02/23/2004 10:02 AM Senate FIN

                                                                                                                                
     SENATE BILL NO. 291                                                                                                        
     "An Act extending the transition period for activities                                                                     
     involving unstamped cigarettes; and providing for an effective                                                             
     date."                                                                                                                     
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Wilken  stated that the Senate  Labor & Commerce  Committee                                                            
is  the  sponsor   of  this  legislation  which  would   extend  the                                                            
transition period for the  sale of unstamped cigarettes that were in                                                            
the State prior to January  1, 2004, from March 31, 2004 to June 30,                                                            
2004.  He  noted that  this  extension  would  provide  dealers  and                                                            
distributors   an  additional  90  days  to  dispose   of  unstamped                                                            
cigarettes.                                                                                                                     
                                                                                                                                
JANE ALBERTS,  Staff to Senator Con  Bunde and Aide, Senate  Labor &                                                            
Commerce (L&C) Committee,  explained that this bill is the result of                                                            
an "unforeseen  and unexpected" situation  relating to the  adoption                                                            
of SB 168-CIGARETTE  SALE/DISTRIBUTION  during the 2003 Legislative                                                             
session that required cigarettes  for sale in the State to display a                                                            
tax stamp which  "would indicate that a tax had indeed  been paid on                                                            
the product."  She reminded that SB 168 specified  the date of March                                                            
31, 2004  as the  deadline by  which dealers  and distributors  must                                                            
have disposed of any unstamped  inventory purchased prior to January                                                            
1, 2004.  She  noted that,  at the  time SB  168  was adopted,  this                                                            
timeframe, based  on the recent enactment of similar  legislation in                                                            
Hawaii, had  been considered ample  time for disposal. However,  she                                                            
continued, the  tobacco companies' "once liberal"  and long-standing                                                            
supplier returned goods  policy was changed in the fall of 2003 to a                                                            
more restrictive  policy that  "makes it  almost impossible  for the                                                            
dealers  and  distributors  to  return  their  cigarettes  for  full                                                            
credit."  She noted  that,  had the  tobacco companies'  policy  not                                                            
changed,  the Department of  Revenue could  have issued credits  for                                                            
previously taxed cigarettes  and the retailers and wholesalers could                                                            
have repurchased  cigarettes bearing  the tax stamp. Therefore,  she                                                            
stated, this  legislation was developed  to allow for the  depletion                                                            
of the previously purchased  inventory. In addition, she shared that                                                            
the tobacco  industry  has been  unresponsive to  the Department  of                                                            
Revenue's request that their prior return policy be reinstated.                                                                 
                                                                                                                                
Ms. Alberts  reminded  that SB  168 also prohibits  cigarettes  from                                                            
being "loss leader," or  reduced price, items. This restriction, she                                                            
stated, prevents  dealers and distributors  from being able  to sell                                                            
their unstamped  inventory more quickly. Therefore,  she noted, were                                                            
this  legislation  not  adopted,   the unsold   inventory  would  be                                                            
considered,  as  of March  31,  2004,  as contraband  and  would  be                                                            
subject to State seizure.  She stated that this legislation is being                                                            
presented,  at the recommendation  of the Department of Revenue,  in                                                            
order to extend  the deadline to June  30, 2004 in order  to provide                                                            
dealers  and distributors  time to  sell their  unstamped  cigarette                                                            
inventory.  She  pointed  out  that  the  Members'  packets  contain                                                            
numerous letters in support of the legislation.                                                                                 
                                                                                                                                
JOHANNA  BALES,  Program Manager,  Cigarette  and  Tobacco  Products                                                            
Excise  Tax, Department  of Revenue,  testified  via teleconference                                                             
from Anchorage  and expressed  that the Department  has received  in                                                            
excess of 50 communications  from distributors and retailers voicing                                                            
concern regarding  this situation.  She relayed that as a  result of                                                            
the  Department's  efforts to  discuss  the situation  with  tobacco                                                            
manufacturers,  relief might be forthcoming  to assist distributors                                                             
with  the tax  stamp situation.  However,  she noted,  no remedy  to                                                            
address  the retailers' situation  has been  determined. She  stated                                                            
that the Department supports this legislation.                                                                                  
                                                                                                                                
MIKE  ELERDING,  President,  Northern Sales  Company  Alaska,  Inc.,                                                            
testified  via  teleconference  from  Ketchikan  to voice  that  the                                                            
tobacco  industry unanimously  supports  this legislation.  He  also                                                            
noted that  he has submitted written  testimony, dated February  23,                                                            
2004, [copy on file] in support of this bill.                                                                                   
                                                                                                                                
Co-Chair  Green  moved  to  report  the  bill  from  Committee  with                                                            
individual recommendations and accompanying fiscal note.                                                                        
                                                                                                                                
Senator Bunde  stated that people like Mr. Elerding  had assisted in                                                            
the original  tax stamp legislation,  and he assured that  there was                                                            
no intent  to have people  like him "financially  inconvenienced  by                                                            
the process."  Continuing,  he requested  that the  passage of  this                                                            
bill be expedited.                                                                                                              
                                                                                                                                
Co-Chair Wilken  concurred and noted that the current  situation was                                                            
"unintended" and were the result of "the rules" being changed.                                                                  
                                                                                                                                
There being  no objection, SB 291  was REPORTED from Committee  with                                                            
zero fiscal note #1, dated  February 9, 2004, from the Department of                                                            
Revenue.