                                                                                     
                (2) had no knowledge or reasonable cause to believe                                                             
     that the person committing the violation had                                                                               
                     (A) a criminal record for violating this                                                                   
     chapter; or                                                                                                                
                     (B) committed other violations of this chapter;                                                            
          (g) It is no defense in an in rem forfeiture proceeding                                                               
     brought   under  (d)(2)  of   this  section  that  a   criminal                                                            
     proceeding   is pending   or  has resulted   in  conviction  or                                                            
     acquittal  of a person charged  with violating AS 43.50.640  or                                                            
     43.50.650.                                                                                                                 
          (h) Property forfeited under this section shall be placed                                                             
     in  the  custody  of the  commissioner  of  public  safety  for                                                            
     disposition  according to  an order entered  by the court.  The                                                            
     court shall  order destroyed any property forfeited  under this                                                            
     section  that is  harmful  to the  public and  shall order  any                                                            
     property  forfeited  under this  section that  was seized  in a                                                            
     municipality  to be  transferred to the  municipality  in which                                                            
     the property  was seized. Other property shall  be ordered sold                                                            
     and  the proceeds  used  for  payment of  the expenses  of  the                                                            
     proceeding  for  forfeiture  and sale,  including  expenses  of                                                            
     seizure,  custody,  and  court  costs.  The  remainder  of  the                                                            
     proceeds shall be deposited in the general fund.                                                                           
          (i) Upon conviction of a person for violation of AS                                                                   
     43.50.640  or 43.50.650 the court, if an aircraft,  vehicle, or                                                            
     vessel is subject  to forfeiture under (a) of this section, and                                                            
     subject  to remission to innocent  parties under this  section,                                                            
     shall order the forfeiture of                                                                                              
                (1) the aircraft to the state;                                                                                  
                (2) the vehicle or vessel to the state if the                                                                   
     defendant                                                                                                                  
                     (A) has a prior felony conviction for a                                                                    
     violation of AS 11.41;                                                                                                     
             (B) is on felony probation or parole; or                                                                           
                     (C) has a prior conviction for violation of AS                                                             
     43.50.640 pr 43.50.650.                                                                                                    
          (j) Notwithstanding (i) of this section, a court is not                                                               
     required to order  the forfeiture of a vehicle or vessel if the                                                            
     court determines that                                                                                                      
                (1) it is the sole means of transportation for a                                                                
     family residing in a village;                                                                                              
                (2) either                                                                                                      
                     (A) the members of the family would be entitled                                                            
     to remission under  this section if they were owners of or held                                                            
     security interests in the vehicle or vessel; or                                                                            
                     (B) if the members of the family would not be                                                              
     entitled  to remission, they were unable as a  practical matter                                                            
     to stop  the violation  of this chapter  making the vehicle  or                                                            
     vessel subject to forfeiture; and                                                                                          
                (3) the court can impose conditions that will                                                                   
     effectively  prevent  the  defendant's use  of  the vehicle  or                                                            
     vessel,                                                                                                                    
          (k) The title to a vehicle or vessel, forfeited to the                                                                
     state under  this section may be transferred  by the state to a                                                            
     municipality  or  the local  governing  body of  a village  for                                                            
     official use by the  municipality or village, on condition that                                                            
     the  vehicle  or  vessel  not  be  available  for  use  by  the                                                            
     defendant.                                                                                                                 
          (i) As used in this section, "village" means a community                                                              
     of  less than  1,000  persons located  off  the interconnected                                                             
     state road system.                                                                                                         
                                                                                                                                
Mr.  Barnhill  responded   that  Section  14  is  this  new  section                                                            
addressed by Legislative  Council. He stated that  existing language                                                            
regarding cigarettes, as  currently specified in AS 43.50.620, would                                                            
remain as is.                                                                                                                   
                                                                                                                                
Co-Chair Green  asked for clarification  as to whether a  forfeiture                                                            
provision had been in effect prior to this.                                                                                     
                                                                                                                                
