Legislature(2003 - 2004)
03/24/2004 01:39 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
SENATE BILL NO. 291
An Act extending the transition period for activities
involving unstamped cigarettes; and providing for an
effective date.
SENATOR CON BUNDE explained that the bill addresses the
unfair treatment of tobacco product retailers conducting
legitimate business. The Legislature passed a tobacco tax
and subsequently also required cigarettes to be stamped to
track who was paying the tax, so that legitimate retailers
would not be at a financial disadvantage to the black
market. The original legislation gave the retailers a 90-day
window to dispose of unstamped stock when the legislation
passed. It appeared to be an adequate time period because
manufacturers previously had a policy that any excess stock
could be returned to the manufacturer. The manufacturers
have since ended that practice, putting the burden on the
Alaskan retailers. The bill would extend the deadline from
March 31 to June 30, 2004 for holding unstamped cigarettes.
It is an adequate time period for selling unstamped
cigarettes. Senator Bunde said that if the bill does not
pass, the retailers' unstamped stock would be confiscated.
Representative Fate asked if the sponsor had studied the
turnover rate of cigarette sales, and whether June 30, 2004
is an adequate time period for the depletion of the stock.
Senator Bunde deferred to Ms. Bales.
JOHANNA BALES, AUDITOR, TAX DIVISION, DEPARTMENT OF REVENUE,
noted that she is also the Program Manager for the Cigarette
and Tobacco Products Tax, and has worked in this tax type
since 1997. She explained that the normal shelf life for
cigarettes is 4-6 months, so given the additional 90 days in
the bill; the retailers would have a full six-month period
since the cigarette stamp legislation was enacted. She
anticipated that some retailers would still have product on
hand, but most retailers indicated that the additional 90-
day period would be sufficient.
Co-Chair Harris asked if this would allow for a $1 a pack
tax increase on stamped cigarettes. Senator Bunde replied
that he doubted it, considering the bill title.
Representative Hawker questioned why the cigarette
manufacturers' liberal return goods policy has changed. Ms.
Bales replied that the Tobacco Master Settlement Agreement
has driven the return goods policy. In the past, the
manufacturers allowed distributors and retailers to return
product for the retail price on the day it was returned,
regardless of what they paid for it. One manufacturer told
Ms. Bales that the return goods policy was felt to be
"liberal to the point of stupidity." The return goods policy
changed after SB 168 was signed into law, without notice
that this would happen.
Vice-Chair Meyer requested clarification that the tobacco
companies' decision not to take product back is not related
to the passage of the tobacco stamp and relates instead to
the Master Settlement, and asked if it is happening in other
states. Ms. Bales affirmed that it has been instituted
nationwide. She explained that the Division tried to work
with the manufacturers to allow a window to take product
back after the stamp was enacted, but the manufacturers were
concerned that it would set a precedent with other states.
Vice-Chair Meyer asked how much inventory would need to be
sold. Ms. Bales was unsure. She pointed out that the
Division came to a compromise with the manufacturers who
agreed to take product back temporarily, allowing the
Division under statute to give a credit to the distributors
but not to the retailers. The Division believed that the
retailers would be given a full 90-day period, but the
retailers have continued to get unstamped product from the
distributors who used the initial 90-day period to sell off
their unstamped product. The retailers haven't been given a
90-day period like the distributors. The Division has been
given assurances by the distributors that all of their
product will be stamped by the end of March 2004.
Vice-Chair Meyer asked how it is known that 90 days is
enough time for retailers to sell the product. Ms. Bales
admitted that it would not be enough time for all of the
retailers. The Division told the retailers that they could
have "fire sales" and reduce their prices without violating
the minimum pricing laws that were enacted at the same time.
The retailers she had spoken with felt that 90 days would be
adequate.
Vice-Chair Meyer asked if Alaska Bush retailers would be
adversely impacted by selling by July 1 if they had
stockpiled product. Ms. Bales replied that she had received
about 100 calls from across the state indicating that the
90-day extension would be an adequate amount of time.
Senator Bunde clarified that the intent of the bill is to
ensure that the tax laws are enforced, because an open-ended
extension would allow some businesses to circumvent the tax
laws, an unfair advantage.
Vice-Chair Meyer agreed with collecting the tax as soon as
possible, stating that it should be implemented immediately.
He questioned the time period of the extension, and
disagreed with allowing a "fire sale" because it would not
discourage kids from smoking.
Senator Bunde expressed that a "bonfire sale" might be good.
He pointed out that the distributors have moved their
unstamped product, so it involves a lower volume of
cigarettes at the retailer level.
Vice-Chair Meyer asked if the extent of the black market is
known and how much product is bought off the Internet. Ms.
Bales replied that the Division has some preliminary data on
the number of stamps sold over the past few months, which
would yield an increase in cigarette tax revenues if the
current rate holds steady. She said that she has talked to
retailers who have been buying product on the Internet and
violating the tax laws for years, as well as not getting the
stamp affixed.
Representative Chenault commented that he knows a person who
received a bill from the Department of Revenue a year after
buying cigarettes over the Internet. He asked if retailers
are required to turn in names of persons who buy cigarettes
over the Internet. Ms. Bales affirmed. Representative
Chenault voiced that he did not think Internet sales pose a
major problem. Currently he could have cigarettes sent to
him from out of state without paying any tax, and run the
very small risk of prosecution for smuggling. The State
wants to ensure that it gets every dollar for every pack of
cigarettes sold in the state, which he implied is the real
reason the state has chosen to stamp cigarettes.
Senator Bunde clarified that the stamp simply allows
enforcement of the current law. He agreed with
Representative Chenault that the incentive behind raising
the tax is to make smoking more expensive and less
attractive.
Vice-Chair Meyer commented that his concern prompting the
question about the black market related to receiving an
email message saying, "start smoking now and get cheap
cigarettes." He asked if military bases are exempt. Ms.
Bales affirmed. Vice-Chair Meyer asked how it works if a
member of the military lives off base. Ms. Bales explained
that federal law prohibits the State from taxing sales to
the military, but there is a mandate to the military to sell
cigarettes at no less than 90% of the surrounding market.
She had been in stores on base and observed that the prices
are not significantly different than retail prices. Ms.
Bales said that the Department doesn't see a problem with
the military.
Vice-Chair Meyer asked if the stamp applies to chewing
tobacco, snuff and pipe tobacco. Ms. Bales explained that
the stamps are not affixed to other tobacco products because
all cigarette packages are about the same size, while other
products are of varied size. She was not aware of any other
state requiring a stamp on tobacco products other than
cigarettes.
SB 291 was heard and HELD in Committee for further
consideration.
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