Legislature(2003 - 2004)

03/24/2004 07:05 AM House W&M

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
           HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS                                                                          
                         March 24, 2004                                                                                         
                           7:05 a.m.                                                                                          
MEMBERS PRESENT                                                                                                               
Representative Mike Hawker, Chair                                                                                               
Representative Bruce Weyhrauch, Vice Chair                                                                                      
Representative Vic Kohring                                                                                                      
Representative Dan Ogg                                                                                                          
Representative Ralph Samuels                                                                                                    
Representative Peggy Wilson                                                                                                     
Representative Max Gruenberg                                                                                                    
Representative Carl Moses                                                                                                       
MEMBERS ABSENT                                                                                                                
Representative Norman Rokeberg                                                                                                  
OTHER LEGISLATORS PRESENT                                                                                                     
Representative Paul Seaton                                                                                                      
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO. 538                                                                                                              
"An Act  relating to  taxes on  cigarettes and  tobacco products;                                                               
relating to tax  stamps on cigarettes; relating  to forfeiture of                                                               
cigarettes   and   of   property   used   in   the   manufacture,                                                               
transportation,  or sale  of  unstamped  cigarettes; relating  to                                                               
licenses  and   licensees  under  the  Cigarette   Tax  Act;  and                                                               
providing for an effective date."                                                                                               
     - HEARD AND HELD                                                                                                           
HOUSE BILL NO. 493                                                                                                              
"An Act relating to adoption and revision of a long-term fiscal                                                                 
plan for the State of Alaska."                                                                                                  
     - SCHEDULED BUT NOT HEARD                                                                                                  
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 538                                                                                                                  
SHORT TITLE: TOBACCO TAX; LICENSING; PENALTIES                                                                                  
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR                                                                                    
03/18/04       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/18/04       (H)       W&M, L&C, FIN                                                                                          
03/24/04       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
WITNESS REGISTER                                                                                                              
WILLIAM CORBUS, Commissioner                                                                                                    
Office of the Commissioner                                                                                                      
Department of Revenue (DOR)                                                                                                     
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Encouraged positive consideration of HB
JOHANNA BALES, Excise Audit Manager                                                                                             
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Explained HB 538 and answered questions on                                                                 
behalf of DOR.                                                                                                                  
MICHAEL BARNHILL, Assistant Attorney General                                                                                    
Commercial/Fair Business Section                                                                                                
Civil Division                                                                                                                  
Department of Law (DOL)                                                                                                         
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified during the discussion of HB 538                                                                  
and answered questions on behalf of DOL.                                                                                        
JOEL GILBERTSON, Commissioner                                                                                                   
Office of the Commissioner                                                                                                      
Department of Health and Social Services (DHSS)                                                                                 
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in support of HB 538 and answered                                                                
questions on behalf of DHSS.                                                                                                    
JOHN MIDDAUGH, M.D.                                                                                                             
Chief of Epidemiology                                                                                                           
Division of Public Health                                                                                                       
Department of Health and Social Services                                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 538 and answered                                                                
BOB URATA, M.D., Board Member                                                                                                   
Pacific Mountain Affiliate                                                                                                      
American Heart Association                                                                                                      
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in support of HB 538.                                                                            
MIKE ELERDING, Owner                                                                                                            
Northern Sales                                                                                                                  
Ketchikan, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the discussion of HB 538.                                                                 
TIM SCHRAGE, Operations Manager                                                                                                 
Brown Jug                                                                                                                       
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the discussion of HB 538.                                                                 
EMILY NENON, Alaska Advocacy Manager                                                                                            
American Cancer Society                                                                                                         
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 538.                                                                            
MARIAH WARREN                                                                                                                   
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in support of HB 538.                                                                            
STEVE WARREN, Member                                                                                                            
Alaska Tobacco Control Alliance                                                                                                 
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in support of HB 538.                                                                            
PAT LUBY, Advocacy Director                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 538.                                                                            
KATTARYNA STILES                                                                                                                
Alaska Native Health Board                                                                                                      
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 538.                                                                            
JENNIFER APP, Alaska Advocacy Director                                                                                          
American Heart Association                                                                                                      
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 538.                                                                            
BILL BOUWENS, Tobacco Educator                                                                                                  
Alaska Native Medical Center                                                                                                    
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 538.                                                                            
JOELLE HALL                                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 538.                                                                            
SHELLEY WALLACE                                                                                                                 
Dillingham, Alaska                                                                                                              
POSITION STATEMENT:  Testified in support of HB 538.                                                                            
JEAN MARIE CRUMB, Chair-elect                                                                                                   
Alaska Tobacco Control Alliance                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 538.                                                                            
CAROLINE RENNER                                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 538.                                                                            
ACTION NARRATIVE                                                                                                              
TAPE 04-15, SIDE A                                                                                                            
Number 0001                                                                                                                     
CHAIR MIKE HAWKER called the  House Special Committee on Ways and                                                             
Means  meeting to  order at  7:05 a.m.   Representatives  Hawker,                                                               
Samuels,  Kohring, Wilson,  Moses, and  Ogg were  present at  the                                                               
call to  order.  Representatives Weyhrauch  and Gruenberg arrived                                                               
as the meeting  was in progress.  Representative  Seaton was also                                                               
HB 538-TOBACCO TAX; LICENSING; PENALTIES                                                                                      
Number 0157                                                                                                                     
CHAIR HAWKER announced that the  first order of business would be                                                               
HOUSE BILL NO.  538, "An Act relating to taxes  on cigarettes and                                                               
tobacco products; relating to tax  stamps on cigarettes; relating                                                               
to  forfeiture  of  cigarettes  and   of  property  used  in  the                                                               
manufacture,  transportation, or  sale  of unstamped  cigarettes;                                                               
relating to licenses  and licensees under the  Cigarette Tax Act;                                                               
and providing for an effective date."                                                                                           
CHAIR HAWKER announced, due to  an error regarding public notice,                                                               
that  no action  on  the  bill will  be  taken  today and  public                                                               
testimony will be extended until Friday.                                                                                        
Number 0231                                                                                                                     
WILLIAM  CORBUS,   Commissioner,  Office  of   the  Commissioner,                                                               
Department of Revenue  (DOR), introduced HB 538 on  behalf of the                                                               
Office  of the  Governor.    The governor,  in  the 2005  budget,                                                               
specified  a  need   for  over  $100  million   for  new  revenue                                                               
enhancements and has  suggested this tobacco tax bill  as part of                                                               
the  solution, he  said.   He urged  the committee  to positively                                                               
consider HB 538.                                                                                                                
Number 0400                                                                                                                     
JOHANNA BALES, Excise Audit Manager,  Tax Division, Department of                                                               
Revenue,  mentioned that  she has  been the  program manager  for                                                               
cigarette and tobacco tax since 1997.   She explained that [in HB
538] the  cigarette tax would increase  from $1 to $2  for a pack                                                               
of  20 cigarettes.   For  other tobacco  products (OTP),  the tax                                                               
would increase  from 75 percent  to 100 percent of  the wholesale                                                               
cost.   The cigarette tax increase  in the past was  dedicated to                                                               
the school  fund, but this  time all of  the increase will  go to                                                               
the general fund, she said.                                                                                                     
