Legislature(1997 - 1998)
02/11/1997 03:05 PM House HES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 1 - CIGARETTE AND TOBACCO TAX Number 1892 CHAIRMAN BUNDE said he was the sponsor of HB 1 and as such would turn the chair responsibilities over to Vice-Chair Green in order to present HB 1. He said HB 1, "An Act relating to taxes on cigarettes and tobacco products; and providing for an effective date.", now CSHB 1(STA) has the misfortune of being labeled the tobacco tax bill. He said CSHB 1(STA) uses the current tobacco tax as a vehicle. He wished he could call CSHB 1(STA) an economic barrier user fee bill because this is how he views the bill. He hesitantly introduced this legislation, more than a year ago at the request of some constituents, because of concerns over tax and spend legislation and doubts about whether or not social engineering works. He said he had the same concerns that probably many others have shared. CHAIRMAN BUNDE said he needed to be educated as to the effectiveness of an increase in cost of nicotine. He said he is convinced that raising the cost of tobacco does work. He said the experience in Canada, particularly western Canada, has indicated that the use goes down 4 percent overall for the every 10 percent increase in price. He said the use among young people goes down even more dramatically than that, some say as high as 30 percent. He said we can argue about decimal points but the use of nicotine is related to price, it is price sensitive. Number 2005 CHAIRMAN BUNDE said the other aspect of CSHB 1(STA) is the user fee. Tobacco products cost the state of Alaska about $200 million a year. He suggested that those who chose to use nicotine perhaps have an obligation to help pay their expenses to the state. He said this is purely a voluntary task. If you do not smoke, you do not pay the tax. If you do smoke, you do cost the state of Alaska hundreds of thousands, if not millions of dollars. Number 2055 CHAIRMAN BUNDE said the evidence behind increasing the cost of tobacco encouraged him to introduce CSHB 1(STA). He wanted to address a couple of items that people brought up which are valid concerns, to share them for the committee's consideration. One of these concerns is that if we increase the cost on cigarettes particularly, although all tobacco products will be taxed, we will be encouraging smuggling. He heard people from Quik Stops suggest that, when they are subjected to armed robbery, people will be taking cartons and cartons of cigarettes instead of money. He is suggesting that if we have such a problem that armed robbery is one of our concerns in dealing with the problem that the use of nicotine generates in our society, we have a bigger problem than just the cigarette tax and maybe that needs to be addressed in another area. CHAIRMAN BUNDE referred to concerns about social engineering and said many of those people would not suggest removing government prohibition from every drug that is available to us. He said, admittedly, tobacco is a legal drug and we can debate whether or not this should be the case. He said removing prohibitions is not going to decrease the cost of tobacco and its impact on our society, particularly on our young people. Increasing prohibitions has a chance of decreasing use. CHAIRMAN BUNDE said another concern that was addressed is that CSHB 1(STA) would simply increase the amount of mail order access to nicotine. He said this is a valid concern, particularly with other tobacco products. People who have small, specialty shops are concerned that if we increase the price of a $10 cigar to a $14 cigar, then people who are already tempted to buy through mail order businesses will simply buy through the mail order and the small business will go out of existence. He said he is sensitive to this concern and would not want to penalize local businesses. He said if people can currently buy any tobacco product that they want via the mail and not even pay our existing, paltry 29 cent tax, maybe we have some problems with our basic system now. He said this concern about people flocking to a mail order access could be addressed in other legislation. Number 2148 CHAIRMAN BUNDE said there are comments that we need not tax pipe tobacco or cigars because young people do not use them and it is not causing the huge health problem. Certainly from the people he talked to in the dental community that are concerned about oral cancer and a personal experience he had with people who have had oral cancer, this is not the case. He said, of the figures that he has received, there is only 30 percent of the health impact from cigars and pipe tobacco than there is from cigarettes. He said the most dramatic figure he had heard, is that people who die nationwide everyday from the use of all tobacco products is equivalent to the number of people who would die if two 747 jets full of people crashed into each other. He said we kill about 800 people a day with tobacco. If we had that type of problem going on in our society with our aircraft industry we would make huge changes, immediately. He said we have that type of problem going on in the nicotine industry, but we don't make huge changes because the gestation period is so long. Number 2201 