HB 538-TOBACCO TAX; LICENSING; PENALTIES [Contains discussion of SB 168] Number 0200 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." He noted that Version D includes the two amendments that were passed at the previous meeting. Number 0244 REPRESENTATIVE WEYHRAUCH moved to adopt the proposed committee substitute (CS) to HB 538, labeled 23-GH2116D, Kurtz, 3/29/04, as the working document. There being no objection, Version D was before the committee. Number 0300 REPRESENTATIVE SAMUELS moved to adopt Amendment 4 which read as follows: Page 2, following line 26: Insert new bill section to read: "* Sec. 4. AS 43.50.105 is amended to add a new subsection to read: (i) A person who violates the provisions of this section is jointly and severally liable for the taxes imposed by AS 43.50.090 and AS 43.50.190. To the fullest extent permitted by the Constitution of the United States, such persons are required to collect the taxes and pay them to the department." Renumber the following bill sections accordingly. Page 5, lines 5-6: Delete all material Insert: "Sec. 43.50.625. Forfeiture of other  property. (a) Upon a showing of probable cause that a person has committed the crime of misconduct involving unstamped cigarettes or stamps in the first degree under AS 43.50.640, the following are subject to forfeiture:" Page 5, line 8: Delete "possession for sale, barter, or exchange" Insert "or possession for sale" Page 5, lines 11-12: Delete "possessed for sale, or bartered or exchanged" Insert "or possessed for sale" Page 7, lines 19-28 Delete all material Renumber following subsections accordingly Page 8, following line 16: Insert new bill sections to read: "* Sec. 15. AS 43.50.640(a) is amended to read: (a) A person commits the crime of misconduct involving unstamped cigarettes or stamps in the first degree if the person (1) with reckless disregard that the cigarettes are unstamped (A) sells or distributes 5,000 [1,000] or more unstamped cigarettes in a single transaction; (B) owns or possesses 5,000 [1,000] or more unstamped cigarettes with the intent to sell; or (C) acquires, holds, transports, imports, or possesses 10,000 or more unstamped cigarettes; or (2) with reckless disregard that the stamp was previously affixed to another cigarette package,[;] (A) affixes a previously used stamp to a cigarette package; or (B) possesses, sells, or distributes a previously used stamp. * Sec. 16. AS 43.50.650(a) is amended to read: (a) A person commits the crime of misconduct involving unstamped cigarettes or stamps in the second degree if the person (1) with reckless disregard that the cigarettes are unstamped (A) sells or distributes at least one but fewer than 5,000 [1,000] unstamped cigarettes in a single transaction; (B) owns or possesses at least one but fewer than 5,000 [1,000] unstamped cigarettes, with intent to sell; or (C) acquires, holds, transports, imports, or possesses at least one but fewer than 10,000 unstamped cigarettes; or (2) is not licensed under this chapter or otherwise authorized by the department to possess stamps and possesses a stamp that is not affixed to a cigarette package." Renumber following bill sections accordingly. REPRESENTATIVE WEYHRAUCH objected for discussion purposes. Number 0402 MICHAEL BARNHILL, Assistant Attorney General, Commercial/Fair Business Section, Civil Division, Department of Law (DOL) explained Amendment 4 by saying it addresses many of the concerns mentioned in the last meeting. He said it adds a new Section 4 on page 2 of the bill in response to Representative Gruenberg's concern about the Quill decision, which has to do with individuals that import cigarettes to Alaska and who then would be liable for the tax. He explained that last session the legislature enacted a bill which prohibits importation by a non- licensee, so he said he predicts it won't be much of a problem. If there is a cigarette seller from out of state who does not have physical presence in Alaska and who is selling a large number of cigarettes to people in Alaska who don't have licenses, subsection (i), which is an addition to the shipping restriction statute, 43.50.105, should address that issue. It would make the out-of-state shipper liable for the tax to the full extent permitted by the constitution. He called it the "Quill notion," which