Mr. Barnhill  responded  that there  currently  exists a  forfeiture                                                            
provision  pertinent  to the  forfeiture  of cigarettes  only.  This                                                            
bill, he continued,  "would expand  that language to include  assets                                                            
used in trafficking cigarettes."                                                                                                
                                                                                                                                
Co-Chair Green voiced objection to the amendment.                                                                               
                                                                                                                                
Senator Olson  voiced concern regarding the forfeiture  of expensive                                                            
transportation assets;  specifically aircraft, helicopters and boats                                                            
that are  used in areas  of the  State that are  not connected  by a                                                            
road system. He  asked what types of provisions are  included in the                                                            
bill to provide  safeguards in this  arena; specifically  to address                                                            
common  carrier  aircraft  concerns   that  they  might  be  "unduly                                                            
inhibited if  they for some reason  are charged with transportation                                                             
of tobacco products."                                                                                                           
                                                                                                                                
Mr. Barnhill responded  that this is a valid concern. He shared that                                                            
the Alaska Supreme  Court addressed the issue of forfeiture  several                                                            
years prior in  a case titled State vs. Wilder. This  case, he noted                                                            
involved a hunter who while  aerial hunting in a Cessna airplane and                                                            
violated the  hunting laws, and consequently,  the State  seized the                                                            
aircraft.   Continuing,   he  noted   that  the   Cessna   financing                                                            
corporation  who had a security interest  in the airplane  protested                                                            
the forfeiture. The Court,  he continued, ruled that the corporation                                                            
had  a Constitutional  right  to be  protected from  forfeiture.  He                                                            
shared that  "ever since that case,  all forfeiture statutes  in the                                                            
State have  been drafted to protect  the rights of innocent  owners,                                                            
including  rights of  interested owners  with  security interest  in                                                            
assets.  This  bill,  he assured,  has  the  provisions  to  protect                                                            
innocent owners as well  as a village situation where a family might                                                            
rely on  a mode of transportation.  He stressed  that, "even  if the                                                            
forfeiture  is supposed  to  be mandatory,  this  bill provides  for                                                            
relief from  mandatory forfeiture."  He stressed that the  intention                                                            
of this  forfeiture  provision  "is to go  after the  bad guys,  the                                                            
traffickers  of un-stamped  cigarettes  that  are doing  it for  re-                                                            
sale…that are criminally trying to make a business out of this."                                                                
                                                                                                                                
Senator Olson  understood to  whom the bill  is intended to  target;                                                            
however, he voiced concern  for the unintended circumstance in which                                                            
some  innocent   person's  aircraft   might  be  "red-tagged,"   and                                                            
therefore  unavailable.  He  understood  that  that  person  is  not                                                            
protected.                                                                                                                      
                                                                                                                                
Mr. Barnhill  responded  that an  innocent person  is protected  and                                                            
that the likelihood that  their aircraft would get red-tagged by the                                                            
Department   of  Public   Safety  "is  very   small."  However,   he                                                            
communicated   that  were  their  aircraft  red-tagged,   there  are                                                            
provisions  through which  they could  get their  property back  "if                                                            
indeed they are innocent."                                                                                                      
                                                                                                                                
Senator Olson  continued that their innocence would  be decided by a                                                            
court, however,  if an aircraft were red-tagged, it  would therefore                                                            
be unavailable for perhaps sixty days.                                                                                          
                                                                                                                                