MS. BALES  related that the cigarette  tax is fairly old  and has                                                               
been around since  1949.  Some technical  corrections were needed                                                               
to  avoid  double  taxation,  she  said.    As  an  example,  she                                                               
indicated,  "If  I were  to  hold  a  buyer's license  and  bring                                                               
product in,  the definition of  a buyer says  that I have  to pay                                                               
tax  unless I  buy from  another licensee,  and it  defines those                                                               
licensees; however, it  left out our licensees that  we have that                                                               
are from out of state."                                                                                                         
Number 0559                                                                                                                     
MS.   BALES  explained   that  the   bill  would   allow,  during                                                               
enforcement,  the state  to seize  assets  that are  used in  the                                                               
commission of a crime that violates  the Cigarette Tax Act.  That                                                               
provision is  currently not  in place,  and only  cigarettes that                                                               
are unstamped  can be  seized, she  noted.   The language  in the                                                               
bill comes directly from Title  4, the Alcoholic Beverage Control                                                               
Board  statutes, which  says assets  can be  seized when  used to                                                               
violate those provisions, she said.                                                                                             
MS. BALES  went on to  say that  another significant part  of the                                                               
bill would  institute a floor  stock tax, the  difference between                                                               
the old  and new  tax rates on  the date of  enactment.   In 1997                                                               
there was no floor stock  tax, and there were significant amounts                                                               
of stockpiling and  losses estimated to be $7  million in revenue                                                               
because retailers  and distributors  brought in  large quantities                                                               
of  cigarettes to  avoid  paying  tax at  the  new  rate.   Those                                                               
savings were  not passed  along to the  consumer, and  there were                                                               
multiple complaints.   She pointed  out that most states  and the                                                               
federal  government have  floor stock  taxes when  they institute                                                               
new taxes.                                                                                                                      
Number 0809                                                                                                                     
MS.  BALES remarked  that there  will  need to  be an  aggressive                                                               
enforcement   program   in   place   to   curb   black-marketing,                                                               
bootlegging, and Internet sales due  to the large increase in the                                                               
tax.  She pointed out that  Alaska will not have the highest tax.                                                               
Rhode Island  will have a  $2.45 per  pack tax beginning  July 1,                                                               
and New  Jersey's tax  is $2.05  per pack.   Since  the tax  is a                                                               
large  increase,   an  incentive   for  bootlegging   and  black-                                                               
marketing,  aggressive  enforcement  will be  needed  to  protect                                                               
revenues and businesses that are complying with the law.                                                                        
CHAIR HAWKER noted the presence  of Representatives Weyhrauch and                                                               
Number 0937                                                                                                                     
REPRESENTATIVE  SAMUELS  asked  if   there  are  minimum  amounts                                                               
regarding confiscated property.                                                                                                 
MS. BALES answered that there  are some minimum amounts, but they                                                               
are very low.  Importing less  than 1,000 cigarettes is a Class A                                                               
misdemeanor,  importing 1000  or  more cigarettes  is  a Class  C                                                               
felony  and  would  subject  the   person  to  seizure  of  their                                                               
property, she  related.  She  noted the bill has  provisions that                                                               
state, if the vehicles are in  villages and are the sole means of                                                               
transportation, they would not be seized.                                                                                       
CHAIR  HAWKER   announced  that  Mike  Barnhill   from  (DOL)  is                                                               
available to answer questions about the bill.                                                                                   
Number 1100                                                                                                                     
REPRESENTATIVE  GRUENBERG   requested  that  Mr.   Barnhill  come                                                               
forward to  testify because the  bill would  not be going  to the                                                               
House Judiciary Standing  Committee, and he said  he has concerns                                                               
about the forfeiture provisions.                                                                                                
Number 1156                                                                                                                     
MICHAEL  BARNHILL,  Assistant Attorney  General,  Commercial/Fair                                                               
Business  Section,  Civil  Division,  Department  of  Law  (DOL),                                                               
introduced himself.                                                                                                             
REPRESENTATIVE  GRUENBERG asked  if  Internet  sales are  clearly                                                               
covered under this bill.                                                                                                        
MS.  BALES  replied  that  they  are.    She  reported  that  the                                                               
cigarette tax statutes  were enacted in 1949, and  the taxes were                                                               
levied  on the  importation of  cigarettes for  sale or  personal                                                               
consumption, which  would include  cigarettes purchased  from the                                                               
REPRESENTATIVE GRUENBERG inquired, "What  about the person who is                                                               
selling cigarettes [on the Internet]?"                                                                                          
MS. BALES said the person who  imports pays the tax, and [Alaska]                                                               
has limited ability  to go after out-of-state  sellers because of                                                               
jurisdictional  problems.   [Alaska] only  has jurisdiction  over                                                               
the in-state  purchaser.  She  noted that there are  federal laws                                                               
that require  the out-of-state seller  to provide  information to                                                               
the state regarding  the sales made to individuals  and others in                                                               
the state, but  those federal laws are violated  constantly.  She                                                               
said it is  an area where, with federal help,  violators could be                                                               
Number 1336                                                                                                                     
CHAIR  HAWKER requested  that Ms.  Bales  explain the  difference                                                               
between cigarettes and OPT.                                                                                                     
MS.  BALES defined  cigarettes  as anything  that  is wrapped  in                                                               
paper, and,  under excise  tax laws,  if cigarettes  are imported                                                               
for sale  or personal consumption,  the tax is levied  on import.                                                               
Other tobacco products (OTP) are  cigars, snuff, chew, and loose-                                                               
leafed tobacco, and  are covered by a different  area of statute.                                                               
The tax on  OTP is levied when product is  brought into the state                                                               
for sale,  but there is  no tax on  product that is  brought into                                                               
the state for consumption, she said.                                                                                            
CHAIR HAWKER noted  that is a point that will  be addressed again                                                               
later in the meeting.                                                                                                           
Number 1443                                                                                                                     
REPRESENTATIVE  GRUENBERG  inquired  if   someone  who  uses  the                                                               
Internet to  buy cartons of cigarettes  would know to fill  out a                                                               
tax form.   He  asked, practically, what  would happened  in that                                                               
MS.  BALES  responded  that  this  is  an  issue  that  has  been                                                               
addressed since  the last tax  increase, and assessments  to over                                                               
1,000 individuals who have purchased  cigarettes through the mail                                                               
by  Internet   mail  order  have   been  sent  out.     She  said                                                               
Representative  Gruenberg's   point  is  well  taken   about  the                                                               
additional  seizure provisions  and  how that  would  work.   She                                                               
     Generally,   in  practice,   what  we've   done,  we've                                                                    
     received  information  showing   that  they've  brought                                                                    
     product   into   the   state,  and   we've   sent   out                                                                    
     assessments.    We,  by law,  are  required  to  charge                                                                    
     interest,  but  we  have some  discretion  in  charging                                                                    
     penalties.  We've agreed to  waive penalties if they'll                                                                    
     come  forward and  pay the  tax and  interest.   It's a                                                                    
     great educational tool.                                                                                                    
MS.  BALES  continued  to  say  that when  a  tax  is  raised  or                                                               
instituted,  there  are  businesses  in the  state  that  are  in                                                               
compliance, and if people are forced  to buy out of state and not                                                               
pay the  tax, those businesses are  harmed.  She noted  that this                                                               
is an argument for aggressive enforcement.                                                                                      
Number 1650                                                                                                                     
REPRESENTATIVE GRUENBERG  asked how  the individual  Alaskan will                                                               
know to pay the tax and how much it is.                                                                                         
MS.  BALES replied  there will  be public  notices and  retailers                                                               
will post notices.                                                                                                              
REPRESENTATIVE GRUENBERG  asked how the  person will know  how to                                                               
pay the tax.                                                                                                                    
MS.  BALES  said  the  person   could  contact  DOR  to  get  the                                                               
information  and,  also,  could  look at  the  website.    Public                                                               
notices have contact numbers, she added.                                                                                        
REPRESENTATIVE   GRUENBERG  related   that   last  year,   during                                                               
testimony  on  the sales  tax,  there  was discussion  about  the                                                               
difficulty  merchants  would have  in  collecting  the tax.    He                                                               
raised the issue that now,  potentially, every smoking Alaskan is                                                               
being  asked  to  go  through a  fairly  complicated  process  of                                                               
getting forms  and then remitting  the tax.   He asked  Ms. Bales                                                               
how widespread evasion of this tax would be prevented.                                                                          
MS. BALES responded that it is  a problem area, but that this law                                                               
has been  on the books  since 1949, and individuals  have already                                                               
been required to obtain a license,  fill out forms, and pay taxes                                                               
to DOR for a product that has  been brought into the state.  When                                                               
