HB 193-MUNICIPAL TAXATION OF TOBACCO PRODUCTS  8:03:56 AM CO-CHAIR LEDOUX announced that the first order of business would be HOUSE BILL NO. 193, "An Act relating to the joint administration of tobacco taxes by the state and a municipality." 8:04:14 AM DIRK CRAFT, Staff, Representative Lance Pruitt, Alaska State Legislature, began by informing the committee that HB 193 was brought forward by Anchorage to help create a more efficient process to collect tobacco taxes. He clarified that HB 193 isn't an increase or decrease in the tobacco tax rather it's creating a more efficient process by partnering with the Department of Revenue (DOR) to help municipalities that collect tobacco taxes. Section 1 amends AS 43.05.230 under the administration of revenue laws such that it allows the state to share tax information it collects with municipalities for the purposes of tax collections. Section 2 amends AS 43.50.150, the administration of the Cigarette Tax Act, that allows municipalities in the state to jointly collect both state and municipal tobacco taxes and also allows for the joint auditing and distribution of stamps and collection of money on those stamps. 8:06:21 AM DAN MOORE, Treasurer, Treasury Division, Municipality of Anchorage, agreed that Section 1 of HB 193 would allow information sharing that would allow the state to coordinate and be more efficient and effective with taxes that are common to both state and local jurisdictions, which are the tobacco tax and the rental vehicle tax. Although there is information sharing from discovery or audits in relation to tax evaders, the information remains confidential on the state and municipal side. This sharing of information allows the full enforcement of the tax at the state and local level. The principle of Section 1 is based on a similar one that exists in the statute of many states that allow the state to share information with the local jurisdiction. Section 2 is focused on the tobacco tax and the use of the tobacco tax stamp. He noted that other jurisdictions in the nation, particularly in larger jurisdictions with major populations, use what he referred to as a "joint/combo tobacco stamp." The Municipality of Anchorage doesn't currently have a tobacco tax stamp, but may want one in the future. Discussions with private industry have made it clear that it would be very problematic to have two separate stamps, a city stamp and a state stamp, on a single pack of cigarettes. Discussions with a major stamp vendor revealed, however, that it is possible to create a single joint stamp representing that the tax has been paid to both the state and the city. In this situation in which part of the goal is to gain efficiency, besides just a single joint stamp, Mr. Moore requested that the state DOR be the central administrator of a joint tobacco tax stamp program. Therefore, the private industry would have a one-stop shop in terms of acquiring the stamps and remitting the funds. The state would then collect funds on behalf of local jurisdictions and then pay the local jurisdictions each month. Section 2 requests authority for DOR to enter into individual agreements with local jurisdictions so that the terms can be laid out in advance, before a joint tobacco tax stamp is even considered. A key provision within a memorandum of understanding (MOU) would be the cost reimbursement from the local jurisdiction that would ask the state to issue tobacco stamps and collect money on their behalf. He pointed out that the fiscal note is focused on Section 2 and shows the cost impact if there were no reimbursement. However, page 2 of the fiscal note specifies that if there is a formal agreement in which jurisdictions agree to reimburse costs, there would be no costs to Section 2. He related that the Municipality of Anchorage is fully committed to reimbursing any incremental cost that is caused by the request to partner with the state on a joint tobacco tax stamp, and thus the legislation would be cost neutral to the state. 8:11:15 AM REPRESENTATIVE HERRON inquired as to how much additional revenue Anchorage would realize if this MOU was entered into. MR. MOORE pointed out that the MOU is particular to the tax stamp program in that it's a matter of more efficiently collecting the money. Section 1, he stated, provides more of an opportunity for increased revenue because with information sharing the city or the state can talk about things they have found in terms of tax evasion and that can be shared because the tax is owed on both the state and city side. In terms of quantifying Section 1, Mr. Moore estimated that if there was 5 percent tax evasion with cigarettes in Anchorage and $22 million a year is collected from the cigarette tax, 5 percent of that is about $1 million per year of revenue that could be recovered or realized as a result of joint audit information sharing. Furthermore, it sends a message that the state and cities are more coordinated and effective in enforcing the tobacco tax law. Although it's more difficult to estimate or quantify leakage or abuse, the same can be said about car rental taxes. In fact, in recent years the state had a major finding in a rental vehicle agency in Anchorage that amounted to $600,000 of unpaid state tax. Unfortunately, since the information sharing statute didn't exist, Anchorage couldn't recover what was found in the state's audit. The [Municipality of Anchorage] performed its own audit, albeit it didn't cover as broad a range as the state's audit, and thus the municipality lost out on the collection of revenue legally due to it. Mr. Moore then mentioned that the information sharing is reciprocal, such that if the state agrees to share with a local [municipality] its local code includes sharing with the state. 8:14:20 AM REPRESENTATIVE HERRON inquired as to how many wholesalers would apply this tobacco tax stamp. MR. MOORE answered that there are five or less entities that do stamping of which three to four do their own direct stamping and one to two that do stamping on behalf of many entities. 8:15:51 AM CO-CHAIR LEDOUX, upon determining no one else wished to testify, closed public testimony. 8:16:03 AM CO-CHAIR NAGEAK moved to report HB 193 out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, it was so ordered. The committee took an at-ease from 8:16 a.m. to 8:18 a.m.