CHAIRMAN BUNDE said his mother started smoking when she was 16 and was encouraged to smoke because for women it was sophisticated and calmed their nerves. Almost all the heros in the movies, those days, smoked. She started smoking when she was 16, but it took until she was age 50 for nicotine to kill her. He suggested that if those people who smoked today, died within a month, we probably would address this problem a little more seriously. He said we have more time fortunately and that is why he is here. The CSHB 1(STA) is only one way to help address the nicotine addiction problem in our country. It isn't the only answer, but one of them. CHAIRMAN BUNDE said a number of people have contacted him from businesses that sell nicotine and have expressed concern about the impact on their business by CSHB 1(STA). He said this tells him that CSHB 1(STA) will work. They are going to lose business because people will not smoke as much. Every one of those people who contacted him have said they do not want kids to smoke and said he believes they are genuine in the wish, they do not want kids to smoke. He said if that is the case and we know in excess of 90 percent of people, who are addicted to nicotine, began smoking as kids then people in the nicotine industry better look for a new job. Because if they, through some magic bullet, can stop kids from starting to smoke tomorrow they would be out of business. TAPE 97-8, SIDE B Number 0000 CHAIRMAN BUNDE said the committee did not have to act on CSHB 1(STA) today and that they could devote the rest of the meeting to public testimony. On Thursday, February 13, 1997, CSHB 1(STA) would be brought back up for action. Number 0010 KAREN PERDUE, Commissioner, Department of Health and Social Services, said in the interest of time she would defer testimony but asked the committee to let Ms. Carr talk briefly about some of the statistics. She said the Knowles Administration supports a $1 a pack tax and is ready to work with the committee in any way they can. Number 0102 PAT CARR, Health Programs Manager, Central Office, Division of Public Health, Department of Health and Social Services, said she is also supervising the tobacco prevention and control program. She said tobacco usage is the number one cause of preventable death and disease in the United States, accounting for over 419,000 deaths each year. Over 23 percent of deaths of Alaskans 35 years of age and older, in 1991, were attributable to smoking. She referred to a handout packet titled, "Tobacco Tax Bill Analysis," which was located in the committee file. MS. CARR referred to page 3 of the handout and said it shows the percentage of deaths in the United States from cigarette use, accounting for over 400,000 deaths per year. This figure is more than the combined total of burns, AIDS, suicides and other common causes of preventable death. In Alaska there are over 1,400 deaths per year from cigarette smoking which is higher than from many other preventable cause of death. She clarified that these deaths were just from cigarette smoking, not other forms of tobacco products. MS. CARR said, based on the youth behavior risk survey and the adult behavior risk factor survey, 83 percent of adult smokers report that they started smoking before the age of 20. In this way we see that nicotine addiction is a pediatric disease. She said 21 percent of Alaskan high school students reported that they smoked regularly in the last month, this means 20 out of the past 30 days. She said 25 percent of Alaskan middle school age students reported smoking at least one cigarette in the last month. Number 0249 MS. CARR said surveys, conducted in 1996 under the supervision of the Department of Health and Social Services (DHSS), showed 64 percent of our vendors complied with tobacco restriction laws which meant that 36 percent do not comply. She said the federal government mandates an 80 percent compliance rate by the year 2000 under the Synar Amendment. The state of Alaska stands to lose a substantial amount of our substance abuse preventive and treatment block grant if we do not comply with this amendment. Tobacco vendors refused to sell to 14 to 15-year-olds 71 percent of the time, while 16 to 17-year-olds were refused 58 percent of the time. Number 0293 MS. CARR said DHSS is greatly concerned about the high rate of tobacco use among Alaskan Natives. Today Alaskan Natives have some of the highest rates of tobacco use in the world with 47 percent for men and 39 percent for women. Alaskan Natives account for 23 percent of smoking related deaths while they account for only 17 percent of the state's population. Alaskan Natives have the highest cancer mortality rate of any Indian Health Service Area in the country. The lung cancer rate among Alaskan Native women is three times the national average and tobacco use among Alaskan Native youth is higher than non-Native youth. Number 0330 MS. CARR referred to page 9 of the handout and said it shows a comparison between United States high school students, Alaskan Native students and Alaskan students as a whole with comparative use rates. She said this again shows the high rate of youth use in our state as well as an exorbitantly high rate among Alaskan Native