DOR discovers that people have  made purchases over the Internet,                                                               
letters are sent, forms are  given out, and education is provided                                                               
for a long-standing law.                                                                                                        
Number 1945                                                                                                                     
REPRESENTATIVE GRUENBERG  asked how  many packs  1,000 cigarettes                                                               
is  and then  said,  "Fifty  packs."   He  questioned if  someone                                                               
bought 50 packs and inadvertently  didn't pay the tax, would they                                                               
be committing a felony.                                                                                                         
MS. BALES replied that is correct.                                                                                              
REPRESENTATIVE GRUENBERG opined that  the amount is pretty steep,                                                               
and not that many people are obeying the law.                                                                                   
MS. BALES  said Representative Gruenberg's  point is  well taken,                                                               
but stated some  people say they are not aware  of the tax, when,                                                               
in fact, they are.  She  argued that the responsibility is on the                                                               
people to become aware of the taxes they are subject to.                                                                        
Number 2000                                                                                                                     
CHAIR  HAWKER  asked  for  clarification   whether  the  bill  is                                                               
changing the classification of the offense.                                                                                     
MS. BALES answered that it does not.                                                                                            
CHAIR  HAWKER offered  that many  of the  issues being  raised by                                                               
Representative  Gruenberg  are  items   at  issue  under  current                                                               
statute that are not being addressed by this bill, as well.                                                                     
MS. BALES agreed.                                                                                                               
REPRESENTATIVE   GRUENBERG  asked   if  anyone   has  ever   been                                                               
prosecuted for a felony [for cigarette tax evasion].                                                                            
MS. BALES replied, one person.                                                                                                  
REPRESENTATIVE GRUENBERG asked if it was recently.                                                                              
MS.  BALES said  yes, there  was a  felony conviction  against an                                                               
individual who brought in cigarettes  on multiple occasions, even                                                               
after being  given notice of a  first offense.  The  tax interest                                                               
and penalties were well over $500,000, she said.                                                                                
Number 2147                                                                                                                     
REPRESENTATIVE WILSON  asked what the  tax increase on  5 cartons                                                               
of cigarettes would be.                                                                                                         
MS. BALES replied $100, at the new rate.                                                                                        
REPRESENTATIVE WILSON asked  how much a pack  of cigarettes would                                                               
MS. BALES said the average cost right now is $4.50 a pack.                                                                      
REPRESENTATIVE WILSON  said [with the  increase in tax]  it would                                                               
be $5.50  a pack, which  is quite a  bit of money,  especially if                                                               
people are  reselling them.   She asked  what would happen  to an                                                               
industrious 16-year-old  who decides  to buy cigarettes  over the                                                               
Internet and resells them.                                                                                                      
MS. BALES said  it is a good question, and  explained that on the                                                               
first offense,  the first step is  to give notice and  assess the                                                               
tax  and penalties.   Generally,  she said,  there have  not been                                                               
repeat offenders.                                                                                                               
Number 2452                                                                                                                     
CHAIR  HAWKER  questioned Ms.  Bales  on  some of  the  technical                                                               
aspects of the  bill.  He referred  to page 1, [line  8] where it                                                               
says the license issued to  a direct-buying retailer is increased                                                               
to $50.   He noted,  when looking  at the statute  this provision                                                               
affects,  there are  a number  of categories  of license  fees: a                                                               
manufacturer, a distributor, a  vending machine operator, direct-                                                               
buying retailer,  and personal use  or buyer's license.   Leaving                                                               
out  the  personal  use  category,  under  current  statute,  the                                                               
manufacturer has  a $5 license, the  distributor-wholesaler has a                                                               
$50 license, the vending machine  operator has a $25 license, and                                                               
the direct-buying retailer  has a $25 license.   He remarked that                                                               
the  only category  that  is  being raised  in  the  bill is  the                                                               
direct-buying  license,   and  he  wondered  if   Ms.  Bales  has                                                               
considered making  all commercial categories consistent  at a $50                                                               
level.  He asked how other states handled commercial licenses.                                                                  
MS. BALES replied  that Alaska license fees  are minimal compared                                                               
to  other states.   She  said the  reason DOR  considered raising                                                               
only direct-buying  retail licenses is, because  of the cigarette                                                               
stamp  tax,  there  are  long-standing  licensees  who  have  the                                                               
direct-buying  retail  license that  will  no  longer be  selling                                                               
cigarettes, but  who will be  continuing to import OTP  for sale.                                                               
The OTP license is $50, so  there is now a class of direct-buying                                                               
retailers who will have to buy  that license.  She said this will                                                               
level  the playing  field,  and, also,  there  is no  significant                                                               
difference between a wholesale distributor  license and a direct-                                                               
buying retail  license because they  all make cigarette  sales in                                                               
the state.  She said  Representative Hawker's point is well taken                                                               
because any effort to make the fees equal makes sense.                                                                          
Number 2807                                                                                                                     
CHAIR  HAWKER  predicted an  amendment  to  that issue  would  be                                                               
forthcoming.   He  asked when  the floor  tax would  be assessed,                                                               
due, and payable.                                                                                                               
MS.  BALES replied  that  under  the language  in  the bill,  any                                                               
person who makes  sales of cigarettes in the state  would have to                                                               
take an inventory on the effective  date of the act and remit the                                                               
difference in tax to the department within 30 days.                                                                             
CHAIR HAWKER remarked  that it could be a  substantial amount for                                                               
retailers who have commercial quantities on hand.                                                                               
MS. BALES agreed it could be.                                                                                                   
CHAIR HAWKER  asked if  DOR might consider  phasing in  the floor                                                               
stock tax payments over a period of time.                                                                                       
MS. BALES stated there would be  no opposition from DOR over that                                                               
possibility, adding  that DOR does  not want the floor  stock tax                                                               
to be a hindrance to anyone's business.                                                                                         
CHAIR HAWKER related  that [phasing in] would  also be considered                                                               
at  a later  time  [for  a possible  amendment].    He asked  for                                                               
clarification on  the forfeiture provisions and  wondered if they                                                               
mirrored   the  provisions   currently  in   place  for   alcohol                                                               
violations in the state.                                                                                                        
Number 3000                                                                                                                     
MR.  BARNHILL responded  that [the  forfeiture  provisions in  HB
538]  don't mirror  the [alcohol  violation provisions],  but are                                                               
very similar.  He mentioned that  DOL began with AS 04.16.220 and                                                               
worked to update those provisions, adding enhancements.                                                                         
MS. BALES  noted that the  forfeiture provisions would  not apply                                                               
to individuals  that bring  product into  the state  for personal                                                               
consumption, and only apply to businesses that do resale.                                                                       
Number 3131                                                                                                                     
REPRESENTATIVE  GRUENBERG   asked  Mr.  Barnhill  if   there  are                                                               
constitutional problems with taxing out-of-state vendors.                                                                       
MR. BARNHILL  spoke about nexus,  the power  of the state  to tax                                                               
extraterritorial entities.   If  a company is  selling cigarettes                                                               
over the  Internet, and  has no physical  presence in  the state,                                                               
and  all  they do  is  direct  cigarettes  through the  steam  of                                                               
commerce,  the state  has  no power  to access  a  tax over  that                                                               
entity, he reported.                                                                                                            
REPRESENTATIVE  GRUENBERG asked  Mr. Barnhill  if he  is familiar                                                               
with the  provision in  the California  code that  extends "their                                                               
long-arm  statute"  to the  maximum  extent  permitted under  the                                                               
MR. BARNHILL said Alaska has the same "long-arm statute."                                                                       
REPRESENTATIVE  GRUENBERG  asked  Mr. Barnhill  what  he  thought                                                               
about having  a provision in [HB  538] which would allow  the tax                                                               
to reach to the maximum  extent permitted under the Constitution,                                                               
so  that  the manufacturers  can  be  taxed, rather  than  making                                                               
felons out of Alaskans.                                                                                                         
MR.  BARNHILL responded  that he  is  not sure  it is  necessary,                                                               
because under current  law there already is the ability  to go to                                                               
that extent.                                                                                                                    
Number 3414                                                                                                                     
REPRESENTATIVE GRUENBERG  asked Mr. Barnhill to  elaborate on the                                                               
issue of nexus.                                                                                                                 
MR. BARNHILL said he didn't know what else to say.                                                                              
CHAIR HAWKER opened public testimony.                                                                                           
Number 3441                                                                                                                     
REPRESENTATIVE OGG asked Ms. Bale  if the states that didn't have                                                               
a  forfeiture  provision,  and have  instituted  one,  showed  an                                                               
increase in compliance.                                                                                                         
