ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
February 16, 2016
1:32 p.m.
MEMBERS PRESENT
Senator Mia Costello, Chair
Senator Cathy Giessel, Vice Chair
Senator Kevin Meyer
Senator Gary Stevens
MEMBERS ABSENT
Senator Johnny Ellis
COMMITTEE CALENDAR
SENATE BILL NO. 142
"An Act relating to insurance coverage for anti-cancer
medications."
- MOVED CSSB 142(L&C) OUT OF COMMITTEE
SENATE BILL NO. 131
"An Act requiring the electronic submission of a tax return or
report with the Department of Revenue; relating to the excise
tax on alcoholic beverages; and providing for an effective
date."
- HEARD & HELD
SENATE BILL NO. 133
"An Act requiring the electronic submission of a tax return or
report with the Department of Revenue; relating to the taxes on
cigarettes and tobacco products; taxing electronic smoking
devices; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 142
SHORT TITLE: INSURANCE FOR ANTI-CANCER MEDICATION
SPONSOR(s): SENATOR(s) GIESSEL
01/19/16 (S) READ THE FIRST TIME - REFERRALS
01/19/16 (S) L&C
02/04/16 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
02/04/16 (S) Heard & Held
02/04/16 (S) MINUTE(L&C)
02/16/16 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
BILL: SB 131
SHORT TITLE: ELECTRONIC TAX RETURNS & ALCOHOL TAX
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/19/16 (S) READ THE FIRST TIME - REFERRALS
01/19/16 (S) L&C, FIN
02/16/16 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
BILL: SB 133
SHORT TITLE: ELECTRNC TAX RETURNS;TOBACCO & E-CIGS TAX
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/19/16 (S) READ THE FIRST TIME - REFERRALS
01/19/16 (S) L&C, FIN
02/16/16 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
WITNESS REGISTER
WESTON EILER, Staff
Senate Labor and Commerce Committee and Senator Mia Costello
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Explained the changes in the CS for SB 142.
BRANDON SPANOS, Deputy Director
Tax Division
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Presented SB 131 and SB 133 on behalf of
the administration.
KEN ALPER, Director
Tax Division
Department of Revenue (DOR)
Juneau, Alaska,
POSITION STATEMENT: Participated in the discussion of SB 131
and SB 133.
DR JAY BUTLER, Chief Medical Officer
Department of Health and Social Services
Anchorage, Alaska,
POSITION STATEMENT: Provided information related to tobacco and
e-cigarette use during the discussion of SB 133.
CHRYSTAL SCHOENROCK, representing herself
Foreland Bar
Nikiski, Alaska
POSITION STATEMENT: Testified in opposition to SB 131 and SB
133.
JOEL KADARAUCH, representing himself
Alaska Beer, Wine & Spirits/ODOM Corporation
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to SB 131.
RYAN MAKINSTER, representing himself
Brewers Guild of Alaska
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to SB 131.
DALE FOX, President
Alaska CHARR
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to SB 131.
JACK MANNING, representing himself
Duck Creek Market and president
Juneau CHARR
Juneau, Alaska
POSITION STATEMENT: Testified in opposition to SB 131.
JOHN JACKOVICH, representing himself
Fairbanks, Alaska
POSITION STATEMENT: Testified in opposition to SB 131.
BILL FRY, representing himself
Bear Creek Winery
Homer, Alaska
POSITION STATEMENT: Testified that SB 131 is excessive.
LARRY HACKENMILLER, Secretary
Interior CHARR,
Fairbanks, Alaska
POSITION STATEMENT: Testified in opposition to SB 131.
ACTION NARRATIVE
1:32:11 PM
CHAIR MIA COSTELLO called the Senate Labor and Commerce Standing
Committee meeting to order at 1:32 p.m. Present at the call to
order were Senators Giessel, Meyer, and Chair Costello. She
reviewed the agenda.
SB 142-INSURANCE FOR ANTI-CANCER MEDICATION
1:33:34 PM
CHAIR COSTELLO announced the consideration of SB 142. She
relayed that this is the second hearing and public testimony is
closed.
1:34:14 PM
SENATOR GIESSEL moved to adopt the work draft committee
substitute (CS) for SB 142, labeled 29-LS1133\W, as the working
document.
CHAIR COSTELLO found no objection and version W was before the
committee.
1:34:38 PM
WESTON EILER, Staff, Senate Labor and Commerce Committee and
Senator Mia Costello, explained that the CS for SB 142 adds a
new subsection (c) on page 2, lines 4-6, that says "Nothing in
this subsection prohibits a health care insurance plan from
requiring different cost-sharing rates for in-network and out-
of-network providers or pharmacies." The sponsor brought this up
as a conceptual amendment at the last hearing at the suggestion
of the Division of Insurance.