would allow tax to be collected from [out- of-state] sellers. Number 0605 MR. BARNHILL explained that the next proposed section [of Amendment 4] deals with the forfeiture provision, which is on page 5 of the proposed CS. The preamble in the CS [lines 5-6] which says "The following are subject to forfeiture:" is deleted. He said that the only conduct targeted is conduct which rises to the level of a felony, which is clarified by inserting "Upon a showing of probable cause that a person has committed the crime of misconduct involving unstamped cigarettes or stamps in the first degree under AS 43.50.640, the following are subject to forfeiture:". MR. BARNHILL, turning to the second page of [Amendment 4], pointed out that in [subsection (a), paragraphs (1) and (2)], the transactions of bartering and exchanging have been deleted in response to Representative Samuels' concerns and a proposal made by Deputy Commissioner Porter. Number 0730 REPRESENTATIVE GRUENBERG remarked that [that portion of Amendment 4] may not be technically correct. Looking at page 2, lines 4-6 of the amendment, he asked if Mr. Barnhill has the D version of the bill handy. MR. BARNHILL replied he does. REPRESENTATIVE GRUENBERG suggested, included in [the wording] which eliminates "possessed for sale, or bartered or exchanged", should also be "for goods and services". He asked Mr. Barnhill if that additional phrase is needed. MR. BARNHILL said Representative Gruenberg is absolutely right. REPRESENTATIVE GRUENBERG offered that as a friendly amendment. MR. BARNHILL said he appreciates that observation. He corrected the amendment on page 2, lines 1 and 5, to add the words, "for goods and services". Number 0906 The committee took an at-ease from 7:15 a.m. to 7:17 a.m. to fix technical difficulties with the off-net sites. Number 0944 REPRESENTATIVE GRUENBERG withdrew his friendly amendment and moved to adopt a conceptual amendment to Amendment 4, which would change the language on page 5, lines 7, 8, and 9 [of the proposed CS] to say "material and equipment used in the manufacture, sale, offering for sale, or possession for sale of cigarettes in this state in violation of - and then the statutes." There being no objection, it was so ordered. MR. BARNHILL continued to explain the changes contained in Amendment 4. He noted that [subsection (i)] on page 7 [of the proposed CS] is deleted in response to concerns voiced by members of the committee. He said that the judge could still order forfeiture at his or her discretion. REPRESENTATIVE WILSON said she would like to see "something very strong here" or there may be many violations. MR. BARNHILL responded that he has discussed deleting this part with the criminal section [of DOL] which said "to get a judge comfortable with a new forfeiture section, there is going to have to be a major violation. There's going to have to be a lot of bootlegged cigarettes at stake." He said that if deleting this does not work, it can be returned to at a later date for an amendment to require mandatory forfeiture. He reported that [DOL] is comfortable with deleting [subsection (i) of the proposed CS]. MR. BARNHILL continued to say on page 8, following line [16] to the end [of the proposed CS], a new section is added. This section amends the two criminal provisions in the cigarette tax stamp Act [SB 168] enacted last session, which deals with the crimes of misconduct involving unstamped cigarettes in the first degree and in the second degree. The threshold increases from 1,000 to 5,000 cigarettes for a felony violation in order to address the concern of a felony kicking in when the threshold is too low, and in order to achieve parity with the rest of the criminal statutes. Number 1410 REPRESENTATIVE WEYHRAUCH asked on page 2, line 18, and page 3, line 1 [of Amendment 4], why it doesn't say "with reckless knowing or intentional disregard" instead of just "reckless." MR. BARNHILL said he does not recall the reason. REPRESENTATIVE WEYHRAUCH asked if there is a reason not to add those standard words. MR. BARNHILL said he thinks that reckless disregard is the floor of intent and knowing or intentional is a higher level of intent. REPRESENTATIVE WEYHRAUCH asked if reckless is the lowest form. MR. BARNHILL replied yes. REPRESENTATIVE WILSON asked what the change