Mr. Barnhill,  reiterating that Senator Olson's concerns  are valid,                                                            
pointed out that  provisions on page five, lines ten  through 22, of                                                            
Section 14,  subsection (3) (b) specify  that before an asset  could                                                            
be seized,  the Department  of Public  Safety must  appear before  a                                                            
Court  and establish  that  there  is probable  cause  to seize  the                                                            
asset. He stated that this  is the same standard that is in place to                                                            
obtain a search  warrant. Therefore, he stressed,  the Court must be                                                            
convinced  that   there  is  probable  cause.  He  understood   that                                                            
forfeitures  are relatively  rare as  there has  been, he  recalled,                                                            
only twelve  in the past year. He  stated that there are  provisions                                                            
in the bill  pertaining to grabbing  property without a court  order                                                            
but that the Department  of Public Safety would be required to go to                                                            
the  Court within  48-hours  of  the seizure  and  present  probable                                                            
cause.  Therefore,  he concluded  that provisions  are  in place  to                                                            
address Senator Olson's concerns.                                                                                               
                                                                                                                                
Senator Bunde asked whether  this forfeiture provision is similar to                                                            
those in place regarding illegal alcohol activity.                                                                              
                                                                                                                                
Mr. Barnhill  stated that  "this provision  was patterned after  the                                                            
alcohol forfeiture provision" and improved upon.                                                                                
                                                                                                                                
Senator  Bunde opined  that  were this  the  case, it  would not  be                                                            
abused.                                                                                                                         
                                                                                                                                
Co-Chair  Green  asked  whether  the  transportation  of  un-stamped                                                            
cigarettes might differ  from the alcohol forfeiture provision as it                                                            
addresses  "the importation  of a product into  an area where  it is                                                            
illegal to bring the product into the area."                                                                                    
                                                                                                                                
Mr. Barnhill responded  that both would be violations of the law "to                                                            
which the remedy of forfeiture is available."                                                                                   
                                                                                                                                
Co-Chair Wilken clarified  that this is a technical amendment to the                                                            
law rather than a change in the forfeiture provision.                                                                           
                                                                                                                                
Mr. Barnhill concurred.                                                                                                         
                                                                                                                                
Co-Chair Green removed her objection.                                                                                           
                                                                                                                                
There being no further objection, Amendment #7 was ADOPTED.                                                                     
                                                                                                                                
Conceptual Amendment #9:  This amendment would impose a ten-dollar a                                                            
pack tax.                                                                                                                       
                                                                                                                                
Chair Green moved for the  adoption of Amendment #9. She stated that                                                            
"were the  purpose of this  legislation to  stop all consumption  of                                                            
tobacco products"  and result  "in a tobacco-free  State" then  this                                                            
amendment  should  be adopted,  as,  she  stated, a  one-dollar  tax                                                            
increase  would not  accomplish that  goal. She  characterized  this                                                            
legislation  "as  a  punitive  tax"  as it  is  designed  to  change                                                            
behavior.                                                                                                                       
                                                                                                                                
There being no objection, Co-Chair Green WITHDREW her amendment.                                                                
                                                                                                                                
Co-Chair Wilken stated  that a committee substitute would be drafted                                                            
that would incorporate the amendments.                                                                                          
                                                                                                                                
                                                                                                                                
SFC 04 # 89, Side A 10:46 AM                                                                                                    
                                                                                                                                
                                                                                                                                
Co-Chair  Wilken   asked  regarding   the  decision  to   alter  the                                                            
percentage of  revenue breakout for the School Fund  and the general                                                            
fund.                                                                                                                           
                                                                                                                                
Ms. Bales responded that  the revenue allocation formula is a policy                                                            
call of the Administration.  She understood that the entire 1997 tax                                                            
increase  was allocated  to the School  Fund, which  is a  dedicated                                                            
fund. She  also understood  that the reason  for allocating  funding                                                            
into  the general  fund is  to allow  those  monies to  be used  for                                                            
broader uses such as Medicare  reimbursement and possibly as Senator                                                            
Hoffman has proposed,  to the tobacco use, education,  and cessation                                                            
fund. She  noted that she  had developed  a worksheet titled  "Taxes                                                            
and Revenues" [copy on file] for the Committee.                                                                                 
                                                                                                                                
Co-Chair Wilken  asked that information  be provided to counter  his                                                            
suggestion to switch the  revenue for the general fund to the School                                                            
Fund.                                                                                                                           
                                                                                                                                