youth. She said 41 percent of Alaskan Native boys and 32 percent of Alaskan Native girls were using smokeless tobacco weekly. Among the boys, 45 percent started using tobacco before the age of 8. MS. CARR said DHSS is concerned about the health impact as well as the economic drain. Total direct medical costs for smoking related illnesses for Alaskans aged 35 years of age and older, in 1993, was over $96 million. She said $23 million of the direct medical care costs for smoking related illness was paid by Medicaid in Alaska which is a 50/50 match of state and federal monies. Meanwhile, the state collected only $15.6 million in cigarette tax revenues in 1993, this excludes the tax that currently exists on smokeless tobacco. MS. CARR said tobacco taxes are not new, the state of Alaska has taxed tobacco since territorial days when there was a 5 cent per pack tax levied on cigarettes to help fund school construction. The current tax level of 29 cents per pack has been in place since 1989. In 1989, Alaska ranked 17th among the 50 states including the District of Columbia on the amount of tobacco tax levied. Currently, Alaska is ranked 28th among the states as other states have increased their tobacco excise taxes. Number 0427 MS. CARR referred to the chart on page 13 and said it shows the comparative drop in use when the overall price on a pack of cigarettes increases. She said the cigarette tax has not kept a fair share of the total cost of cigarettes. She said there is currently a 24 cent federal tax on a pack of cigarettes. MS. CARR said tobacco taxes increase the overall cost of cigarettes, therefore it impacts consumption. For every 10 percent increase in cigarette prices, youth consumption will fall by at least 10 percent. For every 10 percent increase in cigarette prices, general consumption will fall by 4 percent. At the current adult smoking rates, approximately 18,000 of Alaskans currently under the age of 18 will die prematurely of tobacco related illnesses. All indications show that a $1.00 per pack tax increase would reduce youth smoking in Alaska by an estimated 32 percent. The tax would then prevent 5,700 premature deaths among Alaskans under the age of 18. Number 0496 MS. CARR referred to the bar chart on page 16 and said it shows the comparison of the United States current cigarette tax rates with other industrial nations. The United States having the lowest tax rate at 57 cents, combined state and federal cigarette tax. She said the time is right for an increase in the cigarette tax, there is broad public support, the groundwork is in place and 75 percent of Alaskans surveyed in 1995 supported the $1.00 per pack tax. This number reflected 75 percent of "conservatives", 75 percent of "moderates", 73 percent of "liberals", and 55 percent of smokers. MS. CARR said this tax has wide national and state support. Such reputable individuals as C. Everett Koop, the former Surgeon General, the Alaska Tobacco Control Alliance which is made up of over 200 individuals and represents over 50 organizations in the state including membership from the Alaska Native Health Board, the American Cancer Society and the American Heart Association, as well as other well-known organizations. Number 0569 VICE-CHAIR GREEN referred to testimony regarding the percentage of tax in Canada with the correlating drop in youth smoking and then referred to the chart that showed the Scandinavian countries having a tax that is between six and eight times as expensive as the United States. He asked if those countries showed a significant reduction in youth smoking. Number 0600 MS. CARR said she is unfamiliar with those figures, but could get them for him. She said the chart he was referring to shows the overall tax rate as compared to the actual cost of the cigarettes. Number 605 LOIS IRVIN testified next via teleconference from Homer. She said a number of residents in Homer spoke in favor of HB 1 and HB 52. She said she strongly supports the concept of CSHB 1(STA) and the way in which it is presented, although she only found out a few minutes ago that the bill was amended. She asked what the change was. Number 0726 CHAIRMAN BUNDE said the bill number is the same, but CSHB 1(STA) is a melding of HB 1 and HB 52. The main difference of CSHB 1(STA) is that it adopts the provisions of HB 52 as far as the dedication of where the monies would go from the tax money raised. Number 0751 MS. IRVIN said the group she is involved in is anxious to get to work to try and decrease access and tie it in to CSHB 1(STA). Number 0778 KEITH EVANS, Dillingham City Schools, testified next via teleconference from Dillingham. He said people in the school do not feel satisfied with the programs designed to help prevent students from starting to smoke. It is obvious by the statistics that the programs have not been successful. He felt he could speak on behalf of all the school administrators that whatever they could do to prevent the problem would be time and money well spent. In Dillingham they are trying to focus on educating students on nicotine hazards and have worked with police to create something quick and punitive in the way of fines for those who are caught. Prevention, as far as they are concerned, is the