MS. BALES said she has no knowledge of that information.                                                                        
REPRESENTATIVE OGG asked how people  who purchase by Internet are                                                               
Number 3525                                                                                                                     
MS. BALES  answered that federal  assistance is  required because                                                               
there  is a  long-standing  federal law  called  the Jenkins  Act                                                               
which  requires  out-of-state  sellers  who  ship  cigarettes  to                                                               
provide information  to the taxing  authority in the  state where                                                               
those cigarettes  end up.   It gives the  name of the  person who                                                               
purchased the  product, where it  was shipped, and the  number of                                                               
cigarettes.   She explained that  DOR has  used that law  and has                                                               
worked with the [United States  Attorney General's Office] to get                                                               
that information from the seller.                                                                                               
REPRESENTATIVE OGG asked  if federal law requires  people who are                                                               
selling  tobacco products  to file  a  form that  shows they  are                                                               
entering into a state's taxable commerce.                                                                                       
MS.  BALES  replied that  there  are  rampant violations  of  the                                                               
Jenkins Act,  so DOR looks  for cases where  it is known  that an                                                               
out-of-state seller has  shipped cigarettes into the  state.  The                                                               
[Alcohol and  Tobacco Tax Trade  Bureau] provides  assistance and                                                               
has jurisdiction over those laws, she said.                                                                                     
REPRESENTATIVE  OGG asked,  "So,  you're after  both the  out-of-                                                               
state   supplier,  on   the  federal   side,  and   the  in-state                                                               
MS. BALES said that is correct.   She added, "There have been two                                                               
recent  state court  cases  in federal  court  where the  federal                                                               
court  has stated  that  the state  has the  ability  to sue,  in                                                               
federal court, those interstate sellers,  out of state, to obtain                                                               
that documentation."                                                                                                            
Number 3722                                                                                                                     
REPRESENTATIVE WEYHRAUCH  asked what the public  policy basis for                                                               
having  a tax  like  this is,  and whether  it  is to  discourage                                                               
smoking or gain revenues.  He  asked why tobacco is being singled                                                               
out, and what the public is being told.                                                                                         
Number 3749                                                                                                                     
MR. CORBUS  replied that  the bill  has a  revenue factor  and is                                                               
trying to discourage smoking.                                                                                                   
REPRESENTATIVE WEYHRAUCH said that is what he figured.                                                                          
CHAIR HAWKER called on Commissioner Gilbertson to testify.                                                                      
Number 3847                                                                                                                     
JOEL  GILBERTSON,  Commissioner,   Office  of  the  Commissioner,                                                               
Department of  Health and Social  Services (DHSS),  responding to                                                               
Representative  Weyhrauch's  question,  said   that  one  of  the                                                               
driving  reasons for  supporting this  legislation is  because of                                                               
the public health impact of tobacco  use in Alaska.  He mentioned                                                               
a new report done by the  Epidemiology Section of the Division of                                                               
Public  Health that  would  soon be  available  to the  committee                                                               
called Tobacco in  the Greatland: A Portrait  of Alaska's Leading                                                             
Cause of Death.  He relayed:                                                                                                  
     Tobacco  use in  the  state of  Alaska  is our  leading                                                                    
     public  health threat,  and it's  also  our number  one                                                                    
     cause  of death,  disability,  and  chronic illness  in                                                                    
     this  state.   Historically,  we have  seen, through  a                                                                    
     number  of econometric  studies  and also  work by  our                                                                    
     department, that the increasing in  revenues - tax - on                                                                    
     tobacco  products  is  an   effective  policy  tool  in                                                                    
     improving  public  health around  tobacco  consumption.                                                                    
     In  Alaska  increased  tobacco  tax  has  already  been                                                                    
     associated   with  a   drastic  reduction   in  tobacco                                                                    
     utilization.  In 1997 when  the tobacco tax was raised,                                                                    
     [until] 2002,  we saw a  30 percent decline  in tobacco                                                                    
     utilization attributed to the tax being implemented.                                                                       
     Increasing  the  unit  price  for  tobacco  is  a  very                                                                    
     effective   tool,  as   I   mentioned,   in  terms   of                                                                    
     controlling utilization  of tobacco products,  but it's                                                                    
     most effective amongst youth.   A $1 per pack cigarette                                                                    
     tax increase  will directly help the  state in reducing                                                                    
     the  utilization of  tobacco  products by  minors.   We                                                                    
     have seen a precipitous  decline in tobacco consumption                                                                    
     amongst  minors -  50 percent  since  1995.   We did  a                                                                    
     youth   risk  behavior   survey   in   1995  that   was                                                                    
     statistically valid.   We did another one  in 2003, and                                                                    
     in  those  studies  we've  seen  almost  a  50  percent                                                                    
     decline  in  utilization  of   tobacco  products.    We                                                                    
     believe a  further drop  in use  of tobacco  rates will                                                                    
     occur as a result of  this tax increase, and we believe                                                                    
     it  will lead  to  a 15  percent  decline from  current                                                                    
     levels,  which will  translate into  1,800 lives  saved                                                                    
     from  the effects  of premature  death  due to  tobacco                                                                    
Number 4020                                                                                                                     
COMMISSIONER GILBERTSON continued:                                                                                              
     As I  said, increasing  the tobacco  product tax  is an                                                                    
     effective  tool.    It's also  an  effective  tool  for                                                                    
     adults.    It's estimated  that  the  increase cost  of                                                                    
     purchasing cigarettes from this  tax increase will lead                                                                    
     to 3,500 adult  smokers in the state  of Alaska finally                                                                    
     quitting the  addiction of tobacco.   We also  will see                                                                    
     from that,  800 individuals  whose lives will  be saved                                                                    
     from  a   smoking-related  death.    There   are  other                                                                    
     vulnerable populations.  From  this tax we would expect                                                                    
     to  see, in  terms  of smoking  decreases by  expectant                                                                    
     mothers,  850  babies  being spared  from  exposure  to                                                                    
     maternal smoking.                                                                                                          
     As  we  look  at  where there  are  health  disparities                                                                    
     continuing  to  exist  in the  state  of  Alaska,  [one                                                                    
     exists]  largely between  the Alaska  Native population                                                                    
     and  the general  population.   We believe  that Alaska                                                                    
     Natives  will  have the  most  to  gain from  this  tax                                                                    
     increase.    We see,  right  now,  that Alaska  Natives                                                                    
     smoke  at  almost  twice the  average  of  the  state's                                                                    
     general  population,  and  we also  see,  amongst  high                                                                    
     school students, that  Alaska Native smoking prevalence                                                                    
     is four times that of  other students.  An increase tax                                                                    
     will  disproportionally provide  an additional  benefit                                                                    
     to  lower income  brackets which  sometimes tend  to be                                                                    
     most at risk for these health diseases.                                                                                    
     The  Campaign for  Tobacco Free  Kids did  an analysis,                                                                    
     and  their assumption  is that  within  five years  the                                                                    
     health care  savings from  pregnancies and  births that                                                                    
     have    damage   resulting    from   tobacco    product                                                                    
     consumption,  will save  the  state  $1.6 million,  and                                                                    
     that, in  terms of fewer smoking-related  heart attacks                                                                    
     and strokes,  the savings would  be $1.8 million.   But                                                                    
     the long-term health care savings  from adult and youth                                                                    
     smoking declines would be $146 million, and that's not                                                                     
       just to the State of Alaska, but also in terms of                                                                        
     overall health care costs in the state.                                                                                    
Number 4254                                                                                                                     
COMMISSIONER GILBERTSON  continued to  say that the  previous tax                                                               
raised $47  million, and  this tax increase  will raise  over $30                                                               
million.  A  study in 1997 of  the actual cost of  tobacco to the                                                               
state found $133 million  in tobacco-related medical expenditures                                                               
and $137 million of lost  productivity because of tobacco-related                                                               
illness  and  death,  he  related.   There  were  17  econometric                                                               
studies done  on the  effect of price  increases on  tobacco use,                                                               
and every study found a decrease  of use with an increase in tax,                                                               
a 1.5 to  4 percent decline for every 10  percent increase in the                                                               
tax.  He termed the tax  an appropriate tool to help make inroads                                                               
on the greatest public health threat in the state.                                                                              
Number 4438                                                                                                                     
CHAIR HAWKER asked  Ms. Bales to join  Commissioner Gilbertson to                                                               
answer questions.   He  asked them about  the revenue  changes of                                                               
$35.5 million  per year on  a linear  basis going forward  in the                                                               
fiscal note, and  wondered if they had  considered the elasticity                                                               
in the market  that this increase would generate.   He asked them                                                               
