Legislature(1997 - 1998)

05/01/1998 06:35 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
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.                        

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