Legislature(2003 - 2004)
04/16/2003 01:46 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
HOUSE BILL NO. 224
"An Act relating to a tobacco product manufacturer's
compliance with certain statutory requirements
regarding cigarette sales; and providing for an
effective date."
MIKE BARNHILL, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF
LAW, testified in support of the bill and provided
information about the legislation. He referred to the
Master Settlement Agreement, initiated in Alaska and 45
other states as a result of the 1998 settlement of tobacco
company litigation. The Master Settlement Agreement
established a stream of revenue that lasts in perpetuity.
He noted that Alaska's most recent annual payment was for
$17.5 million.
Mr. Barnhill stated that the revenue stream could however be
reduced under certain circumstances. He noted that one
circumstance was known as a non-participating manufacturer
(NPM) adjustment. He explained that states could avoid an
NPM adjustment in two ways: first, by enacting an NPM
statute, and second, by diligently enforcing the statute.
He referenced Alaska's NPM statute, located in AS 45.53. He
explained that the statute creates economic equanimity under
the Settlement Agreement between participating and non-
participating manufacturers. He pointed out that
participating manufacturers fund the Settlement Agreement
revenue stream by raising the prices of cigarettes. He
stated that the NPM statute requires non-participating
manufacturers to deposit money into an escrow account based
on cigarette sales in the state. He noted that in FY 01 and
02, the amount deposited equaled 1.5 cents per sale.
Mr. Barnhill also addressed the enforcement of the statute.
He noted that the Department of Revenue sends letters to
non-participating manufacturers advising them of their legal
obligations. If compliance does not occur after several
letters, the manufacturers are referred to the Department of
Law, and a lawsuit may be filed if the sales are
significant. He pointed out the case of a company in India
that did not comply, resulting in a lawsuit filed by the
state of Alaska. He discussed the difficulties of filing an
international lawsuit, and noted that in 2001 Alaska, along
with the state of Maine, passed complimentary legislation
designed to enhance the states' ability to enforce their
escrow laws. He added that in 2002, the National
Association of Attorneys General formed a working group to
design model statutes and encourage uniformity between
states. He stated that the proposed legislation, HB 224,
resulted from this working group.
Mr. Barnhill explained that the statute establishes a list,
developed by the Department of Revenue, of the manufacturers
and brands of cigarettes allowed for sale in the state of
Alaska. He noted that to be on the list, a manufacturer
must do one of two things: either certify annually that
they are a participating manufacturer under the Settlement
Agreement, or a non-participating manufacturer in compliance
with state law. A distributor may refer to the list and
determine which brands they may sell. He noted that the
legislation also provides for provision of information by
manufacturers in order to monitor compliance. It also
provides penalties for non-compliance, and addresses special
conditions for foreign manufacturer enforcement. He added
that the bill provides a tax credit for distributors who
purchase a brand of cigarettes that are later taken off the
list for non-compliance.
Representative Stoltze asked for information about statutes
exempting tribal entities from paying taxes on cigarette
sales. Mr. Barnhill referred to national research
investigating Internet sites selling tax-free cigarettes.
Representative Stoltze referred to the sale of tax-free
tobacco on reservations.
JOHANNA D. BALES, TAX AUDITOR, DEPARTMENT OF REVENUE noted
that she coordinates the cigarette and tobacco products
excise tax program. She referred to the passage of the
Native Claims Settlement Act in 1977, and its establishment
of corporation status for every tribe in the state of
Alaska. She noted that the only tribe with a reservation
status was the Metlakatla Indian Community, making them the
only native tribe in the state that can purchase cigarettes
without paying tax. She noted that the Department of
Revenue had negotiated with the tribe and reached an
agreement, whereby the tribe will collect and pay state
taxes if their purchase of tobacco products exceeds a
certain amount. She added that the Klawock Indian Community
maintained 2.5 acres of Indian Country Land, which includes
a smoke shop where they can sell cigarettes without paying
tax. She concluded that Alaska differed from others states
in this issue, and did not experience the same difficulties.
In response to a question by Representative Meyer, Mr.
Barnhill clarified that the zero impact fiscal notes were a
result of existing complimentary legislation. He added that
the proposed legislation simply updates current procedures
and makes enforcement easier.
Vice-Chair Meyer asked if there was legislation considering
placing a stamp on cigarettes to indicate its place of
purchase. Mr. Barnhill noted that SB 168-CIGARETTE
SALE/DISTRIBUTION ["An Act relating to . . . payment of
cigarette taxes through the use of cigarette tax stamps; . .
."] did propose this action.
Representative Foster MOVED to report HB 224 out of
Committee with individual recommendations and accompanying
fiscal notes. There being NO OBJECTION it was so ordered.
HB 224 was REPORTED out of Committee with a "do pass"
recommendation and two previously published zero fiscal
notes, #1 from the Department of Law and #2 from the
Department of Revenue.
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