to reconcile the fiscal note.                                                                                                   
MS. BALES responded that they  did consider elasticity, and $35.5                                                               
million   is  the   average  between   the  lowest   and  highest                                                               
elasticity.   She  said  they  did factor  in  the reductions  of                                                               
smoking due to the increased price.                                                                                             
Number 4606                                                                                                                     
CHAIR HAWKER asked if Commissioner  Gilbertson's estimates are in                                                               
line with what is being used for high and low estimates.                                                                        
MS. BALES replied that they are in line.                                                                                        
CHAIR HAWKER asked if they had discussed this issue previously.                                                                 
MS. BALES  replied that  they hadn't,  but the  information about                                                               
price elasticity in the revenue is widely distributed by DOR.                                                                   
COMMISSIONER GILBERTSON  added that these are  well-published and                                                               
generally-accepted   econometric  studies   on  the   correlation                                                               
between tobacco consumption and the increase in tobacco tax.                                                                    
CHAIR  HAWKER requested  documentation  that the  fiscal note  is                                                               
based on agreement of the parameters of the elasticity model.                                                                   
TAPE 04-15, SIDE B                                                                                                            
REPRESENTATIVE WEYHRAUCH  asked Commissioner Gilbertson,   "Given                                                               
the  data you've  cited, why  not introduce  a bill  that outlaws                                                               
Number 4600                                                                                                                     
COMMISSIONER  GILBERTSON said  he responds  from a  public health                                                               
perspective and believes that tobacco  consumption does not bring                                                               
much to  society and causes  tremendous damage as the  number one                                                               
health threat in  Alaska.  He pointed out that  it is not against                                                               
the law  to consume tobacco  products and said, "We  believe that                                                               
the  $1   increase  in  tax   is  an  appropriate   step  towards                                                               
discouraging tobacco product consumption in the state."                                                                         
CHAIR  HAWKER  asked  Representative  Weyhrauch if  that  was  an                                                               
appropriate answer.                                                                                                             
REPRESENTATIVE WEYHRAUCH  replied that he didn't  know why "we're                                                               
nickel  and  diming it  up  to  where  we're  going to  go,"  and                                                               
suggested Alaska be "number one."                                                                                               
Number 4439                                                                                                                     
REPRESENTATIVE SAMUELS  mentioned other  sin taxes,  and compared                                                               
the small amount  of drinkers that drive to the  larger number of                                                               
social drinkers.   He asked if it was similar  in the health-care                                                               
arena where there are a  small number of smokers with high-dollar                                                               
COMMISSIONER  GILBERTSON  suggested   Dr.  Middaugh  answer  that                                                               
question because he has done  studies on both alcohol and tobacco                                                               
Number 4328                                                                                                                     
JOHN MIDDAUGH,  M.D., Chief of  Epidemiology, Division  of Public                                                               
Health, Department  of Health and  Social Services,  replied that                                                               
there certainly is a smaller  number of individuals who smoke and                                                               
have more  serious, adverse health consequences  that account for                                                               
a greater  cost in terms  of medical care and  lost productivity.                                                               
He  said it  is not  a one-to-one  relationship, but  all smokers                                                               
increase their risk of different  adverse health effects and also                                                               
contribute to the exposure of nonsmokers to second-hand smoke.                                                                  
REPRESENTATIVE SAMUELS said  he was trying to  compare smoking to                                                               
alcohol where  a small  number of drinkers  create problems.   He                                                               
asked if every smoker is going to have a health problem.                                                                        
DR. MIDDAUGH replied  that the question is an  excellent one, but                                                               
it  can't  be simply  answered  because  it  is not  possible  to                                                               
predict which individuals who are  heavy smokers will have health                                                               
problems.   He mentioned George  Burns as  an example of  a life-                                                               
long smoker who suffered no  health-related problems.  He related                                                               
that  most individuals  will have  some level  of adverse  health                                                               
consequences,   and  some   will  have   devastating  and   early                                                               
consequences.   Science  is not  yet  able to  predict who  those                                                               
individuals will  be, he noted.   Individuals who smoke  and then                                                               
stop, substantially reduce their future risks, he said.                                                                         
Number 4049                                                                                                                     
REPRESENTATIVE    OGG,   following    Commissioner   Gilbertson's                                                               
suggestion to raise the tax one  more dollar, said that would put                                                               
[Alaska] at  the top  [of those states  charging a  tobacco tax].                                                               
He suggested there  may be an increase  of out-state-purchases by                                                               
habitual smokers, and inquired if  Mr. Gilbertson has any records                                                               
from other states  to show what happens when taxes  are raised in                                                               
neighboring  states.   He offered  an  example of  growing up  in                                                               
Maine where there  was a fairly heavy tax, but  New Hampshire had                                                               
no tax, and so people would go there to purchase cigarettes.                                                                    
COMMISSIONER GILBERTSON  deferred to DOR to  answer the question.                                                               
He  related that  in Alaska  it is  more expensive  to travel  to                                                               
another state to purchase cigarettes.                                                                                           
Number 3917                                                                                                                     
MS. BALES  responded to Representative Ogg's  question by stating                                                               
that there are  widespread problems with that  issue when certain                                                               
states have raised  their taxes.  For example, she  noted that in                                                               
New York City  the tax is $1.50  a pack, the state  tax is $1.50,                                                               
and in  less than  five hours  a person  could drive  to Virginia                                                               
where the  tax is  2.5 cents  a pack.   New  York has  had severe                                                               
smuggling problems, she  said.  In Alaska, "in  five hours you're                                                               
still  in Alaska,  but  in two  days you  can  be in  Whitehorse,                                                               
Yukon,  and in  Canada you  have to  look at  the combination  of                                                               
their federal and provincial taxes,"  she explained.  That tax is                                                               
$2.91  a pack,  whereas, currently  in  Alaska, the  tax rate  is                                                               
$1.81 a pack.   If there is an increase of $1,  it would still be                                                               
cheaper  to purchase  cigarettes  in Alaska,  she  concluded.   A                                                               
greater concern to  Alaska is mail-order fraud,  she pointed out,                                                               
when a common  carrier knowingly ships cigarettes  into the state                                                               
to  someone who  is not  properly licensed.   Part  of the  stamp                                                               
legislation that  became effective in January  has provisions for                                                               
shipping restrictions, which is  an enforcement tool.  Aggressive                                                               
enforcement is the answer, she emphasized.                                                                                      
REPRESENTATIVE OGG  said a  lot of people  travel from  Alaska to                                                               
other states and  may purchase large quantities  of cigarettes on                                                               
their trips.   He suggested having the amount of  tax increase be                                                               
similar  in value  to  the  price in  states  most frequented  by                                                               
Alaskans, like  Washington, in  order to prevent  a new  class of                                                               
criminals from being created.  He asked why the tax is so high.                                                                 
COMMISSIONER  GILBERTSON replied  that  there  is an  incremental                                                               
health  benefit  for  each  percent  of tax  increase,  so  a  $1                                                               
increase is  twice as effective as  a 50-cent increase.   He said                                                               
the bill  is a  strong effort  to address  the number  one public                                                               
health threat in the state.                                                                                                     
Number 3532                                                                                                                     
REPRESENTATIVE WILSON  said the health aspect  is very important.                                                               
She related  that after she  studied the health  ramifications of                                                               
smoking, even  as a nurse, she  was surprised at the  size of the                                                               
problem  in  lost  work  productivity.    She  read,  "Cancer  is                                                               
currently the second  leading cause of death to  all Alaskans and                                                               
the leading  cause of  death for Alaska  Natives."   She remarked                                                               
that more Alaska Native teens smoke [than all other races].                                                                     
CHAIR HAWKER asked what Representative Wilson was citing.                                                                       
REPRESENTATIVE WILSON  replied it is  a letter from  the American                                                               
Cancer  Society  [in  the  committee   members'  packets].    She                                                               
continued to read:                                                                                                              
     Research  shows  that  one-third  of  all  cancers  are                                                                    
     tobacco-related  and  almost  all  tobacco-users  first                                                                    
     become  addicted  as  children.     By  increasing  the                                                                    
     state's  tobacco  tax, it  is  a  known correlation  to                                                                    
     reducing youth  smoking, and we  are taking  a critical                                                                    
     step in stemming  the tide of rising  health care costs                                                                    
     to the state  and needless death and  disability in our                                                                    
REPRESENTATIVE   WILSON  referred   to   the   State  of   Alaska                                                               
Epidemiology Bulletin and read:                                                                                                 
     Tobacco  attributable disease  in  Alaska accounts  for                                                                    
     approximately  600  deaths  per year,  more  than  five                                                                    
     times  as many  caused  by motor  vehicle crashes,  and                                                                    
     nearly  100 times  as many  deaths as  those caused  by                                                                    
     AIDS,  and 120  lives  are lost  each  year because  of                                                                    
     secondhand smoke.                                                                                                          
