Legislature(1997 - 1998)
05/01/1998 06:35 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE BILL NO. 299 "An Act reducing excise tax rates for pipe tobacco and certain cigars, cheroots, and stogies." Members were provided with a proposed committee substitute for HB 299, #O-LS1212\F, 5/1/98(copy on file). KYLE JOHANSEN, STAFF, REPRESENTATIVE WILLIAMS testified in support of SB 13. He observed that last session Senate Bill 13 was passed in an effort to reduce the use of cigarettes by minors. Included in the legislation was a tripling of the wholesale tax on "other tobacco products." He noted the negative effects of SB 13 on small businesses dealing with cigars and pipe tobacco. House Bill 299 was introduced to lower the tax rate on cigars and pipe tobacco. Currently the state taxes the wholesale price of cigars and pipe tobacco at 75%. Since the implementation of the tax increase (from 25%) on October 1, 1997 businesses that sell cigars and pipe tobacco have seen a large drop in sales. Consequently, many small businesses are struggling to stay profitable under the new tax structure. Mr. Johansen observed that cigars and pipe tobacco are generally sold in tobacco shops, liquor stores and bars. These establishments are closely monitored by their proprietors or are already off limits to minors. In addition, AS 11.76.100 and AS 11.76.107 prohibit the sale to or possession of tobacco by a person under the age of 19. Mr. Johansen emphasized that revenues derived from taxes on cigars and pipe tobacco are deposited into the state general fund. He asserted that the 75% tax rate is an extreme contribution to the general fund by these particular businesses in Alaska. BOB BARTHOLOMEW, ASSISTANT DEPUTY DIRECTOR, INCOME AND EXCISE AUDIT DIVISION, DEPARTMENT OF REVENUE reviewed the legislation. He noted that the legislation expands the definition of cigarette. The definition was taken from the federal Internal Revenue Services. It adds as a new area what would now fall under cigar. Section 2 changes the tax rate on other tobacco products from 75 percent of the wholesale price to 25 percent of the wholesale price. Under the proposed committee substitute, a hand rolled cigar or tobacco in any form suitable for smoking in a pipe would qualify at the lower tax rate. He observed that pouch tobacco can be used for cigarettes or pipes. He stressed that it will be difficult to determine the intended purpose of pouched tobacco. Section 3 reorganizes how other tobacco products would be defined. He observed that subsection (D) on page 2 of the proposed committee substitute defines other tobacco as "chewing tobacco, including cavendish, twist, plug, scrap, and tobacco suitable for chewing." He observed that this could be used to define cigarette or pipe tobacco and emphasized the difficulty of determining the use. He observed that cigars are addressed as a tax rate on line 4 and 6, page 2 of the proposed committee substitute. Representative Davies interpreted the proposed committee substitute to place hand rolled cigars at the 25 percent tax rate and all other cigars at the 75 percent rate. A cigar would be taxed in two different ways. b. agreed and added that the Department would have to break cigars out into different rates. He reiterated that the Department would have a compliance problem. Mr. Bartholomew discussed the fiscal note. He observed that the fiscal note was based on the previous version. The Department's estimate included the assumption that if the rate were dropped that consumption would increase. There would be a loss of general fund revenue of $728.7 thousand dollars annually. Representative Mulder observed that the product is taxed as it enters the state. He questioned if a seller would be able to have the tax refunded if they were unable to sell the product in the state. b. stated that statutes do not provide for refunds. GREG CONLEY, PHYSICIAN, BOSTON, MASSACHUSETTS testified via teleconference. He noted that he had worked has worked with the Surgeon General on tobacco use issues. He concluded that cigar smoking increases the risk of oral and lung cancer. He maintained that cigars are not a safe alternative to cigarettes. He observed that there is a sharp increase in cigar