Legislature(2015 - 2016)BARNES 124
03/09/2016 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB188 | |
| HB337 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 188 | TELECONFERENCED | |
| *+ | HB 337 | TELECONFERENCED | |
| *+ | HB 314 | TELECONFERENCED | |
HB 337-MARIJUANA TAXES;EXCESS POSSESSION;BONDS
4:23:05 PM
CHAIR OLSON announced that the next order of business would be
HOUSE BILL NO. 337, "An Act relating to taxes on marijuana."
4:23:28 PM
REPRESENTATIVE LEDOUX, speaking as the sponsor, paraphrased from
the sectional analysis for HB 337 as follows [original
punctuation provided]:
Section 1 amends AS 17.38.200 by adding the bond
created in Section 3 to the marijuana establishment
requirements.
Section 2 amends AS 43.61.020(a) to require electronic
filing of marijuana tax returns.
Section 3 amends AS 43.61 adding two new sections:
Sec. 43.61.040 grants the tax division authority
to assess a tax on marijuana plants found in
excess of the possession limit for adults not
licensed under AS 17.38.
Sec. 43.61.050 requires a marijuana cultivation
facility to furnish a cash bond, to be forfeited
if taxes are not paid. It also makes marijuana
product manufacturing facilities and retail
marijuana stores secondarily liable for taxes on
their marijuana inventory and responsible for
providing proof that their marijuana inventory is
legitimate, upon request by the department.
REPRESENTATIVE KITO directed attention to proposed Section
43.61.040 [text previously provided]. He expressed his
understanding that plants found in excess of the legal amount
for possession would engage a criminal statute, which would
result in a criminal action, and asked if the state would tax
them as well.
4:27:16 PM
KALYSSA MAILE, Staff to Representative LeDoux, sponsor of HB
337, advised that the bill does not specify one action or the
other, the option is open that one could be charged criminally,
and also assessed penalties through the Tax Division, Department
of Revenue (DOR).
REPRESENTATIVE JOSEPHSON inquired as to whether the policy goal
was to deter black market competition with a lawful market, or
to raise revenue.
MS. MAILE acknowledged that deterrence is "pretty fundamental"
to support a legal industry, and DOR has been unable to
determine what the expected revenue from the industry will be.
REPRESENTATIVE JOSEPHSON referred to proposed Section 43.61.050
[text previously provided] and surmised "the primary
responsibility is the grower, and that person may be different
than the manufacturer and seller ...."
MS. MAILE said correct. The cultivator is responsible for
paying the tax, and the secondary liability goes to the retailer
or the product manufacturer, who must be able to prove that
their source of marijuana was from a legal cultivator. In
further response to Representative Josephson, she said there is
nothing in HB 337 inconsistent with [Alaska Marijuana
Legalization Ballot Measure 2 approved 11/4/14].
REPRESENTATIVE HUGHES asked how many ounces a plant weighs, its
value, and the annual value of "excess plants."
4:30:35 PM
MS. MAILE said AS 11.71.080 establishes that the aggregate
weight of a live marijuana plant is one-sixth of the plant
weight after the roots have been removed. She said she was
unsure how often excess plants are found.
4:31:47 PM
KEN ALPER, Director, Tax Division, DOR, in response to
Representative Hughes, based on information from a recent
arrest, estimated a weight of 5 ounces per plant; therefore, a
$50 per ounce excise tax would garner a $250,000 civil penalty
to the grower.
CHAIR OLSON suggested that taxes could be based on
tetrahydracannabinol (THC) content rather than weight.
MR. ALPER responded that illegal marijuana is not normally
processed in a laboratory, and the division seeks to confiscate,
destroy, and penalize by an efficient procedure. In further
response to Co-Chair Olson, he said the division has not
considered processing illegal marijuana for the purposes of the
prosecution. In fact, the goals of the tax authorities are to
provide the tax division with the ability to charge the penalty
on illegal marijuana. He remarked:
If the committee would prefer to somehow find a means
of calculating THC we can do that. Let me be clear
though, that the legal marijuana industry is silent on
the robustness of the product. You know, it's a flat
$50 an ounce regardless of the quality of THC content
of what it is that's actually being grown. In some
ways, our marijuana tax favors the high quality
manufacturer because it's a, the more valuable your
product, the $50 an ounce becomes less burdensome as a
percentage of the value.
CHAIR OLSON observed that other states measure, label, and check
for herbicides.
MR. ALPER said Alaska has testing requirements as part of the
legal marijuana system; furthermore, the aforementioned states
have sales taxes based on the percentage of the value as their
primary revenue source, whereas Alaska chose a "by weight" tax
mechanism.
REPRESENTATIVE JOSEPHSON inquired whether a fine is consistent
with proposed SB 91; he characterized SB 91 as
"friendlier" and HB 337 as punitive for those who possess drugs
illegally, including a jail term.
4:35:27 PM
MR. ALPER advised that marijuana possession remains criminal in
Alaska beyond the six plants for personal use. In a certain
case a person was found possessing 1,000 plants with no evidence
of illegal dealing. If the criminal justice system does not
seek a felony indictment, there is no disincentive, but the bill
is a means of deterrent to encourage Alaska marijuana growers
into a legal system.
MS. MAILE added that other proposed legislation related to
marijuana deals primarily with the criminal code; HB 337 imposes
a civil penalty.
REPRESENTATIVE KITO directed attention to the bill on page 2,
lines 24-29, which read:
(c) A marijuana product manufacturing facility or
retail marijuana store is secondarily liable for the
taxes on marijuana that is sold by or to the marijuana
product manufacturing facility or retail marijuana
store. If requested by the department, the marijuana
product manufacturing facility or retail marijuana
store shall provide the department with proof that the
taxes have been paid on the marijuana inventory in the
possession of the marijuana product manufacturing
facility or retail marijuana store.