REPRESENTATIVE  WILSON  next  quoted  in  part  from  the  Alaska                                                               
Tobacco Control Alliance letter:                                                                                                
     Alaska  has had  tremendous  success  rate in  reducing                                                                    
     youth smoking.   Increasing the tobacco tax  is a sound                                                                    
     public health  decision.  Affects on  youth consumption                                                                    
     are,  it   decreases  by  15  percent   youth  smoking,                                                                    
     increases  the total  number of  youth alive  today who                                                                    
     will  not become  smokers,  like 9,000  of  them.   The                                                                    
     number  of  youth  alive  today  saved  from  premature                                                                    
     smoking-caused death, almost 3,000.                                                                                        
REPRESENTATIVE  WILSON  emphasized  that  the key  fact  is  that                                                               
adults  do not  start  smoking, children  do,  and virtually  all                                                               
smokers today started before they were  19 years old.  The future                                                               
smokers of Alaska are our children, she concluded.                                                                              
Number 3100                                                                                                                     
BOB  URATA,  M.D.,  Board  Member,  Pacific  Mountain  Affiliate,                                                               
American Heart Association, explained that  he is a family doctor                                                               
practicing in Juneau.  He stated  that the mission of the Pacific                                                               
Mountain Affiliate is  to reduce death and  disability from heart                                                               
disease and  stroke by 25 percent  by 2010.  He  said the purpose                                                               
of his testimony is to give  examples from his practice this past                                                               
year of tobacco-related diseases.   He mentioned that he has been                                                               
in  practice since  1984  and  has known  these  people for  many                                                               
DR. URATA described several of his patients:                                                                                    
     A  man in  his eighties  who has  smoked for  65 years,                                                                    
     beginning at  age 18.  He  quit in 1999, and  among his                                                                    
     diseases are carotid artery  disease which required him                                                                    
     to have  an endarterectomy,  which is a  roto-rooter to                                                                    
     clean  out his  arteries.   He  also  had an  abdominal                                                                    
     aneurysm which  is a ballooning  of the big  aorta, the                                                                    
     big vessel  that goes down  to the  legs.  He  had that                                                                    
     repaired.  He also then  developed, in 1999, one in his                                                                    
     chest  called a  thoracic  aortic aneurysm.   That  was                                                                    
     treated with  medicines.  Then,  earlier this  year, we                                                                    
     discovered  that  he had  right  lung  cancer that  had                                                                    
     spread  throughout his  body and  he's currently  dying                                                                    
     from that.                                                                                                                 
     A 77-year-old  man who  smoked for  45 years,  since 18                                                                    
     years of  age - he quit  in 1989.  He  has had coronary                                                                    
     disease  that required  balloon  angioplasty twice,  in                                                                    
     1989  and  in  2001.    He also  had  lung  cancer  and                                                                    
     emphysema diagnosed in 1995 and  then another cancer in                                                                    
     his left lung  in 1996.  But, he has  continued to be a                                                                    
     survivor  due  to  good  medical  care.    He  now  has                                                                    
     problems  with walking  and  shortness  of breath  from                                                                    
     these cigarette-related disabilities.                                                                                      
     A 61-year-old man who smoked  for 40 years.  He started                                                                    
     at 18 years of  age and quit in the year  2000.  He had                                                                    
     a stroke in 1990 and he  had a heart attack and balloon                                                                    
     angioplasty  in  2000.     He  currently  is  disabled,                                                                    
     paralyzed on the right side, living at home, though.                                                                       
     A 77-year-old woman  who smoked two packs a  day for 35                                                                    
     years.   She started  at age  17 and  quit in  1978 but                                                                    
     then developed  left lung cancer  in 2001 and  then the                                                                    
     next year they  found cancer in her  left kidney, which                                                                    
     is  a cancer  that  is associated  with  smoking.   She                                                                    
     currently  lives in  a nursing  home  because of  these                                                                    
     We  have a  younger woman,  49-years-old, who  smoked a                                                                    
     pack a day for 20 years  since she was 27, and she quit                                                                    
     when she was  discovered to have left  lung cancer that                                                                    
     traveled to  her brain.   She currently can't  work and                                                                    
     has seizure disorder.                                                                                                      
     And,  finally,  I  have  a  66-year-old  gentleman  who                                                                    
     smoked  for  32  years  -  since  about  age  25.    He                                                                    
     currently  still  smokes,  he  can't quit,  and,  as  a                                                                    
     result, he  has had  an acute heart  attack, and  had a                                                                    
     balloon angioplasty in 1994, and  then in 2002 he had a                                                                    
     coronary bypass.   He  also has had  a small  stroke in                                                                    
     1998 and in 2000, and in  currently - in late 2003 - we                                                                    
     discovered him  to have colon cancer.   He's continuing                                                                    
     to undergo chemotherapy.                                                                                                   
DR. URATA said  he hopes these examples show that  smoking can be                                                               
a very  devastating disease,  and he  emphasized that  it doesn't                                                               
just  affect  one  organ  system,  but  multiple  organ  systems.                                                               
Modern medical  care helps  people survive,  but can't  make them                                                               
whole again, he said.  He related:                                                                                              
     Smoking increases  the risk  to stroke,  sudden cardiac                                                                    
     death, heart attacks,  aortic aneurysms, and peripheral                                                                    
     vascular  disease.    Smoking  is  responsible  for  85                                                                    
     percent  of  lung  cancers  that occur.    It  is  also                                                                    
     associated with  ten different cancers:  mouth, throat,                                                                    
     larynx, esophagus,  stomach, pancreas,  cervix, kidney,                                                                    
     urethra, and bladder.  It  also accounts for 30 percent                                                                    
     of all cancer deaths.                                                                                                      
     The  biggest thing  that we  can do  is to  prevent our                                                                    
     young  people  from ever  starting  to  smoke.   You've                                                                    
     heard  statistics  that  describe how  effectively  the                                                                    
     price of  cigarettes reduces consumption.   In order to                                                                    
     reduce  total consumption  of  cigarettes,  we have  to                                                                    
     prevent  the smoking  habit from  starting and  that is                                                                    
     why we target the teenagers.   I believe that this bill                                                                    
     will help reduce new teenage  smokers.  I hope you will                                                                    
     support this bill  because I believe it will  lead to a                                                                    
     healthier and more productive Alaska.                                                                                      
Number 2525                                                                                                                     
REPRESENTATIVE  WILSON thanked  Dr. Urata  for bringing  examples                                                               
for  the  committee  to  hear,  and spoke  of  her  own  personal                                                               
experience with her father who smoked  for 50 years and quit when                                                               
he was 65.   Eight years later he died from  emphysema at age 72.                                                               
She said  her brother died  last year at 52  from smoking-related                                                               
cancers.  She restated her strong feelings about this issue.                                                                    
DR.  URATA, in  response  to  Representative Weyhrauch's  comment                                                               
about  outlawing cigarettes,  said  if the  cigarette  was a  new                                                               
product and  had to go  through the Food and  Drug Administration                                                               
(FDA), it  would never be  approved because  of the fact  that it                                                               
causes  so  much cancer.    He  maintained  that because  of  the                                                               
current political  climate, cigarettes will never  be eliminated,                                                               
but legislation such  as this bill can make it  harder for people                                                               
to start smoking.                                                                                                               
Number 2336                                                                                                                     
REPRESENTATIVE MOSES asked  if the use of marijuana  has the same                                                               
adverse health effects as tobacco.                                                                                              
DR. URATA said  he isn't sure, but, personally, he  is opposed to                                                               
its  use.   He  mentioned  he has  read  studies  that show  that                                                               
marijuana  can cause  problems, but  he has  never read  anything                                                               
that says it causes cancer.                                                                                                     
REPRESENTATIVE MOSES said  Unalaska recently had a  drug bust and                                                               
$20,000 worth  of marijuana was  confiscated.  He wondered  if it                                                               
makes sense to  legalize marijuana, although he  said he wouldn't                                                               
advocate for it.                                                                                                                
DR. URATA had no comment.                                                                                                       
CHAIR HAWKER drew the committee's  attention to written documents                                                               
in their packets prepared by Mike Elerding from Northern Sales.                                                                 
Number 2140                                                                                                                     
MIKE ELERDING, Owner, Northern Sales,  explained that even though                                                               
47 percent of his business is  with cigarettes and OTP, he is not                                                               
opposed,  in  principle, to  HB  538  because he  recognizes  the                                                               
health risks associated  with tobacco products.  He  also said he                                                               
agrees with the  idea to restrict youth access  to these products                                                               
and that the price increase in  the bill would act as a deterrent                                                               
to  youth smoking.    He  asked the  committee  to remember  that                                                               
tobacco is  a legal adult  product and  adults have the  right to                                                               
make independent decisions.  He  said he does not want government                                                               
or  other well-intentioned  groups telling  him what  to do.   He                                                               
