Legislature(2015 - 2016)BELTZ 105 (TSBldg)
02/16/2016 01:30 PM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| SB142 | |
| SB131 | |
| SB133 | |
| SB131|| SB133 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 131 | TELECONFERENCED | |
| *+ | SB 133 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 142 | TELECONFERENCED | |
SB 133-ELECTRNC TAX RETURNS;TOBACCO & E-CIGS TAX
2:01:19 PM
CHAIR COSTELLO announced the consideration of SB 133.
2:01:42 PM
BRANDON SPANOS, Deputy Director, Tax Division, Department of
Revenue (DOR), introduced SB 133 on behalf of the
administration, starting with the history. The tobacco tax began
in 1949 and cigarettes have always been taxed separately than
other tobacco products (OTP). The tax on OTPs was repealed in
1955 and reinstated in 1988 at 25 percent of the wholesale
price. The last major change was in 1999 when the OTP tax was
raised to 75 percent of the wholesale price. All revenue from
this tax goes to the general fund.
There are two separate taxes on cigarettes. The first is a
dedicated "base" tax of $0.038 per cigarette that is deposited
to the School Fund. The second, "additional" tax is $0.062 per
cigarette; 8.9 percent of this goes to the Tobacco Use Education
and Cessation Fund, subject to appropriation, and the remainder
goes to the general fund. The total of both taxes is $0.10 per
cigarette. For a pack of 20 cigarettes that is $2.00 and it's
paid through a stamp.
The proposed increase affects only the second or "additional"
tax, increasing it by 5 cents, from $0.062 to $0.112 per
cigarette. The total tax rises to $0.15 per cigarette ($3 for
per pack of 20, an increase of $1 per pack). The increased tax on
other tobacco products (OTP) rises from 75 percent to 100
percent of the wholesale price.
The tobacco tax proposal also adds electronic cigarettes to the
tax on OTPs, and clarifies the definition of "wholesale price" of
a tobacco product or electronic smoking device. The bill also
requires electronic filing and an exemption process.
MR. SPANOS reported that tobacco taxes in Alaska are higher than
th
the U.S. average. For cigarettes the tax is 11highest of the
th
50 states. For OTPs, Alaska is 8 highest of those states that
use the wholesale price for calculating their tax. He noted that
some states use weight to calculate the tax on OTPs. SB 133
th
would give Alaska the highest OTP tax and 5 highest cigarette
tax in the U.S.
The Department of Revenue estimates increasing the cigarette tax
will raise an additional $24 million per year, 8.9 percent of
which (or about $2 million) would go to the Tobacco Use
Education and Cessation Fund and the remainder (about $22
million) would be deposited to the general fund. The other
tobacco tax increase is estimated to raise an additional $5
million per year and all of it would go to the general fund. The
total revenue impact is estimated to be $29 million per year.
The revenue estimates are based on the 2015 fall revenue
forecast and do not account for changes in tobacco demand or
stockpiling to avoid the tax increase. DOR anticipates that this
could have a substantial effect in FY 2017. DOR lacks data to
estimate the tax from e-cigarette sales but it will bring in
additional revenue.
The estimated one-time cost to implement SB 133 is $50,000. This
will be used to update DOR's tax revenue management system
(TRMS) and the revenue online (ROL) component, which allows
taxpayers to file a return and apply for a tax license online,
and make changes to the tax return and license application
forms. No additional costs to administer the program are
anticipated going forward.
MR. SPANOS displayed a two-part slide to show how the $29
million tobacco tax increase fits into the Governor's plan to
close the budget gap. The basic impacts of the tobacco tax
proposal are that tobacco will be more expensive to buy so a
slight decrease in consumption is anticipated due to the higher
prices. There is also the possibility of stockpiling of
cigarettes before the tax increase.
2:07:59 PM
MR. SPANOS read the following sectional analysis into the
record:
Sec. 1.Adds a $25 or 1% tax penalty for failure to
file electronically unless an exemption is received by
the taxpayer.