use, especially in adolescent males. He emphasized that there are no warning labels on cigars. He noted that the current tax is approximately the same for manufactured cigars and cigarettes per pound. The tax on premium cigars is higher per pound then cigarettes. Research in the National Cancer Institute Monograph indicated that product sales go up when taxes go down. One large cigar has more tobacco then a pack of cigarettes and has higher doses of toxic substances. The maximum federal tax on cigars is 3 percent. He emphasized that the same standards for regulation and taxation should apply for cigars and cigarettes. CHRISTIE MCINTIRE, ANCHORAGE CHAPTER, AMERICAN LUNG ASSOCIATION spoke against the legislation. She stressed that cigars are harmful and pose a risk to nonsmokers from second hand smoke. SHARI SMOLE, SCHOOL NURSE, ANCHORAGE testified via teleconference against the legislation. She asserted that the tobacco tax increase has been successful in reducing teen smoking. She did an informal survey in her school with students age 14 to 17. Of 46 students; 17 were full-time smokers, 36 had tried cigars at least one time, and 12 were regular cigar smokers. Students preferred smaller cigars. She noted that none of the students she interviewed rolled their own cigarettes. JUDITH BENDERSKY, RURALCAP, ANCHORAGE testified via teleconference in opposition to the legislation. She works in the Child Development Division coordinating health services in rural communities. She stressed that the legislation would be regressive. She maintained that the tobacco industry is trying to make cigars and pipes attractive. NEAL MATSON, AMERICAN CANCER SOCIETY, FAIRBANKS testified via teleconference in opposition to HB 299. He stressed that the tobacco tax is working. He counsels people who want to quit smoking. He smoked for 30 years. He observed that cigars are a fast growing fad. ELLEN GANLEY, PRESIDENT, ALASKA PUBLIC HEALTH ASSOCIATION, FAIRBANKS testified via teleconference in opposition to the legislation. She emphasized tobacco has an adverse affect on health and increased use will cost more in state funded health care. DIANA CAMPBELL, TANANA CHIEF CONFERENCE testified via teleconference in opposition to HB 299. She recounted the story of a child who started smoking when they were 6 and could not stop. She observed that tobacco related cancer is responsible for 30 percent of cancer deaths among Alaskan Natives. NATHAN BAILY, TOBACCO ALLIANCE IN THE PENINSULA, KENAI testified via teleconference in opposition to HB 299. He emphasized that the legislation sends the wrong message. He maintained that tobacco use, especially hand rolled cigarettes, promotes to drug use. JUDY DOWNS, TOBACCO ALLIANCE IN THE PENINSULA, KENAI testified via teleconference in opposition to HB 299. She noted that she works with students on a daily basis. She expressed concern over the number of middle school students struggling with tobacco addiction. She questioned if the message is that pipe and cigar tobacco is less dangerous and harmful. She observed that local convenience stores have cigars for sell on their counters. (Tape Change, HFC 98 - 141, Side 2) MARSHA MOROIELLI, COMMUNITY PARTNERSHIPS, NOME testified via teleconference in opposition to HB 299. She stated that there has been an increase in cigar use among 8th and 9th grade boys. SUSAN MASON-BOUTERSE, DIVISION OF PUBLIC HEALTH, DEPARTMENT OF HEALTH AND SOCIAL SERVICES testified in opposition. She provided members with a handout, "Cigars and Pipe Tobacco: Health Effects (copy on file). Since 1993, cigar use has increased by nearly 50 percent. This has coincided with promotional activities, such as cigar parties and magazines. There are many misperceptions regarding cigar and pipe tobacco use. Most new cigar users are teenagers and young adult males who smoke occasionally. Cigar smoking causes a variety of cancers: esophagus, oral cavity, larynx and lung. Pipe smoking increases the risk of developing lung disease and cancers of the lung, esophagus, oral cavity and larynx. Even if cigar smokers do not inhale they have higher levels of risk for oral, throat, and esophageal cancers. Most former cigarette smokers continue to inhale smoke when they switch to