best thing that can be done. He said the legislature is recognizing this through their efforts. He said while they encourage the $1.00 a pack increase, if the correlation is correct that increasing the cost of tobacco decreases use, then he would strongly encourage the committee to amending the bill to tax at a higher rate. He said whatever can be done to prevent smoking should be done. Education programs can't compete with the glamour of the news media, so maybe CSHB 1(STA) will be an answer to this problem. Number 0894 CHAIRMAN BUNDE stated that Representative Green and Representative Porter are among the co-sponsors of CSHB 1(STA). Number 0922 VEVA BECKER, Educator, American Cancer Society, Fairbanks Interior Unit, testified next via teleconference from Fairbanks. She said she is promoting a $1.00 per pack tax on tobacco. The average age that smokers first try a cigarette is at age 13, with many of them becoming daily smokers by 14 or 15 years of age. These kids who might smoke one pack a day, can save $1,500 and could save twice as much with the increased tax. She said these young people have undeveloped lungs and are having clogged arteries and respiratory problems. She made comparisons with tobacco use and the amount of time that people are ill. MS. BECKER said tobacco companies spend $6 billion a year on advertising campaigns. She mentioned that people with whom she works with in the NorthStar Borough promote tobacco education, smoking cessation classes and other attempts to decrease the amount of smokers. MS. BECKER said tobacco is the hardest drug to get off of. She said 80 percent of young people who smoke one pack or more of cigarettes will become regular smokers and 70 percent of youth who smoke say that they would not have started if they could have a choice today. She said we must help parents stop smoking so that they can help their child get off tobacco. She said she is very serious about this subject and CSHB 1(STA) will help her job as an educator. Number 1093 ANNE HARRISON, nurse practioner, testified next via teleconference from Fairbanks. She challenged the legislature to pass CSHB 1(STA) without further ado. She said the research couldn't be clearer, tobacco companies will continue their unethical politicking and we are all saturated with the quibbling surrounding this issue. She mentioned her work and experiences with people suffering from tobacco related illnesses. She said we must do everything to prevent our youth from becoming addicted to this dangerous drug. She asked that the legislature pass a high tobacco tax now in the hope that it will discourage a few kids from using tobacco. Number 1139 REX GARVER testified next via teleconference from Sitka. He said nicotine is the most addictive drug known to our society and if it was regulated there would be a lot of irritable tobacco users and financially destitute manufacturers. Although this would be best, we are not ready for it. He urged the committee to push forward CSHB 1(STA) and pass the tax. More people die from tobacco related illness than any other preventable illness. With over 500,000 people each year and tobacco manufacturers counting on 5,000 underage smokers beginning their addiction every day, it is no wonder that there are individuals wanting to curb tobacco consumption with the use of the increased tax. With such a cost of human life and Medicare dollars, it is high time that something be done to compensate the healthy, who inevitably pay for their expenses. Popularity, peer groups, power and prestige are all elements of what the tobacco industry wants young people to associate with cigarettes. In the shadow of this image, a dollar a pack seems like a small price to pay. Unfortunately it will be for some, but for many others it won't be. Number 1220 SHARI SMOLE, School Nurse, testified next via teleconference from Anchorage. She cited a personal experience with someone who suffered from a tobacco related illness. She said the education programs have not been successful. Students she works with have smoked for 5, 6, 7, and 8 years. She said smoking cessation programs are an intervention when the dependence on nicotine is already developed and it appears that it is too late. She encouraged the committee to pass CSHB 1(STA) as it is one of the most effective means to discourage use. A dollar a pack tax strongly affects youth. Tobacco related illnesses in adults start with kids becoming addicted to nicotine. She wished Alaska to be number one in all of the states for this positive step of deterring students. Number 1336 DELISA CULPEPPER, President, Alaska Public Health Association, testified next via teleconference from Anchorage. She said the public health community wanted to remind the committee that smoking is the number one public health problem in the nation; it contributes to more heart disease, more cancer than any other thing that can be changed by behavior and it contributes to more diseases than can be attributed to genetic make-up. She said we have a chance to change these facts with this type of bill, an important part of a multi-faceted plan. She said CSHB 1(STA) is not the only answer and the association is working on many other interventions and prevention