1:35:23 PM
SENATOR GIESSEL moved to report the CS for SB 142, labeled 29-
LS1133\W, from committee with individual recommendations and
attached fiscal note(s).
SENATOR STEVENS joined the committee.
1:35:35 PM
CHAIR COSTELLO announced that without objection, CSSB 142(L&C)
is reported from the Senate Labor and Commerce Standing
Committee.
1:35:38 PM
At ease
SB 131-ELECTRONIC TAX RETURNS & ALCOHOL TAX
1:37:46 PM
CHAIR COSTELLO reconvened the meeting and announced the
consideration of SB 131.
1:39:30 PM
BRANDON SPANOS, Deputy Director, Tax Division, Department of
Revenue (DOR), introduced SB 131 on behalf of the
administration, starting with the history. The alcohol tax in
Alaska began in 1933 and the basic structure has stayed the same
since 1937. The tax is charged and collected monthly at the
wholesale level.
CHAIR COSTELLO asked how the tax is charged and collected.
MR. SPANOS explained that licensed, bonded warehouses can import
alcohol into those warehouses and the tax is due when it is sold
from those warehouses. Alternatively, if a company buys and
imports alcohol, the tax is levied when it's imported. There is
also a tax on brewing or distilling spirits in the state. That
tax is due when the alcohol is sold.
Continuing to review the history, he said the tax rate has
increased with inflation and public need and to keep up with
other states. The last major change in the alcohol tax was in
2002 when the tax was raised to 10 cents per drink. At that
time, the Alcohol and Other Drug Abuse Treatment and Prevention
Fund was created and 50 percent of the tax goes to that fund,
subject to appropriation. Currently, revenue from the alcohol
tax is about $40 million per year, so about $20 million goes to
the Treatment and Prevention Fund for the mental health budget.
1:41:39 PM
CHAIR COSTELLO asked how the administration came up with the
dime a drink slogan for the bill, because it could be more than
that, depending on the amount of alcohol in the drink.
MR. SPANOS replied it's based on the 2002 legislation when the
tax was increased. A review of the history of that legislation
indicated that one ounce of distilled spirits, five ounces of
wine, or 12 ounces of beer are each considered one drink. The
dime was attached at that time and the administration is
proposing to double that rate to 20 cents per drink. The
exception is small craft brewery beer that has a tax of about
3.3 cents per drink for the first 60,000 barrels of beer sold in
the state, provided the brewery meets the federal definition of
a reduced rate brewer.
MR. SPANOS displayed a chart to show what doubling the tax rates
to 20 cents per drink looks like. For distilled spirits, the
rate goes from $12.80 per gallon to $25.60 per gallon. For wine,
the rate goes from $2.50 per gallon to $5.00 per gallon. For
beer, cider, or malt beverages, the rate goes from $1.07 per
gallon to $2.14 per gallon. For small-brewery beer, the tax for
the first 60,000 barrels goes from 35 cents per gallon to 70
cents per gallon.
Additionally, the bill requires electronic filing for all
taxpayers and increases the bonding requirement from $25,000 to
an amount determined by DOR.
1:43:34 PM
MR. SPANOS revealed that Alaska's alcohol taxes currently are
among the highest in the U.S. For wine, the taxes are the
highest; for spirits Alaska is second highest behind Washington;
and for beer Alaska is second highest behind Tennessee. If SB
131 were to pass, the alcohol tax rate in Alaska would be the
highest in all three categories.
1:44:18 PM
SENATOR MEYER asked, "If we're already the highest, why would we
want to double it."
MR. SPANOS replied the administration is trying to raise revenue
from a variety of sources throughout the state and alcohol is
part of that.
SENATOR MEYER commented that this has nothing to do with
deterring drinking. "It's strictly a cash grab."
MR. SPANOS said that's correct.
CHAIR COSTELLO recounted a discussion in a House Labor and
Commerce hearing that the increased tax would be enough of a
deterrent that fewer people would drink. She asked him to
respond to that and expressed hope that the administration would
analyze the impact that all the taxes will have on the public
and the budget.
MR. SPANOS confirmed the discussion took place and the
administration responded that it had not done an analysis.
Commissioner Hladick noted that his experience was that a tax
increase results in a drop in use for a year and then it goes
back up. That hasn't been confirmed, but a higher tax would
certainly factor into a person's decision about how much alcohol
they might purchase, he said.
1:46:17 PM
SENATOR STEVENS asked if local taxes are added to the state
alcohol taxes.
MR. SPANOS replied there are sales taxes in certain
jurisdictions but he didn't know if there are specific taxes on
alcohol. He offered to look into it.
