Legislature(2009 - 2010)BELTZ 105 (TSBldg)
02/09/2010 02:00 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB247 | |
| SB248 | |
| SB117 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 247 | TELECONFERENCED | |
| *+ | SB 248 | TELECONFERENCED | |
| *+ | SB 117 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 117-PRICE OF CIGARETTES
3:06:01 PM
CHAIR PASKVAN announced SB 117 to be up for consideration.
ESTHER CHA, aide to Senator McGuire, sponsor of SB 117, said the
intent of SB 117 is to close a loophole in law, which allows
large high-volume cigarette sellers to price their cigarettes at
less than the minimum price set by law if it can be proved that
their cost of doing business is lower than the mandated minimum
price.
She explained that the original purpose of Article 7 in Title 43
was to prevent wholesalers and retails from using predatory
pricing practices to promote the sale of cheap cigarettes and
use them as a loss leader. However, AS 43.50.800(c) specifically
states that a wholesaler or retailer that wishes to advertise,
offer to sell, or sells cigarettes at less than the presumptive
actual cost to the wholesaler or retailer must first obtain
approval from the Department of Revenue (DOR). The department
may grant approval only if the wholesaler or retailer provides
proof satisfactory to the department that the wholesaler's or
retailer's actual cost is lower than presumed. Because of this
one clause, the statute didn't work the way it was supposed to.
For example, she said if the department determines that a pack
of cigarettes' minimum cost is $7 and someone comes in and says
they can show their cost of doing business allows them to price
cigarettes at $6.50; so they apply to the DOR that determines
whether that is true and allows them to sell cigarettes at that
price.
She said that SB 117 would repeal AS 43.50.800 and replace it
with section 6 in the bill which establishes AS 43.50.810. A
committee substitute (CS), version E, changes the multipliers.
In SB 117 (a) the current percentages are as described in AS
43.50.800(a)(b), but the change in percentage points reflects
the compromise among some of the smaller retailers as well as
the larger wholesalers. They have discussed this with the DOR
and found that the difference is the multipliers.
MS. CHA said that supporting documents indicate how increased
prices work to help deter people from smoking, especially youth.
The studies are accurate, she said, however the price changes
that may be in effect with this bill may not be as exaggerated
as needed to prevent a very large decrease in consumption. By
getting rid of the wholesaler's or retailer's ability to apply
for an exemption, SB 117 would also bring parity and balance to
competition. It would level the playing field by insuring that
all vendors regardless of size and volume or accounting
practices will have to price at or above the minimum price set
by law.
3:10:08 PM
SENATOR MEYER asked how much the price would go up per pack and
if it was set per pack or per carton. He also wanted to know how
they came up with the multiplier.
MS. CHA deferred those answers to Johanna Bales with the
department.
SENATOR MEYER assumed this applied to just cigarettes and not
small cigars. Ms. Cha indicated that was correct.
3:11:25 PM
CLIFF CRAEMER, Vice President, Sales and Marketing, Northern
Sales Company, said they are a diverse, full-service distributor
that does commodities like bread, candy, snacks, beverages and
tobacco. He strongly supported the CS for SB 117. He believed
that the proposed changes will simplify current law, reduce
administrative burden for both the state and licensee, and allow
a level playing field for both the wholesalers and the
retailers. They support the recommendation of removing the
exemption and the proposed changes in the multiplier. This is a
compromise between all the parties involved.
3:13:42 PM
JOHN MAKAY, Sr. Vice President, Northwest Region, Costco
Wholesale Corporation, said Costco doesn't view the existing law
as having a loophole. They always sell products above cost. He
explained that the provision was inserted in the past to allow
Costco to not have to artificially overcharge due to
"essentially a price fixing mechanism." It turned out, however,
that that provision was very burdensome for both Costco and the
DOR. He supported this change, but said it would increase the
price slightly.
3:15:41 PM
CHAIR PASKVAN asked if Costco factors labor into their cost.
MR. MAKAY answered yes; they factor in every cost. Costco and
the DOR spent a lot of time figuring out how to determine cost -
for example, how much of his salary or their overhead should get
applied to one little department in two buildings in a company
that has 550 locations. He said it is very subjective and he
appreciated the department working with them trying to determine
that, but it was an unwieldy process. Tobacco suppliers did not
allow deductions that Costco sometimes gets for its other
products; so the profit they made on tobacco, even with the
existing assumptions, was higher in Alaska than probably
anywhere in the country.
SENATOR MEYER asked if all the states he covers have minimum
pricing for cigarettes.
MR. MAKAY answered that none of them do; Alaska is the only one.
3:18:33 PM
SENATOR MEYER said he read that 23 other states do have this, so
it's not uncommon. Alaska is just the only one in his district.
MR. MAKAY said when this was instituted a number of years ago, a
fair amount of analysis was done on the states.
SENATOR MEYER asked if tobacco can be used as a loss leader in
states that don't have minimum pricing.
MR. MAKAY replied that he thought so, but Costco has an internal
policy of not selling things below cost. He said he wasn't an
expert in that area.
3:19:21 PM
SENATOR MEYER said he noticed the formula had a trade discount,
and asked what that is.
MR. MAKAY replied that a lot of discounts have been eliminated
by the tobacco companies, except for volume discounts and maybe
payment terms.
3:20:16 PM
ROGER HAMES, President, Hames Corporation, Sitka, Alaska,
supported SB 117 and the CS for all the reasons already stated.
He added that he understands that prices would go up
fractionally at the most.
3:21:48 PM
CHAIR PASKVAN held SB 117 for further work and adjourned the
meeting at 3:22 p.m.
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