cigars. The relapse rate of former cigarette smokers who smoke cigars was twice as great as in those who did not smoke cigars. The nicotine from cigars is absorbed into the body through the blood vessels in the mouth. Cigar smokers are twice as likely to take up cigarette smoking for the first time than non-cigar smokers. A large cigar emits 20 times the ammonia, 5-10 times the cadmium, and up to 89- 90 times the highly carcinogenic nitrosamines as a cigarette. Youth usage of cigars is on the rise. She reviewed findings from the National Cancer Institute Monograph: ? About 6 million U.S. teenagers 14-19 years old smoked at least one cigar within the last year. ? According to a recent national survey, 1 0f 4 high school students smoked at least one cigar with the past year. ? Some school-based studies report that adolescent boys use of cigars exceed their use of smokeless tobacco. Ms. Mason-Bouterse stressed that using tobacco in any form causes health problems. Consumers tend to move to lower cost products. If the cost of cigars and pipe tobacco decreases, the use of these products can be expected to increase. Teenage cigar use is on the rise across the country. Lowering the price may make the product more accessible to our youth. JEFF MORENO, STUDENT, JUNEAU testified against the HB 299. He agreed that lowering the price would increase usage. He noted that he has smoked cigarettes for six years and is attempting to stop. He started smoking cigars because of the cost. He observed that cigars are displayed in areas that allow them to be stolen. He stressed that cigars should be put behind counters. He emphasized the addictive properties of tobacco. He mistakenly thought that cigars were safer to smoke because they don't have warning labels. He emphasized that nicotine patches and classes to stop smoking should be more available. In response to a question by Representative Martin, Mr. Moreno noted that cigars are readily available. In response to a question by Representative Davies, Mr. Moreno stated that adolescents still believe that cigars are less harmful. ANNE MARIE HOLEN, CITIZENS TO PROTECT KIDS FROM TOBACCO, ANCHORAGE testified against HB 200. She observed that the legislation comes at a time of increasing alarm over the rising rates of cigar smoking and the astonishing popularity of cigars among kids. She referred to the report by the National Cancer Institute, "Cigars Health Effects and Trends." There is an article in the May 1998 issue of Consumer Report titled, "Seductive Cigars: New ways to addict the next generation." She noted that the article states: "Tobacco is tobacco, so any legislation or regulation that does not include all tobacco products will be far from complete." She emphasized that there has been a dramatic increase in cigar use. Most of the new users are teenagers and young adults. The health risk from cigar smoking is significant. Ms. Holen displayed tobacco products. She pointed out that the biggest, fattest cigars with the most nicotine and cancer-causing nitrosamines, which cause the most carbon monoxide and ammonia are okay. Some of the cigar products are more affordable. She maintained that the majority of adults that smoke want to quit. Increased costs provide added incentive to quit. Ms. Holen asserted that the tobacco tax has reduced the demand for tobacco products. She maintained that arguments that the tax has contributed to a smuggling problem are unsubstantiated. The state of Washington has had a tax rate of 75 percent of the wholesale price since 1993. Ms. Holen pointed out that the tobacco industry is lobbying for reductions in the tax. She maintained that the tobacco industry would attempt to reduce the tax on cigarettes if they are successful in reduction the tax on cigars and smokeless tobacco. She observed that the legislation would reduce $780 thousand dollars from the general fund that could be appropriated for tobacco prevention and control. ROSIE SLOTNICK, STUDENT, TEENS AGAINST TOBACCO USE, JUNEAU testified against HB 299. She stressed that there are young women that are experimenting with cigars. She observed that a lot of teens roll their own cigarettes. She maintained that a repeal of the cigar tax reinforces the image that