Sec. 2. Requires electronic submission of tax returns,
license applications, and other documents submitted to
the Department of Revenue. This changes the general
tax statutes, AS 43.05, and will apply to all tax
types administered by the department. Provides a
process to request an exemption if a taxpayer does not
have the technological capability to do so.
Sec. 3. Conforming language to add electronic smoking
devices to the current statute allowing the department
to share information with municipalities.
Sec. 4. Conforming language to reference the new
definition of "electronic smoking device" in Section
13.
Sec. 5. Increases the "additional tax levy" on each
cigarette from 62 mills to 112 mills.
Sec. 6. Increases the tax on tobacco products other
than cigarettes from 75% of the wholesale price to
100% of the wholesale price. Adds electronic smoking
devices to what is taxed.
Sec. 7. Conforming language to add electronic smoking
devices to an existing statute referencing federal tax
exemptions.
Sec. 8. Conforming language to add electronic smoking
devices to the license requirement.
Sec. 9.Conforming language to add electronic smoking
devices to the monthly tax return. Also adds new
language to require electronic filing of the return.
Sec. 10. Conforming language to add electronic smoking
devices to the procedures for issuing tax credits and
refunds.
Sec. 11.Conforming language to add electronic smoking
devices to the requirement to keep complete and
accurate records to support the tax return.
Sec. 12. Adds language to clarify that a cessation
product, tobacco dependence product or modified risk
tobacco product are excluded from the definition of a
tobacco product for purposes of taxation.
Sec. 13. Clarifies the definition of "wholesale price"
of a tobacco product or electronic smoking device as
the gross invoice price including all federal excise
taxes, less any trade discounts or other reductions.
Sec. 14. Adds the definition of "electronic smoking
device".
Sec. 15. Adds that the Act is applicable to tobacco
products sold on or after the effective date of the
Act and applies to the first monthly return submitted
after the first full month after the effective date.
Sec. 16. Allows the Department of Revenue to adopt
regulations necessary to implement the changes made by
this Act but not before the effective date.
Sec. 17. Section 16 of this Act takes effect
immediately under AS 01.10.070(c).
Sec. 18. Except as provided in Sec. 16-17, effective
date of July 1, 2016.
2:10:59 PM
CHAIR COSTELLO invited Mr. Alper to join Mr. Spanos.
2:11:12 PM
KEN ALPER, Director, Tax Division, Department of Revenue (DOR),
introduced himself.
CHAIR COSTELLO asked if there was any discussion about whether
the alcohol and tobacco taxes are regressive and the Alaskans
who would be most affected. She asked him to start with the
tobacco tax.
MR. ALPER suggested the committee ask the Department of Health
and Social Services (DHSS) because that agency have records of
how tax changes impact smoking rates. His experience from the
restaurant industry is that tobacco use trends towards certain
social groups and income levels, but use is declining. DOR's
baseline estimates for the tobacco tax going forward 2-4 years
shows a downward trend. The data indicates that there are fewer
smokers in Alaska every year.
Nine bills were introduced to the legislature this year. Three
are consumption taxes (alcohol, tobacco and motor fuel); three
are business taxes (fisheries, mining and commercial passenger
vessels); and three are bigger tax bills (income tax, oil and
gas tax credit reform, and the Permanent Fund Protection Act).
The broad idea of the Governor's fiscal plan is to solve the
problem in total with everyone doing their part. There was no
intent to single out any particular demographic or user group.
CHAIR COSTELLO asked what percentage of the deficit the tobacco
tax will attempt to fill.
MR. ALPER replied the $29 million estimated revenue is a little
less than one percent of the $3.7 billion estimated deficit.
CHAIR COSTELLO asked what percentage of the deficit the alcohol
tax will fill.
MR. ALPER replied the alcohol excise tax brings in $40 million
incrementally which is between 1 percent and 1.25 percent of the
deficit. Half of that goes to the Alcohol and Other Drug Abuse
Treatment and Prevention Fund in the mental health budget, which
is supplemented with about $60 million from the general fund. If
the additional $40 million were deposited to the general fund,
it would be a little more than 1 percent of the budget deficit.