Ms. Bales agreed to provide this information.                                                                                   
                                                                                                                                
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             
                                                                                                                                
Senator Bunde,  in response to Co-Chair Wilken's question  regarding                                                            
whether  the  revenue  generated  from  this  legislation  could  be                                                            
dedicated  to the  School  Fund voiced  the understanding  that  the                                                            
cigarette tax  was identified as a special fund for  the School Fund                                                            
prior  to Statehood  and  therefore  is grandfathered   in as  such.                                                            
However, he noted  that the other tobacco products  tax could not be                                                            
dedicated in this manner.                                                                                                       
                                                                                                                                
Ms. Bales confirmed his remarks.                                                                                                
                                                                                                                                
Co-Chair Wilken  understood therefore that the "Taxes  and Revenues"                                                            
chart appropriately  depicts the breakout of the School  Fund, as it                                                            
exists  under  current  law  compared   to  that  proposed  in  this                                                            
legislation. He thanked Senator Bunde for the explanation.                                                                      
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 307(JUD)                                                                                            
     "An  Act relating to  the amount of the  bond required  to stay                                                            
     execution  of  a  judgment  in  civil  litigation  involving  a                                                            
     signatory,  a successor  of a signatory,  or an affiliate  of a                                                            
     signatory  to the tobacco product  Master Settlement  Agreement                                                            
     during an  appeal; amending Rules 204 and 205,  Alaska Rules of                                                            
     Appellate Procedure; and providing for an effective date."                                                                 
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Wilken explained  that this bill, which is sponsored by the                                                            
Senate Judiciary  Committee, would  establish "a $100 million  limit                                                            
on  the  appeal  bond"  that  the  State  requires   tobacco  Master                                                            
Settlement  Agreement signatories  to  "post to stay  of payment  in                                                            
regard to a Court judgment."                                                                                                    
                                                                                                                                
SENATOR  RALPH SEEKINS,  Chair, Senate Judiciary  Committee,  voiced                                                            
that he is  not associated in any  manner with the tobacco  industry                                                            
and  therefore  has no  conflict  of  interest  in this  regard.  He                                                            
explained  that   this  bill  relates  to  tobacco  product   Master                                                            
Settlement  Agreement (MSA), which  provides millions of  dollars to                                                            
Alaska as  well as to 45  other participatory  states. He  cautioned                                                            
that the continuing receipt  of those funds is being jeopardized "by                                                            
huge settlements  and judgments that  have been awarded against  the                                                            
tobacco  companies"   that  fund  the  settlement.  Continuing,   he                                                            
explained,  "that defendants  facing  large judgment  almost  always                                                            
have  the right  to appeal  them" and  oftentimes,  their appeal  is                                                            
successful in either reducing  the level of the judgment or negating                                                            
it. "In order  to stay the execution"  of a judgment on appeal,"  he                                                            
continued,  "the defendant  must post an  appeal bond "that  usually                                                            
equals the amount  of the judgment." He disclosed  that other states                                                            
have enacted regulations  placing limits on the amount of the appeal                                                            
bond.                                                                                                                           
                                                                                                                                
Senator Seekins informed  that the appeal bond required in Alaska is                                                            
"ordinarily the  amount of the judgment remaining  unsatisfied, plus                                                            
appeal costs  and interest." This  bill, he explained would  instill                                                            
"a  $100  million   dollar  limit  on  the  appeal   bond  that  MSA                                                            
signatories  must   post  to  stay  the  execution   of  any  future                                                            
judgment."                                                                                                                      
                                                                                                                                