said  he thinks  it  is  appropriate for  the  government to  tax                                                               
tobacco products, but that the  degree of taxation and unintended                                                               
consequences of the  proposed tax are the issues.   As a licensed                                                               
dealer  of  tobacco  goods,  he  stated  his  concern  about  the                                                               
unintended consequences of the bill.                                                                                            
MR. ELERDING  explained that he  has been selling  cigarettes and                                                               
OTP,  as well  as paying  and  collecting the  excise tax,  since                                                               
1962.  Last  year alone, he stated, his business  paid $4 million                                                               
in tobacco tax.   He spoke of October 1997  when the state raised                                                               
the tax from $2.90 to $10.00 a  carton and there were a number of                                                               
unintended  consequences.   The first  consequence was  a problem                                                               
with break-ins  causing an additional need  for security measures                                                               
at a  cost to  the business,  and the  second consequence  was an                                                               
increase  in the  carrying  costs of  inventory,  which meant  an                                                               
increase  in  the line  of  credit,  costs of  carrying  accounts                                                               
receivable, and  insurance.  Last  year his business  worked with                                                               
DOR to facilitate  the cigarette tax stamp  legislation which had                                                               
a bonding requirement  consequence.  He said it  was difficult to                                                               
secure a bond from  the insurance company.  Now he  said he has a                                                               
$1 million  bond secured, but the  higher tax would require  a $2                                                               
million bond to be secured which will be very difficult.                                                                        
MR. ELERDING  related, "Like it  or not, we're partners  with the                                                               
state  in collecting  and remitting  the  tax to  the state,"  he                                                               
said.   He  emphasized that  the state  is collecting  and making                                                               
much  more money  on the  sale of  tobacco products  than private                                                               
industry in Alaska is.  He stated  a concern about the OTB tax, a                                                               
75 percent  excise tax which  is charged, at present,  to tobacco                                                               
distributors doing  business within  the state,  and not  to mail                                                               
order  businesses  or   Internet  companies.    He   said  it  is                                                               
impossible for Alaska distributors to compete under these terms.                                                                
Number 1540                                                                                                                     
MR. ELERDING  says he  believes that this  tax will  cause Alaska                                                               
distributors  to seek  alternate  sources of  supply through  the                                                               
Internet and  other non-traditional distribution  channels, which                                                               
will  cause  more  tax  evasion  and bootlegging.    He  said  he                                                               
supports the  state's increasing its enforcement  efforts and the                                                               
hiring of  six new enforcement  staff.   He stated his  intent to                                                               
work  with the  state to  insure that  he is  in compliance  with                                                               
Alaska tax laws and that youth access is restricted.                                                                            
CHAIR HAWKER thanked  Mr. Elerding for his  continuing efforts to                                                               
work with the state  on this matter.  He said  he is committed to                                                               
working  with DOR  to clean  up the  major issues  mentioned: OTP                                                               
mail order, bonding, and floor tax.                                                                                             
Number 1320                                                                                                                     
TIM SCHRAGE,  Operations Manager, Brown Jug,  shared his concerns                                                               
about HB 538.   He spoke of his business's  zero tolerance policy                                                               
of selling  alcohol and  tobacco products to  minors.   He opined                                                               
that the tax increase will  drive consumers to underground retail                                                               
channels  such  as the  Internet,  and  the  state has  not  been                                                               
effective in collecting taxes on  such sales.  In Anchorage there                                                               
is a  wholesale municipal tax on  top of the cigarette  tax which                                                               
forces people to  drive to the [Matanuska-Susitna  Valley] to buy                                                               
cigarettes, he  said.   He predicted  there will  be new  jobs in                                                               
trafficking illegal  "grey market" cigarettes, which  are made to                                                               
look  like  popular brands,  and  noted  that the  potential  for                                                               
profit is huge.   He expressed lack of confidence  in the state's                                                               
ability to manage  bootlegging and illegal smoke shops.   He said                                                               
it is  his understanding that  illegal tobacco is the  number one                                                               
product seized by the U.S. Custom Service.                                                                                      
MR. SCHRAGE related other concerns  about the economic impacts of                                                               
the  tax on  businesses.   He  said the  potential  impact of  an                                                               
additional $1  to the  floor tax  will cause  his company  to pay                                                               
over $200,000 for inventory for  the rest of his economic career.                                                               
He  said  he  also  pays  a  retail floor  tax  to  the  city  of                                                               
Anchorage, and  an increase  in the  cost of  inventory increases                                                               
the insurance  cost.  He  maintained that this tax  increase will                                                               
not  solve  the  fiscal  problems   and  will  increase  criminal                                                               
CHAIR  HAWKER thanked  Mr. Schrage  for his  testimony and  noted                                                               
that his written document is included in the record.                                                                            
Number 0754                                                                                                                     
EMILY NENON,  Alaska Advocacy  Manager, American  Cancer Society,                                                               
said she is based in Anchorage and  has been in Alaska all of her                                                               
adult life.                                                                                                                     
CHAIR  HAWKER  mentioned that  Ms.  Nenon's  materials were  also                                                               
included in the members' packets.                                                                                               
MS. NENON said the  issue at hand is not a  complicated one.  The                                                               
American Cancer  Society's mission  is to  eliminate cancer  as a                                                               
major  health problem  by preventing  cancer,  saving lives,  and                                                               
diminishing suffering  from cancer, she  said.  One-third  of all                                                               
cancers are  tobacco related, and  smoking accounts for  at least                                                               
30 percent  of all cancer deaths,  she related.  She  said, "What                                                               
it really  boils down to is,  whose brother is it?   Whose mother                                                               
is it?"   She called tobacco use a pediatric  epidemic; it's kids                                                               
who start  smoking.   When the price  of tobacco  increases, kids                                                               
and pregnant women are the  first ones affected, and that's where                                                               
[this  bill] can  start making  a difference  on this  issue, she                                                               
MS.   NENON   submitted   testimony  from   the   American   Lung                                                               
CHAIR HAWKER  replied if  it is  not in the  packet he  will make                                                               
certain it gets into the record.                                                                                                
MS.  NENON pointed  out that  Alaskans recognize  that [cigarette                                                               
smoking]  is  a  problem,  and  that  there  is  a  link  between                                                               
increasing  tobacco taxes  and  saving lives,  as  reported in  a                                                               
survey done  in February.   Over  two-thirds of  Alaskans support                                                               
this increase in tobacco tax.                                                                                                   
CHAIR HAWKER asked if the survey was a voluntary survey.                                                                        
MS. NENON replied  that it was a statistically  valid survey done                                                               
by a  group called QEV  Analytics based in Washington,  D.C., and                                                               
the results were  consistent across the country  and contained no                                                               
surprises.    She said  the  issue  of  Internet sales  -  black-                                                               
marketing - is a big red  herring in this committee meeting.  She                                                               
suggested the committee  get a copy of Tobacco  in the Greatland:                                                             
A Portrait of Alaska's Leading Cause  of Death and check out page                                                             
100 which explains where people buy  their tobacco.  It says that                                                               
only  4  percent  of  adult smokers  reported  that  they  bought                                                               
cigarettes  over the  Internet,  through mail  order, or  through                                                               
other 800-number sources  over the past year.   She reported that                                                               
90 percent  of adults who  smoke say they usually  buy cigarettes                                                               
within  their community,  while 98  percent buy  them in  Alaska.                                                               
Most smokers want to quit and  they buy their cigarettes one pack                                                               
at  a  time, she  pointed  out,  and  34  percent get  them  from                                                               
convenience  stores  or gas  stations,  25  percent from  grocery                                                               
stores,  and 7  percent from  liquor or  drug stores.   She  said                                                               
there is also  the issue of Internet sales that  was addressed in                                                               
the tobacco  tax stamp  bill last  year, and  she hopes  that DOR                                                               
will address  further the measures  they are taking to  stem that                                                               
tide.   She emphasized that  the tide  she is most  interested in                                                               
stemming is  the tremendous  health care cost  and burden  on the                                                               
state  by  allowing the  tobacco  epidemic  to continue.    "It's                                                               
killing our kids and we can't let that happen," she concluded.                                                                  
Number 0032                                                                                                                     
MARIAH WARREN  identified herself as  born in Alaska and  a full-                                                               
time  college  student  working part-time  at  a  supermarket  in                                                               
Juneau.  In  her experience in both of those  venues, she said it                                                               
is very apparent that there is  a direct link between the cost of                                                               
cigarettes and who's  smoking.  She shared a story  about a young                                                               
woman who  came into the  store to purchase cigarettes  who said,                                                               
"I wish  they would  raise the tax.   If they  get just  a little                                                               
more expensive, I'm going to have to quit."                                                                                     
TAPE 04-16, SIDE A                                                                                                            
MS. WARREN continued to say  that selling cigarettes is her least                                                               
favorite  part of  working in  retail because  her employers  are                                                               
making a profit from "dealing in death."                                                                                        
Number 0116                                                                                                                     