strategies. She said CSHB 1(STA) can make a big impact without spending a lot of money to do it. MS. CULPEPPER said the public health community across Alaska values youth and urges the committee to pass a $1.00 a pack this year so that we can begin our journey towards a healthy future. Number 1390 ANNE MARIE HOLEN, Member, Alaska Native Health Board and part of the coalition spearheading this campaign, testified next via teleconference from Anchorage. She said her parents were smokers who quit after the surgeon general came out with the effects of cigarette smoking. Her parents also quit because they wanted to use the money they saved to buy a camper. She said the United States is the only developed country which has allowed its cigarette taxes to fall in real terms since the dangers of smoking were first revealed more than 30 years ago. In 1966, federal and state taxes together made up over 50 percent of the retail price of cigarettes. Today that amount has fallen to about 25 percent. In Alaska the state tax comprises 24 percent of the retail price of cigarettes in 1964, today it is only 14 percent. Meanwhile the tobacco epidemic claims the lives of one out of five people in this state. MS. HOLEN said the tobacco industry is currently spending hundreds of thousands of dollars to defeat the dollar per pack tobacco tax increase and added that the reasons should be obvious. She asked the committee to support CSHB 1(STA) and help educate colleagues about this opportunity to do the right thing for youth and families. Number 1482 ERIC MEYERS testified next via teleconference from Anchorage. He said, "I am testifying today on my own behalf and as a member of the public. I would first like to comment on smokers' rights and state that I am not a prohibitionist, nor do I support the ban of tobacco products as is often alleged by members of the tobacco industry. I do believe that adults should have the right to smoke cigarettes or to eat cigarettes for that matter. But with regard to smokers' rights, it must also be recognized that there are smoker responsibilities including responsibility for the enormous economic cost that are not accurately reflected in the current low price of tobacco products." MR. MEYERS continued, "Tobacco use costs the Alaskan economy hundreds of millions of dollars, while the current low level of taxation only generates a tiny fraction of that. So, when you hear smokers' rights, you should think smokers' responsibility. A $1.00 per pack tax being proposed is the very least we should insist upon. Also I would like to comment on the concern that has been expressed by the tobacco industry, disingenously I would suggest, about social engineering. They offer that argument like a little wind-up doll, but this argument doesn't really hold up well when (indisc.--paper shuffling) consider (indisc.--paper shuffling) closely. The legislature routinely uses tax policy to modify behavior. There are any number of tax credits and tax incentive proposals every year and every tax law has a behavioral effect. Oil and gas taxes discourage oil and gas development. Property taxes discourage the buying and selling of real estate. In light of the fact that the enormous economic costs of tobacco use are not currently reflected in the present price of tobacco is evident that, in fact, the state already has in place a social engineering policy regarding tobacco and that is because tobacco is undertaxed, the effect is to artificially encourage the consumption by kids. So, when you look, that when you hear the social engineering argument, you should look at it a little more closely and realize that this is not really an argument that stands up well." MR. MEYERS said, "Finally, I'll simply say that in response to the question, `Will it work?' Yes, it will work. It is very unambiguous, but the best testimony of all comes from the tobacco industry itself. If you look at their efforts and you look how strongly they are fighting this, the fact that they have hired five lobbyist who are spending hundreds of thousands of dollars to try to kill this bill. I would simply quote someone who is a long time observer who says, who has observed the tobacco industry and its practice when he states, `Only those measures which cause the tobacco industry to scream are likely to significantly reduce tobacco consumption.' I urge you to support the $1.00 per pack tax increase. It is fair, it is reasonable, it will save thousands of lives and has the overwhelmingly support of Alaska voters. Thank you very much." Number 1597 PATTI TRUESDELL, representing the Soldotna Middle School Parent Teacher Student Association, testified next via teleconference from Kenai. She said the vote at the association meeting was that 100 percent supported CSHB 1(STA). She said she sees this problem as a four prong thing; as a parent she will do her job to educate her daughter about the dangers of smoking, the schools will do what they can, the local Tobacco Alliance will work on enforcement and the legislature will do what they can to pass the tobacco tax. She said her daughter will have to fight peer pressure and pressure from the media. She said her daughter needs the adults to say what they mean and mean what they