Senator Seekins  clarified that this bond limit would  not alter any                                                            
other  existing component  in  law including  such things  as how  a                                                            
trial is conducted  or who might win or lose a lawsuit,  and it does                                                            
not affect  plaintiff's rights to  fully collect a judgment  were it                                                            
upheld on appeal.  Furthermore, he  stressed that provisions  in the                                                            
bill would  allow  the court  "to require  a bond amount  up to  the                                                            
value of the judgment"  were it determined that "the  appellant were                                                            
dissipating his assets to avoid paying a judgment."                                                                             
                                                                                                                                
Senator Seekins declared  that were this legislation adopted, Alaska                                                            
would join  with 30 other states that  have enacted similar  efforts                                                            
in  order to  protect  the continuation   of the  Master  Settlement                                                            
Agreement payments.                                                                                                             
                                                                                                                                
Co-Chair Wilken  noted that CS SB  307(JUD), Version 23-LS1609\I  is                                                            
before the committee.  He pointed out this version  differs from the                                                            
original bill  in that it would increase  the level of the  required                                                            
bond from $25 million to $100 million.                                                                                          
                                                                                                                                
Senator Seekins concurred.                                                                                                      
                                                                                                                                
Co-Chair  Wilken  pointed  out  that  Members'   packets  contain  a                                                            
spreadsheet titled "Enacted  Appeal Bond Legislation" [copy on file]                                                            
that denotes other  states' legislative action regarding  the appeal                                                            
bond limit and  a handout titled "Alaska Should Join  Other State To                                                            
Limit The Size  Of Appeal Bonds and  Protect Its Tobacco  Settlement                                                            
Revenues," [copy  on file], both of which have been  provided by the                                                            
Covington & Burling law firm.                                                                                                   
                                                                                                                                
KEITH TEEL,  Attorney with  Covington & Burling,  a Washington  D.C.                                                            
law-firm representing  the four principal payers of  the MSA: Philip                                                            
Morris USA,  R.J. Reynolds, Lorillard  Tobacco Company, and  Brown &                                                            
Williamson Tobacco Corporation,  noted that while Senator Seekins is                                                            
correct  in  that  46  states  are  participants  in  the  MSA,  the                                                            
remaining   four  states  had  established   individual   settlement                                                            
agreements with  the tobacco companies prior to the  MSA. Therefore,                                                            
he clarified that  all 50-states are receiving settlement  agreement                                                            
payments.                                                                                                                       
                                                                                                                                
Mr. Teel  communicated  that the  MSA awards  eight billion  dollars                                                            
annually to the  fifty States "and would do so into  perpetuity." He                                                            
clarified  that  by perpetuity  he  means  that the  payments  would                                                            
continue,  "as long  as  states are  around  and the  companies  are                                                            
around and  solvent." He warned however,  that the litigation  issue                                                            
has  surfaced  since  the  inception  of the  MSA.  This  issue,  he                                                            
communicated,  consists  of such things  as class  action law  suits                                                            
"which  have proven  to be particularly  troublesome"  at the  trial                                                            
level.  He noted that  twelve of  these class  action lawsuits  have                                                            
gone to trail, and he noted  that the Engle case in Florida resulted                                                          
in an award of $145 billion,  and he stated that, as part of the due                                                            
process  rights afforded  in  this country,  the  tobacco  companies                                                            
appealed  that judgment.  However,  he noted  that difficulty  could                                                            
arise were a plaintiff  to request, as is their right,  an immediate                                                            
start to the payment of  the judgment. This payment, he communicated                                                            
could transpire  via such  means as attaching  the plaintiff's  bank                                                            
account, "and  basically taking its working capital."  Therefore, he                                                            
noted, plaintiffs "who  get hit" with these types of large judgments                                                            
often  choose to  put a stay  on the  execution  of these  payments.                                                            
Avenues to  do this, he disclosed,  would be to file a supersedeas,                                                             
or appeal,  bond or, he noted a notice  to appeal without  a bond as                                                            
is permissible  in some states.  He reviewed  the history of  appeal                                                            
bonds, and  stated that,  in Alaska, the amount  of the appeal  bond                                                            
would equate to the amount  of the judgment plus interest and appeal                                                            
costs.                                                                                                                          
                                                                                                                                