SENATOR MEYER asked if the committee can expect to see an
economic analysis of what doubling the alcohol tax would do to
small businesses. He remarked that people may not stop drinking
at home, but they may cut back consumption at bars and
restaurants.
MR. SPANOS responded they haven't done that analysis but he'd
take the request back for discussion.
Turning to the revenue impact of SB 131, he said the Department
of Revenue estimates that doubling the tax rate will nearly
double tax collections, or an additional $40 million per year.
He noted that that does not take into account any reduction in
consumption. According to current statute, half or about $20
million will be deposited to the Alcohol and Other Drug Abuse
Treatment and Prevention Fund, subject to appropriation. The
other $20 million will be deposited to the unrestricted general
fund. These estimates are based on the fall 2015 revenue
forecast and do not account for stockpiling.
1:48:18 PM
MR. SPANOS stated that the estimated one-time cost to implement
SB 131 is $50,000. This will be used to update DOR's tax revenue
management system (TRMS) and the revenue online (ROL) component,
which allows taxpayers to file a return and apply for a tax
license online, and make changes to the tax return and license
application forms. No additional costs to administer the program
are anticipated going forward.
MR. SPANOS displayed a two-part slide to show how the $40
million alcohol tax increase fits into the Governor's plan to
close the budget gap. He then reviewed the basic impacts of the
alcohol tax proposal. Alcohol will be more expensive to buy and
a slight decrease in consumption is anticipated due to the
higher prices. There is also the possibility of stockpiling
alcohol before the tax increase.
1:49:28 PM
MR. SPANOS read the following sectional analysis:
Sec. 1.Adds a $25 or 1% tax penalty for failure to
file electronically unless an exemption is received by
the taxpayer.
Sec. 2. Requires electronic submission of tax returns,
license applications, and other documents submitted to
the Department of Revenue. This changes the general
tax statutes, AS 43.05, and will apply to all tax
types administered by the department. Provides a
process to request an exemption if a taxpayer does not
have the technological capability to do so.
Sec. 3. Changes the per-gallon tax rates for the three
major categories of alcoholic beverages: malt
beverages and ciders from $1.07 to $2.14; wine and
other beverages with less than 21% alcohol content
from $2.50 to $5.00; and beverages with greater than
21% alcohol content (generally distilled spirits) from
$12.80 to $25.60.
Sec. 4. Changes the per-gallon tax rate for the first
60,000 barrels sold in the state from small craft
breweries that meet the federal definition of a small
brewer, from $0.35 to $0.70.
Sec. 5. Changes the statutes describing tax filing so
that taxpayer must "submit" rather than "send" their
statement and that it must be submitted
"electronically in a format prescribed by the
department."
Sec. 6. Changes the surety bond requirement from
$25,000 to an amount determined by the department.
Sec. 7.Clarifies that the tax increases apply to
beverages sold after the effective date.
Sec. 8. Transitional language allowing for
regulations.
Sec. 9. Immediate effective date for the transitional
regulatory language in Sec. 8.
Sec. 10. Effective date of 7/1/16 for the rest of the
bill including the tax rate changes.
1:51:27 PM
SENATOR STEVENS questioned the requirement to file
electronically. "What do you lose if someone would prefer to
file by mail?" he asked.
MR. SPANOS replied it's a cost savings that will allow a better
use of resources. He clarified that the requirement will apply
to all tax types.
SENATOR MEYER asked the difference between a small and large
brewery.
MR. SPANOS recalled that a federally recognized small brewery
can produce up to 2 million gallons per year and the first
60,000 barrels sold in Alaska is taxed at a reduced rate. He
noted that none of the small brewers currently sell more than
that in the state.
SENATOR MEYER asked the reason for that.
MR. SPANOS said he'd need to look at the history, but he assumes
that larger brewers have larger economies of scale and this
gives small brewers a competitive edge. He noted that the
federal government has a similar statute.
1:54:45 PM
CHAIR COSTELLO asked what the tax increase will mean to a couple
that orders an Alaskan Amber.
MR. SPANOS explained that the tax will double, but it's up to
the retailer to decide what to charge for the beer. They could
pass through the increase or charge more or less.
CHAIR COSTELLO asked if the administration has discussed the
proposed increase with the affected businesses to learn what
their concerns are.
MR. SPANOS said there are a lot of different bills and while he
wasn't personally involved in a discussion with the alcohol
industry, he assumes they took place.
CHAIR COSTELLO asked how many bills are involved in the
Governor's Plan.
MR. SPANOS said he believes there are eight or nine bills and
six or seven talk about taxes.
1:56:51 PM
SENATOR STEVENS pointed out that a martini or mixed drink
probably contains two or three ounces of spirits so the tax
increase would be substantially more than 10 cents.
