Legislature(1999 - 2000)
03/15/1999 01:32 PM House JUD
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HB 102 - CIGARETTE SALES: AGREEMENT/ESCROW
CHAIRMAN KOTT announced the next order of business is HB 102, "An
Act imposing certain requirements relating to cigarette sales in
this state by tobacco product manufacturers, including requirements
for escrow, payment, and reporting of money from cigarette sales in
this state; providing penalties for noncompliance with those
requirements; and providing for an effective date."
CHAIRMAN KOTT called on Bruce M. Botelho from the Department of Law
to discuss the bill.
Number 0230
BRUCE M. BOTELHO, Attorney General, Department of Law, stated the
purpose of the bill is simply to accomplish one aspect of the
settlement reached last November between the attorneys general and
the tobacco industry. It calls for the enactment of a model
statute whose purpose is to deal with the non-participating
manufacturers. The purpose is to make sure that those companies do
not take advantage of the ability to undersell their products and
gain market share in any state in the union. The state is not
required, under the terms of the Master Settlement Agreement, to
pass this type of legislation nor is it a condition precept for the
state to receive monies from the settlement. However, there is a
major penalty in the sense that if there is an increase in a market
share that increase is shared disproportionately with those states
that have not enacted the model legislation. The material that has
been provided shows a hypothetical example of this kind of adverse
fiscal impact on the state. At this stage, more than 99 percent of
the total are participating. The legislation provides the option
of signing on or establishing an escrow account reflecting a
manufacturer's percentage of its share of the market and cost that
it would otherwise bear under the terms of the agreement.
Number 0448
CHAIRMAN KOTT asked Attorney General Botelho whether the bill
applies only to cigarettes or is there a broader application to
cover cigars or smokeless tobacco products.
ATTORNEY GENERAL BOTELHO replied it is targeted at all cigarettes.
There is a separate settlement regarding chewing or smokeless
tobacco.
Number 0490
REPRESENTATIVE GREEN asked Attorney General Botelho whether there
are any sales of tobacco products that are not made in the U.S.
ATTORNEY GENERAL BOTELHO replied he doesn't know.
Number 0520
REPRESENTATIVE GREEN asked Attorney General Botelho whether the
bill would have any affect on alien tobacco manufacturers.
ATTORNEY GENERAL BOTELHO replied it would require any company or
person attempting to sell in the state of Alaska to sign on to the
agreement or pay money into an escrow account. The incidence is
really the sale of tobacco in the state.
Number 0549
REPRESENTATIVE MURKOWSKI asked Attorney General Botelho whether
there have been any legal challenges to the model legislation.
ATTORNEY GENERAL BOTELHO replied, to his knowledge, there hasn't
been any challenge to the model legislation. There have been
challenges in several states to the underlying settlement itself.
Most notably are California, New York, New Jersey and Pennsylvania.
In each instance, except for New York, they have challenged the
overall efficacy of the settlement. New York's battle has been
over the allocation of monies between the local government and the
state. In addition, a separate class action has been filed in
Oklahoma for the overall settlement to be declared
unconstitutional.
Number 0632
REPRESENTATIVE MURKOWSKI asked Attorney General Botelho whether
this legislation would be thrown out, if everything is thrown out.
ATTORNEY GENERAL BOTELHO replied correct.
Number 0650
REPRESENTATIVE GREEN referred to Section 45.53.020 of the bill and
stated the schedule of increase is an unusual mill. He wondered
whether it is an estimate of a cost of living increase, for
example.
ATTORNEY GENERAL BOTELHO replied the numbers were negotiated at
great length between the industry and the leading states in the
settlement. He cannot answer why they are at the 1/10,000 point.
Number 0711
CHAIRMAN KOTT stated this doesn't prevent any new revenue to the
state. It prevents cherry picking.
ATTORNEY GENERAL BOTELHO said correct. The bill is not a revenue
source. It is simply an escrow account by which the public may
draw on monies in the event that the non-participating manufacturer
chooses to sell.
Number 0736
REPRESENTATIVE ROKEBERG asked Attorney General Botelho to comment
on the steps it would take to sell cigarettes in the state.
ATTORNEY GENERAL BOTELHO replied any company that wishes to sell in
the state is required through its wholesaler to register and pay a
tax right now. The bill would require a non-signatory manufacturer
of the settlement to establish a separate escrow account.
