2002-02-19                     Senate Journal                      Page 2229
The tobacco tax increase has had a significant effect on the sale of                                
taxable cigarettes in Alaska. In the five fiscal years before the tax                               
increase, cigarette sales averaged 53 million packs per year. In the                                
three complete fiscal years since the increase, cigarette sales have                                
averaged 42.1 million packs per year - a drop of more than 20                                       
percent. Much of this decrease can be attributed to reduced smoking.                                
And yet, we also believe an unknown quantity of untaxed cigarettes                                  
are imported into the state. Existing laws make it difficult to track just                          
how many untaxed cigarettes are coming into Alaska.                                                 
                                                                                                    
The Department of Revenue believes a very simple measure - a tax                                    
stamp on each package - would help close our borders to the                                         
importation of untaxed cigarettes. This bill would require a stamp                                  
affixed to all packs of cigarettes on which the tax has been paid. The                              
stamps would be heat-applied so they could not be transferred to                                    
untaxed packs and would be difficult to counterfeit. The colorful                                   
stamp would be easily recognizable so that Department of Revenue                                    
personnel, law enforcement agents, and consumers would immediately                                  
know whether the tax had been paid on any given pack of cigarettes.                                 
In addition, the bill would require the tax be paid before the cigarettes                           
are imported into the state.                                                                        
                                                                                                    
The bill also would place considerable weight behind the state's ability                            
to enforce the stamp requirement. The Department of Revenue and                                     
law enforcement agencies would have the authority to seize and                                      
destroy unstamped cigarettes, and violators could be subject to                                     
significant civil penalties and criminal liability.                                                 
                                                                                                    
Other states, many of which have much lower cigarette taxes than                                    
Alaska, have long recognized the benefit of a tax stamp on cigarettes.                              
At this time, 46 states require a stamp on cigarettes. This bill draws                              
from the statutes and experience of those other states. States that                                 
recently adopted a cigarette tax stamp program have significantly                                   
increased their tobacco tax revenues. Michigan reported an 8.7 percent                              
increase in cigarette taxes in the first year of its program, 1999. Initial                         
reports from Hawaii - a state that, like ours, doesn't have bordering                               
states but does have a high tax rate - indicate an amazing 25 percent                               
increase in tax collection.