03/29/2010 09:00 AM Senate FINANCE

SENATE BILL NO. 117                                                                                                           
                                                                                                                                
     "An Act requiring the Department of Revenue to set the                                                                     
     minimum price for cigarettes for sale by wholesalers                                                                       
     and retailers; and prohibiting a wholesaler or                                                                             
     retailer from selling at wholesale or retail                                                                               
     cigarettes at a lower price than the price set by the                                                                      
     Department of Revenue."                                                                                                    
                                                                                                                                
ESTHER  CHA, STAFF,  SENATOR LESIL  MCGUIRE, explained  that                                                                    
the bill  addresses a current loophole  in legislation which                                                                    
allows large  high volume cigarette  sellers to  price their                                                                    
cigarettes  at less  than the  minimum price  set by  law if                                                                    
they can prove  that their actual cost of  doing business is                                                                    
lower than the mandated  minimum price. The original purpose                                                                    
of  Article 7  in Title  43 was  to prevent  wholesalers and                                                                    
retailers from using predatory  pricing practices to promote                                                                    
the sale of cheap cigarettes and  use them as a loss leader.                                                                    
However,   AS  43.50.800(c)   specifically  states   that  a                                                                    
wholesaler or  retailer that wishes  to advertise,  offer to                                                                    
sell,  or  sell cigarettes  at  less  than the  presumptive,                                                                    
actual  cost  to  the wholesaler  or  retailer,  must  first                                                                    
obtain  approval from  the  department.  The department  may                                                                    
grant approval  only if the wholesaler  or retailer provides                                                                    
proof satisfactory  to the department that  the wholesaler's                                                                    
or retailer's actual  cost is lower than  presumed. She gave                                                                    
an example. SB 117 would  repeal AS 43.50.800 and replace it                                                                    
with Section 6 in the bill, which establishes AS 43.50.801.                                                                     
                                                                                                                                
Ms. Cha explained that the  only change between the original                                                                    
bill and the CS are  the multipliers. The original bill held                                                                    
the percentages to  what is currently in  statute, which was                                                                    
4.5 percent  at wholesale and  6 percent at retail.  The new                                                                    
CS  changes those  percentages to  2 percent  and 4  percent                                                                    
respectively.  The Department  of  Revenue  approves of  the                                                                    
change. The percentages in the  CS are currently higher than                                                                    
the percentage granted at the exemption.                                                                                        
                                                                                                                                
Ms. Cha shared  that the original reasoning  behind fixing a                                                                    
minimum price  for cigarettes was  based on  studies showing                                                                    
how  increased  prices would  work  to  provide a  financial                                                                    
incentive  for  existing smokers  to  quit,  as well  as  to                                                                    
discourage new  smokers. The  expected price  increase found                                                                    
in the  CS will not have  as great an effect.  The bill will                                                                    
not  change the  amount  of  tax received  by  the state  on                                                                    
cigarette  sales.  By  getting  rid  of  a  wholesaler's  or                                                                    
retailer's ability to  apply for an exemption,  the CS would                                                                    
bring parity and balance to  competition. It would level the                                                                    
playing field  by ensuring that  all vendors,  regardless of                                                                    
size, volume,  or accounting practices,  will have  to price                                                                    
at, or above, the minimum price set in law.                                                                                     
                                                                                                                                
9:24:45 AM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman  noted  one  zero  fiscal  note  from  the                                                                    
Department of Revenue.                                                                                                          
                                                                                                                                
9:25:06 AM                                                                                                                    
                                                                                                                                
MIKE  ELERDING,  KETCHIKAN  (via teleconference),  spoke  in                                                                    
favor of  the legislation.  He requested  that the  topic of                                                                    
the  bill  be  limited  to  only one  topic,  the  price  of                                                                    
cigarettes.  He spoke  as a  tobacco distributor  and shared                                                                    
the  history  of  his  company's  involvement  in  cigarette                                                                    
taxes.  He   provided  information  about   the  correlation                                                                    
between  increasing prices  and  decreasing consumption.  He                                                                    
described   how   cigarette   pricing  is   controlled.   He                                                                    
emphasized that if  the state is doing its  part to increase                                                                    
the  price of  tobacco, cigarettes  should not  be sold  for                                                                    
less than  the market cost. He  agreed that SB 117  closed a                                                                    
loophole and stated his support for the bill.                                                                                   
                                                                                                                                
9:29:21 AM                                                                                                                    
                                                                                                                                
CLIFF KRAEMER, NORTHERN  SALES COMPANY (via teleconference),                                                                    
spoke in  support of  the proposed  changes contained  in SB
.  The   recommendation  to  set  a   minimum  price  for                                                                    
cigarettes is a compromise among wholesalers and retailers.                                                                     
                                                                                                                                
SB  177  was  heard  and   HELD  in  Committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
9:31:01 AM