in number is in cartons. MR. BARNHILL said five cartons. REPRESENTATIVE WILSON asked if a person can now bring in five cartons of cigarettes for personal use. MR. BARNHILL replied that is a different issue. Elsewhere in the statutes there is a provision for people to bring in 100 cigarettes a month, he explained. This amendment has to do with bootlegging: any amount of bootlegging up to 5,000 cigarettes is a misdemeanor, and anything over 5,000 is a felony, he added. Number 1608 REPRESENTATIVE WILSON asked why the number of cigarettes is used rather than the number of cartons. MR. BARNHILL said he has no idea. REPRESENTATIVE GRUENBERG, responding to Representative Wilson's question, said that the size of a carton could be varied, but a number is certain. REPRESENTATIVE GRUENBERG referred to page 8 [of the proposed CS] and suggested a renumbering of the Section 16. Number 1743 CHAIR HAWKER acknowledged that any conforming changes that need to be made, should this amendment be approved, Legislative Legal and Research Services could incorporate without changing the substance of the amendment. REPRESENTATIVE GRUENBERG asked Mr. Barnhill if [Section 16] of the amendment conforms the misdemeanors. MR. BARNHILL replied yes. REPRESENTATIVE GRUENBERG asked if possessing one unstamped cigarette would be a misdemeanor, and he said he is concerned about that because packs are stamped, but cigarettes are not. He asked how a person would know if a cigarette has been stamped. MR. BARNHILL opined that if a person bought a stamped pack of cigarettes, those 20 cigarettes inside would be deemed to have been stamped. He continued to say, "If someone handed you one cigarette from an unstamped pack of cigarettes, and you didn't know, then I would say that doesn't raise to the reckless disregard standard required for either a misdemeanor or a felony." REPRESENTATIVE GRUENBERG asked how many cigarettes are in a pack. REPRESENTATIVE WILSON said twenty. REPRESENTATIVE GRUENBERG offered a friendly amendment to say "at least 20 cigarettes." MR. BARNHILL replied that he is not sure that would be received as a friendly amendment. He said he believes that Senator Bunde may have good reasons for making the floor one [cigarette]. REPRESENTATIVE GRUENBERG said he would not pursue the friendly amendment. Number 2017 REPRESENTATIVE WEYHRAUCH withdrew his objection. CHAIR HAWKER asked if there was any further objection [to the motion to adopt Amendment 4]. Hearing none, it was so ordered. REPRESENTATIVE OGG stated that he is not going to offer Amendment 3. REPRESENTATIVE GRUENBERG said he is not going to offer Amendment 6. CHAIR HAWKER noted that Amendment 6, which deals with bond requirements, will also not be offered. He explained that Amendment 6 would have changed Section 43.50.550, which deals with the deferred payment for stamps. He read from the statute: A licensee who submits an application for the purchase of stamps on a deferred payment basis shall post a bond acceptable to the department in the amount equal to 200 percent of the maximum dollar amount of allowed monthly purchases under this section as a condition for approval of the application. CHAIR HAWKER said this is an important provision for business, in general, but particularly for small businesses that do not have unlimited cash resources. He related that he has been in lengthy discussions with insurance companies that are involved in bonding, but he has not been able to get anyone to testify by today. Doubling the bond requirements for small businesses is an insurance product that is not readily available, which could cripple or eliminate these businesses, he said. He stated his intention is to set the bill aside and ask [DOR] to resolve this issue so that the ability of industry to operate in Alaska is not compromised. He opined that an amendment would not solve the problem and more research is needed. Number 2333 REPRESENTATIVE GRUENBERG mentioned that the reason he withdrew [Amendment 5] was to not delay the movement of the bill, but now, knowing that the bill will be taken up again, he said he will be offering his amendment at the next meeting. CHAIR HAWKER said that a brief recess is needed to fix technical sound problems. [HB 538 was held over.] The committee took an at-ease from 7:32 a.m. to 7:38 a.m.