2:15:13 PM
CHAIR COSTELLO asked Dr. Butler to respond to earlier questions
about who is smoking in Alaska and who would be most affected by
the tobacco tax bill if it were to pass.
DR JAY BUTLER, Chief Medical Officer, Department of Health and
Social Services (DHSS) agreed with Mr. Alper that overall
smoking rates are declining, and most rapidly among young
people. In general, cigarette smoking is associated with lower
education levels and the associated lower socio economic status.
Smoking rates are also higher in rural areas and among Alaska
Natives, particularly in Western Alaska and the North Slope.
CHAIR COSTELLO asked Mr. Alper to define a regressive tax.
MR. ALPER explained that it is generally understood to mean that
lower income individuals pay a higher percentage of their income
toward the tax than a higher income person.
CHAIR COSTELLO asked if the tobacco tax is regressive.
MR. ALPER confirmed that the effect would be regressive.
CHAIR COSTELLO asked how much a pack of cigarettes costs today.
MR. ALPER estimated it's between $9.00 and $10.00, $2.00 of
which is the current excise tax on tobacco. SB 133 seeks to
increase the tax $1.00 per pack.
CHAIR COSTELLO requested information on the impact in rural
Alaska.
2:18:10 PM
MR. ALPER agreed to try to get the information. He added, "It
will probably be somewhat different than the cost differences
you see in alcoholic beverages because there isn't the local
restriction you see in certain parts of rural Alaska for
alcoholic beverages and it's a lighter weight product. It's
easier to ship around than bottles of alcohol."
SENATOR STEVENS commented that he'd be the last to defend the
use of tobacco, but he questions the tax on electronic
cigarettes. He maintained that they are designed to help end an
addiction to tobacco.
MR. ALPER offered his understanding that large portions of
electronic products contain nicotine and he doesn't think of
electronic smoking products as cessation devices. He said a
different rate for OTPs could probably be implemented if that's
what the committee wishes. He deferred further comment to Dr.
Butler.
SENATOR STEVENS restated his understanding that people use
electronic cigarettes to try and break the addiction to
cigarettes. "If that's the case, why would we discourage people
from trying to use that form to stop an addiction?" he asked.
2:21:58 PM
DR BUTLER agreed that some people have found that e-cigarettes
help them stop using combustible cigarettes. He described that
as a step in the right direction with a few caveats. One, there
is no solid data showing that e-cigarettes have a role in
combustible tobacco cessation and there is no FDA approved
mechanism for nicotine replacement therapy. Also, a recurring
observation is that the greatest impact of increasing tax on
tobacco is the decreased uptake among youth. As states increase
tobacco tax there is a decreased uptake on youth. However, it is
concerning that about 18 percent of Alaska youth report having
used e-cigarettes in the last month. He also discussed a study
that suggests that there may be a role for taxation as a way to
reduce the uptake of e-cigarettes among youth.
SENATOR STEVENS asked if he expects the FDA to do further
studies on e-cigarettes.
DR, BUTTLER opined that the issue will be whether any of the
manufacturers choose to file with the FDA for that approval.
CHAIR COSTELLO asked Dr. Butler to address the point that the
tax bill won't achieve its intended goal if the increased tax
results in fewer users. "Can we expect that that 18 percent will
stop purchasing?" she asked.
DR. BUTLER replied the data on e-cigarettes is limited but for
cigarettes there is a linear correlation between increasing
taxes and decreasing use. The decrease in uptake by youths is
even more pronounced.
CHAIR COSTELLO recalled a bill about 20 years ago that intended
to decrease youth smoking by increasing the cost of a single
cigarette.
2:26:57 PM
MR. ALPER pointed out that an FDA approved tobacco cessation
product would be exempted from the tobacco tax.
SENATOR STEVENS asked if e-cigarettes currently are not taxed.
