SB 162-CIGARETTE SALES REQUIREMENTS    MIKE BARNHILL, Assistant Attorney General, spoke in support of SB 162. His full testimony as well as the background and sectional analysis are in the bill file. The bill relates to the 1998 Tobacco Master Settlement Agreement (MSA), which gives Alaska a stream of revenue that lasts indefinitely. However, there are a number of ways the revenue stream could be reduced, one of which is a non-participating manufacturer adjustment (NPM). To avoid such an adjustment, a model statute was adopted in 1999 to level the economic playing field between tobacco manufacturers that participate in the MSA and tobacco manufacturers that don't. It requires NPMs to deposit approximately 1.5 cents into escrow for every cigarette they sell in the state. The Department of Revenue advises NPMs of their obligations under Alaska law and if they don't comply, the case is referred to the Department of Law. For example, a company in India makes candy flavored cigarettes and about 100,000 were sold in Alaska without compliance. The Department of Law filed a suit, which entailed hiring a process server to carry the complaint summons to India. To avoid this expense in the future, Alaska enacted complimentary legislation designed to diligently enforce statutes. If a company failed to comply with Alaska law, it went on to a list and their cigarettes were labeled contraband and Alaska distributors were prohibited from selling those cigarettes. Many states followed suit but the legislation was a bit different in every state. Finally the National Association of Attorneys General worked to prepare a uniform bill and SB 162 is the product of that working group. It has been introduced and passed in 12 states, introduced in 20 other states including Alaska and 4 other states are considering introduction. A list of cigarettes and companies that are permitted in Alaska would be created. A distributor could review the list on the Department of Revenue website to determine which cigarettes they are able to sell in the state, order them and sell them accordingly. To get on the list, a tobacco manufacturer must either certify they are a participating manufacturer under the MSA or certify they are a NPM and they are in compliance with the law. The bill provides penalties for non-compliance and requires NPMs to register or appoint an in-state agent. If a distributor brings in cigarettes that are on the permitted list, but the manufacturer is subsequently removed from that list there is a tax credit available for the distributor. Finally, if a NPM refuses to comply and the department has to sue, the department is able to carry the complaint to the Department of Community and Economic Development. CHAIR GARY STEVENS recapped the provisions of the bill. SENATOR JOHN COWDERY asked if the state knew which companies were trying to avoid paying. MR. BARNHILL replied the department has a list of about 15 companies on a contraband list. JOHANNA D. BALES, Department of Revenue, said she administers the tobacco and cigarette products excise program and enforces the NPM statute. In what appears to be an attempt to avoid the escrow payment, new manufacturers and brands appear on a daily basis. Under this law the manufacturers would be required to give their information to the department prior to selling their product. This year there are five or six new manufacturers and it remains to be seen whether they will make their escrow payments. From that standpoint, this is important legislation because it places the responsibility on the manufacturers. SENATOR COWDERY asked if residents could import personal use cigarettes. MS. BALES said they could if the manufacturer was on the list. An individual who brings in tobacco for personal consumption is treated no differently than any other taxpayer. They must be licensed with the Department of Revenue prior to bringing the cigarettes in under existing tobacco legislation. SENATOR COWDERY asked about duty free purchases. MS. BALES explained recent changes in both federal and state law restrict those purchases for in-state use. SENATOR COWDERY asked about tobacco sales other than cigarettes. MS. BALES said just cigarettes and tobacco for roll-your-own cigarettes are covered under the MSA. CHAIR GARY STEVENS asked whether military personnel or fishermen who buy substantial amounts of tobacco in Seattle and bring it to Alaska were beyond the scope of the bill. MS. BALES replied they would be subject to the same requirements. If the cigarettes were brought within the three- mile limit the tax would be due. CHAIR GARY STEVENS verified that the wholesaler in Seattle would be obliged to make sure the tax was paid. MS. BALES agreed. SENATOR COWDERY asked for the definition of a cigarette. MS. BALES defined it as a tobacco product that is wrapped in paper. Roll-your-own meets that definition if that product is intended to make a cigarette. This bill wouldn't change the definition. There were no further questions. SENATOR COWDERY made a motion to move SB 162 and attached fiscal note from committee with individual recommendations. He asked for unanimous consent. There being no objection, it was so ordered.