say about tobacco. Number 1682 JUDY DOWNS testified next via teleconference from Kenai. She said she is a parent and works with the safe and drug free school program as well as the Tobacco Alliance and Big Brothers/Big Sisters. She said CSHB 1(STA) is only one component of the effort to stop kids from smoking. The tobacco industry is targeting youth as replacement smokers. She mentioned the efforts at education in her community and said we must work together, in collaboration, to protect children. Number 1774 ELI WAITE, Student, was next to testify it. He said passage of CSHB 1(STA) will save lives. He said he talked with other kids that smoke right now who say they won't quit just because the tax is raised $1.00 a pack. Those kids do say that, when they were starting, if there had been a higher price on cigarettes they wouldn't have continued smoking and wouldn't be addicted to the tobacco right now. MR. WAITE referred to the statistics from Canada and said the same thing can happen here in Alaska. Tobacco is the only drug that when used correctly will kill you and that is why he encouraged the committee to pass CSHB 1(STA). Number 1832 CRISTIN MARTINEAU said her brother is almost 14-years-old, which is almost the average age of new smokers, and he has so little money to spend on anything that she knows a dollar increase will influence his decision to smoke or not smoke. Because when you're 14, a dollar is a lot of money. Number 1869 BOB BARTHOLOMEW, Deputy Director, Income and Excise Audit Division, Department of Revenue (DOR), was next to testify. He said he would comment on the fiscal note from the DOR and the smuggling issue. He said DOR shows in the first full year, fiscal year 1999, that $43 million of revenue would be raised. He said there has been a lot of analysis from the tobacco industry that DOR is overstating the potential revenue. He reiterated the comments from DHSS that tobacco usage is really a health issue, and stated that we don't want to get lost in the numbers. He said DOR has gone back, reviewed the numbers based on some of the information presented by the tobacco industry analysis and concluded that the DOR fiscal note is a reasonable, sound estimate for the amount of revenue the tax would raise. MR. BARTHOLOMEW said Washington State has raised their tax a number of times over the past five or six years and has doubled their tobacco revenue with an additional $100 million. He said if we were to apply the theory given out by the tobacco industry and added that it was a sound theory, then the amount of taxes raised in Washington State or to what happened in 1989, when the state of Alaska last raised their tobacco taxes, the amount would be less than what had been actually received last year. He said the analysis the tobacco industry provided was that in the year 2000, there would be 46 percent less packs of cigarettes sold than there are today. He said if this assumption was true, it would indicate a big success in the health objective. He said DOR has included, in their revenue numbers, that there would be an 18 percent drop. He said DOR rolled in a big drop in consumption. Number 1983 MR. BARTHOLOMEW said the other issue that was raised was smuggling and added that this is really two issues; military bases and Indian reservations. He said a report was handed out in the House State Affairs Standing Committee by the National Coalition Against Crime and Tobacco Contraband which states their theory that there will be mass smuggling off of military reservation. This theory is based on statements that 45 percent of all the current sales of cigarettes take place on a military base. He said DOR sent written letters to the military, who have been very cooperative in providing their sales figures. He said the military has provided numbers of who has commissary privileges in the state of Alaska. Currently 9.7 percent of the entire Alaskan population have privileges to go on a base and purchase commodities at a commissary or a PX. MR. BARTHOLOMEW said the numbers show that military sales account for just 7 percent of cigarette sales in Alaska. He said, if you went on just a straight proportional share of the population, they are selling less. He said the risk that people would use these places is much smaller based on what is currently happening. MR. BARTHOLOMEW said DOR has been in touch with the U.S. Pacific Command, the organization within the military that is responsible for the operations of Alaska commissary, and they have been more than willing to work with the state to address compliance issues. In Hawaii, the command enacted controls to limit the number of sales if they saw a problem. He said DOR is encouraged that the military is willing to work with the state and reiterated that the numbers regarding the risk is small. Number 2068 MR. BARTHOLOMEW said, regarding the Indian Country issue, there are quite a few options. It is clear from the Supreme Court that the state has the authority to tax sales to non-tribal members. The feedback received from the Native Health Network, who have a huge benefit in controlling cigarettes and sales, is that they would work with the DOR. He said several Supreme Court decisions give the state authority, but