REPRESENTATIVE KITO recalled that the commerce of cigarettes is
facilitated by tax stamps, and alcohol is also marked when taxes
are paid. He surmised there is a regulatory process to inform
consumers that taxes have been paid on a marijuana product.
MS. MAILE said DCCED is in the process of setting up a seed-to-
sale system.
4:38:07 PM
CYNTHIA FRANKLIN, Director, Alcohol & Marijuana Control Office,
DCCED, informed the committee that a seed-to-sale tracking
system will involve radio-frequency identification (RFID) tags
attached to marijuana plants over eight inches; the tracking
number will stay with the plant as it is harvested, dried,
manufactured into a product, and sold by the retail store. The
tracking software is capable of generating the reports required
of licensees by DOR, thus by this system, cultivation facilities
will be tracking and filing monthly reports with DOR. Ms.
Franklin concluded that the seed-to-sale software will provide
back-up documentation for tax reporting to DOR, to ensure that
taxes have been paid. Labels and marijuana products will
indicate to consumers the tracking system. In response to
Chair Olson, she said the system is the same as used in Colorado
and Oregon, and information can be read with a handheld device
within ten feet of the tag on each plant.
REPRESENTATIVE KITO questioned the validity of tracking a RFID
tag that becomes part of a process which combines plants, or
separates plants into various components such as an extract, a
leaf, or a bud.
MS. FRANKLIN stated that the tags are robust and as the plant
evolves, the tag may change, but the tracking number stays. She
assured the committee the system works.
MR. ALPER returned attention to the concept of secondary
liability, which is a power currently held by the tax division
for alcohol and tobacco taxes. For example, if a retailer is
found in possession of alcohol or cigarettes that did not come
from a licensed distributor, the tax division can charge the
taxes to the retailer. The division seeks to extend this power
to the marijuana industry to create a deterrent against a black
market. The difference is that the marijuana will be grown and
sold in Alaska, and the software tracking system will ensure
that the marijuana came from a licensed grower.
REPRESENTATIVE JOSEPHSON asked whether the amount of the cash
bond is comparable to what is assessed to alcohol vendors.
MS. MAILE said the alcohol industry must post a surety bond to
ensure that alcohol taxes are paid. She characterized the
$5,000 cash bond as "significantly lower than that you would see
with alcohol." In further response to Representative Josephson,
she said the marijuana cash bond may be more burdensome than
that of a new liquor business; however, a surety bond requires a
premium to be paid, and over the long term a cash bond could
cost less.
REPRESENTATIVE LEDOUX advised that the bill sponsors set the
cash bond for marijuana lower than a $25,000 surety bond because
the marijuana industry won't be able to get a surety bond. This
amount will cover the tax liability, but is not overly onerous.
MR. ALPER stated that the bill offers the division similar
authorities as are established for alcohol, as directed by the
initiative.
4:48:14 PM
CHAIR OLSON opened public testimony on HB 337.
4:48:21 PM
BRIAN OLSON, Owner/Operator, Alaska Berries Winery, stated that
the $5,000 cash bond for a cultivation license is onerous to an
applicant. Previously the "MTF board" discussed the use of
surety bonds, which he used to obtain his federal license for a
winery business. However, a $5,000 cash bond for a limited
cultivation license, in addition to a nonrefundable $1,000
application fee and $1,000 license fee, would hamper a beginning
industry. He opined that those who are establishing a
legitimate business have a lot invested already, and although he
supports the proposed regulations, he said the cash bond should
be a surety bond which can be collected by the state from those
who renege on their taxes.
REPRESENTATIVE LEDOUX asked how marijuana growers or cultivators
would be able to obtain a surety bond and if not, for his
opinion on the amount of a more reasonable cash bond.
MR. OLSON said he got two surety bonds to satisfy state and
federal requirements for a winery and a liquor license. On the
state level, any insurance company will issue a bond based on
the individual's ability to pay. Even without a surety bond,
any legitimate business must submit its taxes, and a $5,000
surety bond would cost about $150 annually.
REPRESENTATIVE LEDOUX related that if the sponsors of the bill
thought marijuana growers could obtain a surety bond, they would
have made that choice. She restated her previous question.
MR. OLSON said there is recourse for the state to recoup lost
revenue due to nonpayment of taxes, and it is not necessary to
have a bond for taxes on any business.
4:55:45 PM
DOLOYNDA PHELPS stated her concern was related to proposed
Section 43.61.050 [text provided previously]. She said the
$5,000 cash bond is problematic, and asked for understanding
that potential business owners are aware of financial
commitments and have a lot at stake. The cash bond and
compounded fees are difficult for business owners who want to
pay their taxes so the industry ends up with a legal market.
Ms. Phelps said proposed Section 43.61.050 does not favor the
legal taxpayer, or encourage a transition into a "good, healthy,
regulated industry here in the state."
4:58:10 PM
JAMES BARRETT said he was applying for cultivation, processing,
and retail marijuana licenses. He brought up several points
related to the bill: tax based on weight includes the flower,
and "doesn't really line up"; if a person pays a tax after they
are found guilty, the cannabis would have to be preserved
because it can change in weight over time; whether cash would be
accepted for the bond; the importance of the effective date on
those who are presently starting a business; the tax should
really be called a fine, and he questioned the legality of the
tax.
5:00:10 PM
CHAIR OLSON, after ascertaining that no one further wished to
testify, held public testimony open.
MR. ALPER advised that DOR would accept a surety bond if that
option is in the legislation; however, many taxpayers will not
be able to open a bank account, and thus will not be able to
secure a bonding agent either.
CHAIR OLSON recalled at one time the state accepted certificates
of deposit (CDs) in lieu of cash.
[HB 337 was held over.]