cigars and pipes do not have the same adverse effect as other tobacco products. She asserted that it "would not be fair to the young people of Alaska to repeal the cigar and pipe portion of the tobacco tax, because it sends the wrong message." JENNIFER ANDREWS, BETHEL TEEN AND ADULT CENTER, BETHEL testified via teleconference in opposition to HB 299. She works with young adults that are addicted to nicotine. She stressed that passage of the legislation would send a mixed message. DAN BERLINER, PHYSICIAN, BETHEL HEALTH, BETHEL testified via teleconference in opposition to HB 299. He observed the increase in tobacco use among young people. He stressed that increased tobacco use results in increased health care resources. GRETCHEN BARNES, DIRECTOR OF NURSING, PUBLIC HEALTH NURSE, BETHEL testified via teleconference in opposition to HB 299. She stressed the deleterious affects of tobacco use and second hand smoke. She noted that tobacco use has declined since the implementation of the tobacco tax. RICHARD WHITE, PUFFIN PIPE, KETCHIKAN testified via teleconference in support of HB 299. He observed that his business has been negatively impacted by the tobacco tax. He maintained that the increase is out of line. He spoke in support of a 25 percent tax. He observed that only one minor has tried to purchase products in his store since they opened. He maintained that the average age of cigar and pipe smokers is 34 years of age. He pointed out that Alaskans could bypass the tax by ordering cigars and pipe tobacco through the mail. He stressed that if tobacco businesses fail that jobs will be lost and the state of Alaska will receive less revenue. JANETTE SHACKLES, PHYSICIAN, MANILLAQ HEALTH SERVICE, KOTZEBUE testified via teleconference in opposition to HB 299. She pointed out that cigars and pipes are not safe alternatives to cigarette smoking. She expressed concern that use of smokeless tobacco will in juveniles will increase if the legislation is passed. REX GARVER, SITKA testified via teleconference in opposition to HB 299. He noted that the tobacco tax has been in effect for less than a year. BOB DIXON, Anchorage testified via teleconference on behalf of Pete Switzer and Pete's Tobacco Shop in support of the HB 299. He stated that business in Pete's Tobacco Shop has declined by 60 percent in sales since the tobacco tax was implemented. He maintained that consumption has not declined. He stressed that cigars can be purchased through the mail. He observed that the large hand rolled cigars are not being smoked by juveniles. He asserted that consumption is going out of state. He maintained that legitimate Alaskan businesses that do not sell to kids are being put out of business. He suggested that the tax be based on the price of the cigar. He pointed out that no one under the age of 21 is allowed in Pete's Tobacco Shop. He emphasized that parents should control their children. (Tape Change, HFC 98 -142, Side 1) KANDACE WILLIAMS, PROFESSOR OF CANCER RESEARCHER, UNIVERSITY OF ALASKA, ANCHORAGE testified via teleconference in opposition to HB 299. She spoke in support of the tobacco tax. She emphasized that cigars and pipe tobacco do not have less carcinogens or are less addictive. She stressed that teenage consumption will increase if the tax is reduced. She maintained that smokers should pay their fair share of health costs if they smoke. JONATHON GALIN, ALASKA DISTRIBUTORS, ANCHORAGE testified via teleconference in support of HB 299. He maintained that the tobacco tax penalizes adults that smoke cigars. He emphasized that underage people are not allowed to purchase tobacco products. He maintained that the tobacco tax is regressive. DELISA CULPEPPER, MUNICIPALITY OF ANCHORAGE, DEPARTMENT OF HEALTH AND SOCIAL SERVICES, ANCHORAGE testified via teleconference in opposition to HB 299. She observed that the Municipality of Anchorage has an additional 15 percent tax on cigars. She stressed that it is risky to reduce the tax on all cigars. PAUL BARRETT, AMERICAN CANCER SOCIETY, FAIRBANKS testified via teleconference in opposition to HB 299. He stressed that costs of the harmful affects of tobacco are born throughout society, not just by the consumers of the product. He expressed doubt that