the state wants to work cooperatively with the Native Health organizations if there is the establishment of tribal organizations to sell cigarettes. Right now this is a limited thing, it is not a widespread option. MR. BARTHOLOMEW said Washington does experience some problems with sales on reservations. It currently has 26 reservations selling tobacco, 16 of those work cooperatively with Washington by filing tax returns and paying taxes on a regular basis. Ten of these establishments are more inconsistent; sometimes they file, sometimes they pay. He said Washington is continuing to work with those sites and feel that they are making progress in increasing the number of establishments who work cooperatively with the state. TAPE 97-9, SIDE A Number 0000 VICE-CHAIR GREEN mentioned the fact that the military wanted to work cooperatively and asked if they would be willing to impose a lower limit on the numbers of cigarettes an individual might be able to buy. MR. BARTHOLOMEW said, at this point, DOR has not gotten into the specifics. The command did indicate that in Hawaii they initiated a cap on how much could be purchased. This cap was below what it was before Hawaii raised the tax. He said the military would provide DOR with sales information and if a significant change occurred indicating a change in sales patterns, then it would be addressed at that time. Number 0048 CHAIRMAN BUNDE mentioned that he hoped the tobacco industry was correct when they claimed there would be a 46 percent decrease in sales. He asked about current taxing problem regarding cigarettes coming into the state. He said he heard that people can purchase, via mail order, almost unlimited quantities of cigarettes and not pay the current state excise tax. Number 0091 MR. BARTHOLOMEW said discussions have been occurring at the DOR and said the initial answer now is that the statute, as written, doesn't state that the DOR fully has the authority to tax those sales for personal use. He said DOR is looking at what other states have and they do have statutory language that makes that subject to the tax. He said our tax structure is a little bit different than other states. He said DOR does not have a specific position or recommendation at this time, they don't think its taxable but reiterated that this is not an official position. He said DOR is looking at what updates, if any, they'd recommend to address this. Number 0152 CHAIRMAN BUNDE encouraged DOR to look at some procedure or stamp to be able to tell what is contraband. He referred to his testimony that there are small, specialty shops that deal in tobacco which are finding it difficult to remain profitable because so many people are ordering pipe tobacco and expensive, connoisseur kinds of cigars from mail order businesses. He said this seems like unfair competition that these people can order via mail and not pay the same sort of tax that people have to pay locally. MR. BARTHOLOMEW said DOR would look at this issue. Number 0215 REPRESENTATIVE PORTER clarified that if someone mail ordered cigarettes up to Alaska and then resold them, then they would be in violation of existing law. MR. BARTHOLOMEW said it is very clear that if someone brought in and resold cigarettes and didn't pay the tax, they would be in violation with the current tobacco tax law. Number 0241 REPRESENTATIVE PORTER asked what percentage of tax the state of Washington had agreed to with the Indian Reservations. Number 0260 MR. BARTHOLOMEW said it was his understanding they paid the Washington tax for sales to non-members, that they are subject to the same level of tax. It is clear that sales to members are exempt and they are not paying a tax to the state of Washington on those sales. There are limits to what they can sell based on the number of members in an organization. Number 0291 CHAIRMAN BUNDE said, as he understood, that there are X number of people on the reservation who are official members of that reservation and it can be assumed that if they smoked X quantity of cigarettes that anything sold in excess of what would be the assumed consumption of the local residents was taxable. Number 0314 MR. BARTHOLOMEW said the Supreme Court has ruled that states have the authority to do that as an enforcement mechanism, to establish a cap based on the number of members of the tribe and what is a normal consumption. He said he was not sure if Washington had enacted that measure yet. He said the case evolved in New York. It is a tool that is available for use, but he could not say which states are or are not using it. Number 0350 REPRESENTATIVE PORTER clarified that the only place in the state where this could occur is Metlakatla. Number 0362 CHAIRMAN BUNDE said people who suggest that someone would go to Fort Yukon or Igiugig to purchase cigarettes don't have a real firm grasp of Alaska geography. Number 0380 REPRESENTATIVE GREEN asked if there was enough of a deterrent to prevent people from smuggling in cigarettes from other places with a smaller tax. Number 0418 MR. BARTHOLOMEW said he couldn't quote what the penalties are, there are penalties in statute, but he would have to look those up in order to answer that question.
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