Mr. Teel disclosed that  "the problem" with the appeal bond is that,                                                            
in the Florida  case for instance, the cost of the  bond amounted to                                                            
$181  million. Some  bond  expenses, he  declared,  could result  in                                                            
bankruptcy and ultimately  a company's going out of business. Were a                                                            
company unable to afford  to post a bond in the amount determined by                                                            
the Court,  he attested,  that company could  be forced to  file for                                                            
bankruptcy  in order to stop  the plaintiff  from taking its  assets                                                            
during  the appeal.  He  disclosed  that,  "the problem  with  being                                                            
driven  into bankruptcy  is that it  impacts all  kinds of  things,"                                                            
including  the company's  payment  obligations.  He  noted that  the                                                            
Florida  case, which  took  more than  three  years  to appeal,  was                                                            
important to  the companies as the  judgment was ultimately  reduced                                                            
to zero. He also noted  that had Florida Legislature not reduced its                                                            
limit  on the  appeals bond  prior to  the judgment,  the  companies                                                            
might have been forced  into bankruptcy, which would have prohibited                                                            
any MSA payments.                                                                                                               
                                                                                                                                
Mr.  Teel  stressed  that  absent  a  limitation   on  the  expenses                                                            
associated  with appeal bonds, the  ability of companies  to pay MSA                                                            
payments would  be interrupted. Therefore, he attested,  legislation                                                            
such as this is important.                                                                                                      
                                                                                                                                
Mr. Teel referred  the Committee to  the aforementioned spreadsheet                                                             
depicting  legislation  that  states  have adopted  to  address  the                                                            
appeal  bond situation.  Some states,  he noted,  have expanded  the                                                            
legislation  to apply  to other types  of appeals.  He warned  that,                                                            
without addressing  this situation  in Alaska,  were a class  action                                                            
lawsuit to transpire  and result in a multi-billion  dollar verdict,                                                            
a negative impact could arise.                                                                                                  
                                                                                                                                
Mr. Teel stressed that  the goal of this legislation is to limit the                                                            
amount  of  the  appeal  bond  "under  State  law  and  to  avoid  a                                                            
bankruptcy situation  that might impair" the State  or the company's                                                            
finances rather  than to affect any  other aspect of the  litigation                                                            
process. He noted  that the only opposition that has  been presented                                                            
during  the bill's  committee process  has been  from public  health                                                            
groups who  were concerned that this  legislation would protect  the                                                            
industry  from   liability.  This   concern,  he  communicated,   is                                                            
misplaced as due process allows the right to appeal.                                                                            
                                                                                                                                
Mr. Teel  pointed out that  were MSA payers  driven into  bankruptcy                                                            
and  thereby placing  MSA  payments  in jeopardy,  the  State  might                                                            
suffer a huge  fiscal impact during the appeal process.  He stressed                                                            
that adoption  of the legislation  would incur  no fiscal impact  to                                                            
the State.                                                                                                                      
                                                                                                                                
Senator Olson  commented that it appears that the  plaintiffs in the                                                            
Florida class  action lawsuit suffered "a disservice"  by the action                                                            
of the Florida  court to reduce the  $145 billion judgment  to zero.                                                            
                                                                                                                                
Mr. Teel  agreed that  at the end  of the appeal  process, a  lot of                                                            
people ended up  with zero. However, he reiterated  that the appeals                                                            
process is  very important to defendants  dealing with class  action                                                            
lawsuits,   particularly   those   dealing  with   personal   injury                                                            
situations  such  as the  Florida  case.  He  noted that  there  are                                                            
tremendous law requirements  involved in getting a class action suit                                                            
properly  certified. He noted  that the duration  of that trial  was                                                            
one year at a cost of millions of dollars.                                                                                      
                                                                                                                                
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Gary Wilken adjourned the meeting at 11:06 AM                                                                          

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