STEVE WARREN,  Member, Alaska Tobacco  Control Alliance,  said he                                                               
has worked to help people stop  smoking his whole life.  He said,                                                               
"We  have to  face  up to  the fact  that  the tobacco  industry,                                                               
despite their claiming that they  are selling a legal product for                                                               
adults, are  working very  hard at addicting  our children."   He                                                               
thanked the  committee for their  past actions in  helping reduce                                                               
the rate that  teens are smoking by  50 percent.  The  new $1 per                                                               
pack tax increase  will reduce teen tobacco use,  despite what is                                                               
being said  to distract from that  issue.  "Every other  kid that                                                               
we can help keep from starting  smoking is going to be saved from                                                               
a premature death from that addiction," he pointed out.                                                                         
Number 0326                                                                                                                     
PAT  LUBY, Advocacy  Director,  AARP, related  that  AARP is  the                                                               
largest organization  of grandparents in  the world.  He  said he                                                               
is confident  that no  grandparents would be  happy to  know that                                                               
their grandchildren  have started  to smoke.   Many  AARP members                                                               
smoke, or  used to smoke, and  know how difficult it  is to quit.                                                               
If raising the  cost of tax on cigarettes  helps prevent Alaska's                                                               
youth from  starting to smoke,  [AARP] is very strongly  in favor                                                               
[of the  bill], he said.   He said [AARP] is  very impressed with                                                               
the  data in  the governor's  transmittal letter  indicating that                                                               
Alaska  Natives,  and  particularly  Alaska  Native  high  school                                                               
students,   smoke   at   much  higher   rates   than   non-Native                                                               
populations.   He  strongly recommended  that some  of the  money                                                               
generated  by  the  tax  increase be  used  to  target  cessation                                                               
efforts for Native  smokers, especially Native youth.   He called                                                               
the bill good  economic policy and good health  policy that makes                                                               
sense and  is fair.  On  behalf of AARP, he  strongly recommended                                                               
the passage of HB 538.                                                                                                          
CHAIR HAWKER said the letter Mr.  Luby faxed to the committee has                                                               
been included in the packet.                                                                                                    
Number 0449                                                                                                                     
KATTARYNA STILES, Alaska Native  Health Board, characterized this                                                               
bill as important  legislation because it will  save lives, raise                                                               
money, and  reduce health care  costs.  She said  she appreciates                                                               
Commissioner Gilbertson's  comments that Alaska Natives  have the                                                               
most  to gain  by passage  of  this legislation.   She  explained                                                               
that,  according to  the [2003  Youth Risk  Behavior Survey],  55                                                               
percent of  Alaska Native  youth smoke, and  measures need  to be                                                               
taken to keep tobacco out of  the hands of Native youth.  Raising                                                               
the price of  cigarettes and tobacco products so  that kids can't                                                               
afford them  would be a  tremendous step in the  right direction,                                                               
she  remarked.   She mentioned  that another  serious problem  is                                                               
that  29 percent  of pregnant  Alaska Native  women smoke,  which                                                               
causes devastating  health effects  to the  unborn children.   In                                                               
western  Alaska, that  figure goes  up to  57 percent,  she said.                                                               
She  concluded  by  saying  that the  estimated  annual  cost  of                                                               
smoking to the  Alaska Native health care system  is $48 million,                                                               
and this  bill will save money  by reducing health care  costs as                                                               
well as generate money and save lives.                                                                                          
Number 0713                                                                                                                     
JENNIFER   APP,   Alaska   Advocacy  Director,   American   Heart                                                               
Association, reported  that the  American Heart Association  is a                                                               
national  voluntary  health agency  whose  mission  is to  reduce                                                               
disability and death from cardiovascular  disease and stroke, and                                                               
it  strongly  supports  this  bill.     Smoking  is  the  leading                                                               
preventable  cause of  cardiovascular  disease in  Alaska and  is                                                               
responsible for one  out of every five deaths in  the state.  The                                                               
Alaska  public subsidizes  the significant  cost associated  with                                                               
smoking  of over  $260  million  a year.    These expenses  don't                                                               
include  health costs  caused by  exposure to  second-hand smoke,                                                               
spit  tobacco, pipes,  or cigars.   Other  non-health care  costs                                                               
from tobacco  include property  loss from  smoking-related fires.                                                               
She noted that the Anchorage  fire department reported that every                                                               
house fire  in the past year  was caused by a  burning cigarette.                                                               
The cost  of smoking to the  public is about $6.38  per pack, she                                                               
said.  She called the bill a "win, win, win" situation.                                                                         
Number 1123                                                                                                                     
BILL  BOUWENS, Tobacco  Educator, Alaska  Native Medical  Center,                                                               
said  in October  1997,  when  the first  tobacco  tax went  into                                                               
effect, his classes  were very full.  He said  the purpose of the                                                               
bill is  to prevent youth from  starting to smoke.   As an Alaska                                                               
Native he said he has seen  the effects of smoking on his people.                                                               
He said  his dad  quit smoking  24 years  ago, but  currently has                                                               
lung cancer.   He urged the passage of this  bill to help prevent                                                               
youth from starting to smoke.                                                                                                   
Number 1250                                                                                                                     
JOELLE HALL,  mother of two,  said she  is able to  testify today                                                               
because her  mother is taking care  of the kids.   She stated her                                                               
support for the  increase in the tobacco tax on  behalf of all of                                                               
the parents who couldn't testify  today.  She urged the committee                                                               
to keep children  in mind when debating the bill.   She said that                                                               
talking  to kids  about smoking  is an  effective way  to prevent                                                               
smoking.   She spoke  in strong  support of  the bill  asking the                                                               
committee  to  implement public  health  policy  to help  parents                                                               
prevent their kids from smoking                                                                                                 
Number 1522                                                                                                                     
SHELLEY WALLACE  said she is  shocked by  the number of  kids who                                                               
use tobacco in  Dillingham and Bristol Bay.  She  said she has no                                                               
grandparents  because  of  tobacco.    "Stopping  our  kids  from                                                               
starting is the  most important thing we can do,"  she said.  She                                                               
urged passage of the bill.                                                                                                      
CHAIR  HAWKER replied  that there  are members  of the  committee                                                               
from Ms. Wallace's  area who understand what she  is saying about                                                               
the problem of youth smoking in rural Alaska.                                                                                   
Number 1649                                                                                                                     
JEAN MARIE  CRUMB, Chair-elect,  Alaska Tobacco  Control Alliance                                                               
(ATCA),  spoke as  a  life-long Alaskan  and  Alaska Native,  and                                                               
reported  that  ATCA is  a  coalition  of health  care  providers                                                               
representing  over  200  organizations   and  individuals.    She                                                               
encouraged support of HB 538,  saying, "There is no single action                                                               
that you  could take to  protect the  health of Alaskans  than to                                                               
raise the  tobacco tax."   She related  her opinion that  if this                                                               
legislation  were  to  pass,  fewer   young  people  would  begin                                                               
smoking, fewer babies  would die of Sudden  Infant Death Syndrome                                                               
[SIDS], and  more adults would  quit.   She urged passage  of the                                                               
Number 1816                                                                                                                     
CAROLINE RENNER said she was born  and raised in Alaska and spoke                                                               
of her personal experience both  in Anchorage and when working in                                                               
Bethel.     She  spoke   about  developing   nicotine  dependence                                                               
treatment  programs  around  the  state in  primary  health  care                                                               
centers and in  clinics.  She said an unknown  factor is how many                                                               
children are  using tobacco because children  younger than middle                                                               
school are not  surveyed about their tobacco use,  which she said                                                               
is  of great  concern.    She also  discussed  her concern  about                                                               
prenatal  exposure to  nicotine and  said that  those babies  are                                                               
more likely  to become addicted.   She mentioned a paper  she has                                                               
written in Preventive  Medicine about children as  young as three                                                             
becoming addicted  to tobacco.   She asked the committee  to pass                                                               
the bill and save lives.                                                                                                        
Number 2148                                                                                                                     
CHAIR HAWKER asked if there was any more public testimony.                                                                      
Number 2248                                                                                                                     
REPRESENTATIVE  OGG asked  Commissioner  Gilbertson  if he  would                                                               
provide a graph to show the  relationship between the tax and the                                                               
consumption rate in Alaska, similar  to the graph provided by the                                                               
National Center for Tobacco Free Kids in the packet.                                                                            
CHAIR HAWKER said it would be requested.                                                                                        
[HB 538 was heard and held.]                                                                                                    
[HB 493 was scheduled but not heard.]                                                                                           
There being no  further business before the  committee, the House                                                               
Special  Committee on  Ways and  Means meeting  was adjourned  at                                                               
9:05 a.m.                                                                                                                       

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