MR. ALPER confirmed they aren't taxed, but the expanded
definition of "other tobacco products" brings e-cigarettes under
that tax structure.
SENATOR STEVENS requested he consider carving out a lower tax
for e-cigarettes.
MR. ALPER agreed and noted that the administration has revised
language for the definition of e-cigarettes for the committee to
consider. It clarifies that the product itself is taxed, not the
batteries and chargers.
2:29:17 PM
CHAIR COSTELLO asked if the driving principle of the Governor's
Sustainable Alaska Plan is to touch as many Alaskans as possible
and how the tobacco tax increase meets that goal.
MR. ALPER said fairness was an overriding principle, trying to
spread the impact among all Alaskans. The estimated revenue is
$29 million, but if half the smokers quit it might be revenue
neutral.
CHAIR COSTELLO asked him to provide that information to the
committee.
MR. ALPER said he'd try but he wasn't sure about its
availability.
CHAIR COSTELLO asked him to discuss the long-term impact that a
tax would have on the economy weighed against the expected
revenue.
MR. ALPER conceded that the consumption taxes are less essential
to the bottom line, but they're important in that they show the
intent to share the burden among all Alaskans.
CHAIR COSTELLO asked if the administration is thinking more
about the budget than the overall economy. "Am I wrong in saying
it's the economy, the economy, the economy that we should be
focusing on?" she asked.
MR. ALPER agreed it's important to consider the impact on the
overall economy, but it's also important to consider the danger
in running unstainable budget deficits. He recognized that
efficiencies could be gained by reducing the size of government,
but a too dramatic and immediate change could hurt the overall
economy.
2:34:48 PM
SENATOR MEYER offered his belief that the more money kept in the
private sector the better off the economy will be. He also
questioned why a sales tax isn't part of the Governor's tax
proposals because that seems to be the fairest way to have
everyone pay.
MR. ALPER pointed out that a sales tax is inherently more
regressive than an income tax, and doesn't account for regional
price differences. The Governor also felt there would be uneven
impacts in communities that already have a sales tax.
2:38:16 PM
SENATOR MEYER asked if he would favor a sales tax if it was
introduced.
MR. ALPER replied it would be given the same consideration as
any other revenue matter.
MR. SPANOS, responding to further questions, told the committee
that the Stamp Act was passed in 2004 and the cigarette tax was
increased to 8 cents per cigarette or $1.60 a pack at that time.
2:38:45 PM
SENATOR MEYER asked how much the proposed tax would increase a
$1.00 cigar or a can of snuff.
MR. ALPER said other tobacco products are taxed as a percentage
of the wholesale value so it's difficult to figure out the tax
on one cigar, but roughly 43 cents of the $1.00 price is the
excise tax under current law.
SENATOR MEYER commented that he doesn't know where Alaska stands
relative to other states in terms of cigar and snuff consumption
but he looks at them as nicotine products.
MR. SPANOS said the Federation of Tax Administrators publishes a
report showing other tobacco product taxes for each state; it
ranges from 25 percent to 100 percent of the wholesale price and
others tax it by the ounce.
SENATOR MEYER requested a report to show how Alaska compares to
other states.
2:42:40 PM
CHAIR COSTELLO asked for visuals for both alcohol and tobacco
showing the current cost of a variety of products in both urban
and rural areas throughout the state and how these tax proposal
would affect those prices.
SENATOR MEYER stressed the importance of treating Alaskans
fairly and then asked if marijuana is taxed differently.
MR. SPANOS confirmed that marijuana is taxed under separate
statutes. He clarified an earlier response saying the tobacco
taxes increased in 2004 and stepped up in 2005-2007 to arrive at
$2.00 per pack.
CHAIR COSTELLO asked Mr. Alper if he could say that the
administration is for, against or neutral on SB 131 and SB 133.
MR. ALPER replied the administration supports all the Governor's
bills. He related that there was an internal conversation of a
need for a statewide, broadly applicable tax and the Governor
made the final decision to introduce an income tax rather than a
sales tax.