children would purchase tobacco products through catalog sales. He maintained that a partial roll back of the tax would be a slap in the face to all the people that supported the tax a year ago. GLENN HACKNEY, FAIRBANKS testified via teleconference in opposition to HB 299. He observed that the legislation on received one committee referral. Representative Kelly observed that the legislation was introduced on the 12th of January. BONNIE JACK, ANCHORAGE testified via teleconference in opposition to the legislation. She recounted personal experiences with tobacco related deaths. She observed that young women smoke cigars. KEN JACOBUS, TOBACCO EDUCATOR, ANCHORAGE testified via teleconference in support to HB 299. He maintained that teenagers do not consume premium cigars. He felt that the tax should be deleted because it does not address the problem of teenage consumer. He stressed that funding collected from a tax on tobacco should target tobacco prevention programs. BILL BOUWENS, TOBACCO EDUCATOR, ANCHORAGE testified via teleconference testified via teleconference in opposition to HB 299. He pointed out that 90 percent of tobacco users begin before the age of 21. JENNY MURRAY, TOBACCO POLICY COORDINATOR, AMERICAN CANCER SOCIETY, ANCHORAGE testified via teleconference in opposition to HB 299. She emphasized that the increase in cigar consumption is the result of a sophisticated advertising campaign by the tobacco industry. She quoted a report in the Baltimore Sun, January 1998. The article stated that the cigar industry began a resurrection of cigar smoking two decades ago. Successful strategies included manipulation of the media. She observed the increased presence of cigars in Alaskan convenience stores. BUFF BURTIS, PHYSICIAN, ANCHORAGE provided written testimony in opposition to HB 299 (copy on file). Nicholas Kittleson, Anchorage, read his testimony. Dr. Burtis stated that he works with patients suffering from tobacco related illnesses. He stressed that hospitalization for these patients cost approximately $1,000 dollars per day. He sees at least one new case a month of tobacco related bronchogen lung cancer. NICHOLAS KITTLESON, ANCHORAGE testified via teleconference in opposition to HB 299. He suggested that tobacco tax revenues be used to redirect tobacco businesses. BOYD MCFAIL, ANCHORAGE testified via teleconference in support of HB 299. He noted that he purchases his cigars from out-of-state because of the tobacco tax. He maintained that Alaska businesses will go out of business and that state revenues will be decreased. He observed that the tobacco tax is used for school maintenance. Co-Chair Therriault MOVED to ADOPT work draft #O-LS1212\F, Glover, 5/1/98. Representative Davies OBJECTED. KYLE JOHANSEN, STAFF, REPRESENTATIVE WILLIAMS explained that the only change from the previous version occurred on page 2, line 4. "Hand rolled cigars" was added in the work draft in order to narrow the legislation to the specialty, high- end cigars. The change was made in response to concern regarding low-end cigars. He explained that "perique" is a type of cigar. There being NO further OBJECTION, ADOPT work draft #O- LS1212\F, Glover, 5/1/98 was adopted. Representative Davies MOVED to ADOPT Amendment 1, delete page 2, line 5 "(B) tobacco in any form suitable for smoking in a pipe. Mr. Johansen spoke against the amendment. He noted that cigarette and pipe tobacco is clearly marked. He stressed that there is a distinguish between tobacco used for cigarettes and pipes. Representative Davies WITHDREW the MOTION. Representative Kohring MOVED to report CSHB 299 (FIN) out of Committee with the accompanying fiscal note. Representative Davies OBJECTED. He spoke against passage of the legislation. He emphasized that the legislation sends the wrong message and will invite youth to begin or continue to use tobacco. He emphasized the medical affects of tobacco smoking and second hand smoke. He estimated that there would be more money available to deal with tobacco related issues if the tax remains even though it is deposited into the general fund. (Tape Change, HFC 98 - 142, Side 2) Representative Kohring WITHDREW the MOTION to move HB 299. HB 299 was HELD in Committee for further consideration.