SENATE BILL NO. 117 "An Act requiring the Department of Revenue to set the minimum price for cigarettes for sale by wholesalers and retailers; and prohibiting a wholesaler or retailer from selling at wholesale or retail cigarettes at a lower price than the price set by the Department of Revenue." ESTHER CHA, STAFF, SENATOR LESIL MCGUIRE, explained that the bill addresses a current loophole in legislation which allows large high volume cigarette sellers to price their cigarettes at less than the minimum price set by law if they can prove that their actual cost of doing business is lower than the mandated minimum price. The original purpose of Article 7 in Title 43 was to prevent wholesalers and retailers from using predatory pricing practices to promote the sale of cheap cigarettes and use them as a loss leader. However, AS 43.50.800(c) specifically states that a wholesaler or retailer that wishes to advertise, offer to sell, or sell cigarettes at less than the presumptive, actual cost to the wholesaler or retailer, must first obtain approval from the department. The department may grant approval only if the wholesaler or retailer provides proof satisfactory to the department that the wholesaler's or retailer's actual cost is lower than presumed. She gave an example. SB 117 would repeal AS 43.50.800 and replace it with Section 6 in the bill, which establishes AS 43.50.801. Ms. Cha explained that the only change between the original bill and the CS are the multipliers. The original bill held the percentages to what is currently in statute, which was 4.5 percent at wholesale and 6 percent at retail. The new CS changes those percentages to 2 percent and 4 percent respectively. The Department of Revenue approves of the change. The percentages in the CS are currently higher than the percentage granted at the exemption. Ms. Cha shared that the original reasoning behind fixing a minimum price for cigarettes was based on studies showing how increased prices would work to provide a financial incentive for existing smokers to quit, as well as to discourage new smokers. The expected price increase found in the CS will not have as great an effect. The bill will not change the amount of tax received by the state on cigarette sales. By getting rid of a wholesaler's or retailer's ability to apply for an exemption, the CS would bring parity and balance to competition. It would level the playing field by ensuring that all vendors, regardless of size, volume, or accounting practices, will have to price at, or above, the minimum price set in law. 9:24:45 AM Co-Chair Stedman noted one zero fiscal note from the Department of Revenue. 9:25:06 AM MIKE ELERDING, KETCHIKAN (via teleconference), spoke in favor of the legislation. He requested that the topic of the bill be limited to only one topic, the price of cigarettes. He spoke as a tobacco distributor and shared the history of his company's involvement in cigarette taxes. He provided information about the correlation between increasing prices and decreasing consumption. He described how cigarette pricing is controlled. He emphasized that if the state is doing its part to increase the price of tobacco, cigarettes should not be sold for less than the market cost. He agreed that SB 117 closed a loophole and stated his support for the bill. 9:29:21 AM CLIFF KRAEMER, NORTHERN SALES COMPANY (via teleconference), spoke in support of the proposed changes contained in SB 117. The recommendation to set a minimum price for cigarettes is a compromise among wholesalers and retailers. SB 177 was heard and HELD in Committee for further consideration. 9:31:01 AM