Number 0784
REPRESENTATIVE ROKEBERG asked Attorney General Botelho how much
would it deposit.
ATTORNEY GENERAL BOTELHO replied it would be based on estimated
sales according to a schedule.
REPRESENTATIVE ROKEBERG asked Attorney General Botelho whether
there is a stipulated schedule in the settlement.
ATTORNEY GENERAL BOTELHO replied there is a schedule in terms of a
per pack. Each manufacturer has given a different estimate of the
cost of the settlement to that manufacturer. He reiterated this
would be primarily based on a representation of estimated sales; it
would be trued for actual sales.
Number 0835
REPRESENTATIVE ROKEBERG asked Attorney General Botelho whether the
bill gives any guidance to a manufacturer.
ATTORNEY GENERAL BOTELHO replied it is triggered in Section
45.53.020(a)(2) of the bill. The bill also provides additional
authority to adopt regulations to implement the terms of the
agreement.
Number 0878
REPRESENTATIVE ROKEBERG asked Attorney General Botelho whether the
"units sold" is an individual cigarette.
ATTORNEY GENERAL BOTELHO replied yes.
REPRESENTATIVE ROKEBERG asked Attorney General Botelho whether the
formula is suppose to be close to the 45 cent tax surcharge put in
place in December of 1998.
ATTORNEY GENERAL BOTELHO replied yes, in general. The 45 cents is
an estimate that varies from company to company. Some companies
have chosen to overstate their overall fiscal impact per pack.
REPRESENTATIVE ROKEBERG called the 45 cents an imprecise variable.
ATTORNEY GENERAL BOTELHO stated correct.
Number 0925
REPRESENTATIVE CROFT asked Attorney General Botelho what other
states have adopted something like this.
ATTORNEY GENERAL BOTELHO replied he doesn't have the current list,
but will provide one as quickly as possible. All states this year
are considering it during their legislative session. He is not
aware of any state that has already enacted it.
CHAIRMAN KOTT indicated Alaska could be the first.
Number 0958
REPRESENTATIVE CROFT asked Attorney General Botelho whether there
are other bills to cover cigars and chewing tobacco.
ATTORNEY GENERAL BOTELHO replied cigars are not covered in this
bill. He reiterated there is a separate agreement with smokeless
tobacco, but there isn't separate legislation.
Number 1014
REPRESENTATIVE CROFT asked Attorney General Botelho whether the
attorneys general negotiated with the companies covered by the
settlement, not the companies that opted out.
ATTORNEY GENERAL BOTELHO replied the states negotiated with the
five largest manufacturers in the United States. The terms of the
settlement itself provides an opportunity for other companies to
opt in, and for the most part they have. He reiterated, at this
stage, those who are not included constitute less than .5 percent
of the overall market. There really are only 5 major players in
the country, 20 minor players, and a slew of mom and pops that
Alaska will probably never see.
Number 1084
REPRESENTATIVE CROFT stated his question was directed at drafting
HB 102 and negotiating the numbers to the one-ten thousandth of a
cent.
ATTORNEY GENERAL BOTELHO stated the numbers in the bill were the
result of negotiations specifically with the big five companies.
Number 1106
REPRESENTATIVE MURKOWSKI asked Attorney General Botelho, for
clarification, whether the bill would not apply to cigars.
ATTORNEY GENERAL BOTELHO replied that is his understanding.
REPRESENTATIVE MURKOWSKI referred to the "Definitions" section of
the bill and asked what a cigar is rolled in.
REPRESENTATIVE CROFT read, "(i) any roll of tobacco wrapped in
paper or in any substance not containing tobacco;", and stated
tobacco wrapped in tobacco wouldn't be covered.
REPRESENTATIVE GREEN noted a cigar is wrapped in a leaf.
Number 1158
REPRESENTATIVE ROKEBERG complimented Attorney General Botelho for
placing the financial burden of cigarette smoking on the
manufacturers and not the state of Alaska.
CHAIRMAN KOTT closed the meeting to public testimony and called for
a motion to move the bill out of committee.
Number 1199
REPRESENTATIVE JAMES made a motion to move HB 102 from the
committee with individual recommendations and the attached zero
fiscal note(s). There being no objection, HB 102 was so moved from
the House Judiciary Standing Committee.
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