MR. SPANOS confirmed that for three ounces of spirits the tax
would be 30 cents more.
SENATOR GIESSEL requested information about the number of small
breweries and large breweries in the state to better understand
the economic impact this will have on Alaska businesses.
CHAIR COSTELLO asked if the administration is prepared to
provide that.
MR. SPANOS said yes they'd provide what they can. He noted that
all the breweries in Alaska are considered small breweries.
SENATOR GIESSEL clarified that she is looking for an economic
analysis of the impact on Alaska businesses.
CHAIR COSTELLO offered her understanding that the administration
worked with the Institute of Social and Economic Research (ISER)
to look at the economic impacts on Alaskans from the tax
proposals. She asked if Gunnar Knapp is still working on that
project.
MR. SPANOS said he'd follow up.
2:00:00 PM
SENATOR MEYER emphasized the need for an economic analysis to
understand the direct and indirect impacts of the proposed tax
increase. "Our economy is already weak enough; I don't think we
want to try to make it any weaker." He noted that he, too,
thought ISER was going to do an analysis of all the Governor's
tax proposals.
CHAIR COSTELLO set SB 131 aside until later in the meeting.
SB 133-ELECTRNC TAX RETURNS;TOBACCO & E-CIGS TAX
2:01:19 PM
CHAIR COSTELLO announced the consideration of SB 133.
2:01:42 PM
BRANDON SPANOS, Deputy Director, Tax Division, Department of
Revenue (DOR), introduced SB 133 on behalf of the
administration, starting with the history. The tobacco tax began
in 1949 and cigarettes have always been taxed separately than
other tobacco products (OTP). The tax on OTPs was repealed in
1955 and reinstated in 1988 at 25 percent of the wholesale
price. The last major change was in 1999 when the OTP tax was
raised to 75 percent of the wholesale price. All revenue from
this tax goes to the general fund.
There are two separate taxes on cigarettes. The first is a
dedicated "base" tax of $0.038 per cigarette that is deposited
to the School Fund. The second, "additional" tax is $0.062 per
cigarette; 8.9 percent of this goes to the Tobacco Use Education
and Cessation Fund, subject to appropriation, and the remainder
goes to the general fund. The total of both taxes is $0.10 per
cigarette. For a pack of 20 cigarettes that is $2.00 and it's
paid through a stamp.
The proposed increase affects only the second or "additional"
tax, increasing it by 5 cents, from $0.062 to $0.112 per
cigarette. The total tax rises to $0.15 per cigarette ($3 for
per pack of 20, an increase of $1 per pack). The increased tax on
other tobacco products (OTP) rises from 75 percent to 100
percent of the wholesale price.
The tobacco tax proposal also adds electronic cigarettes to the
tax on OTPs, and clarifies the definition of "wholesale price" of
a tobacco product or electronic smoking device. The bill also
requires electronic filing and an exemption process.
MR. SPANOS reported that tobacco taxes in Alaska are higher than
th
the U.S. average. For cigarettes the tax is 11highest of the
th
50 states. For OTPs, Alaska is 8 highest of those states that
use the wholesale price for calculating their tax. He noted that
some states use weight to calculate the tax on OTPs. SB 133
th
would give Alaska the highest OTP tax and 5 highest cigarette
tax in the U.S.
The Department of Revenue estimates increasing the cigarette tax
will raise an additional $24 million per year, 8.9 percent of
which (or about $2 million) would go to the Tobacco Use
Education and Cessation Fund and the remainder (about $22
million) would be deposited to the general fund. The other
tobacco tax increase is estimated to raise an additional $5
million per year and all of it would go to the general fund. The
total revenue impact is estimated to be $29 million per year.
The revenue estimates are based on the 2015 fall revenue
forecast and do not account for changes in tobacco demand or
stockpiling to avoid the tax increase. DOR anticipates that this
could have a substantial effect in FY 2017. DOR lacks data to
estimate the tax from e-cigarette sales but it will bring in
additional revenue.
The estimated one-time cost to implement SB 133 is $50,000. This
will be used to update DOR's tax revenue management system
(TRMS) and the revenue online (ROL) component, which allows
taxpayers to file a return and apply for a tax license online,
and make changes to the tax return and license application
forms. No additional costs to administer the program are
anticipated going forward.
MR. SPANOS displayed a two-part slide to show how the $29
million tobacco tax increase fits into the Governor's plan to
close the budget gap. The basic impacts of the tobacco tax
proposal are that tobacco will be more expensive to buy so a
slight decrease in consumption is anticipated due to the higher
prices. There is also the possibility of stockpiling of
cigarettes before the tax increase.
2:07:59 PM
MR. SPANOS read the following sectional analysis into the
record:
Sec. 1.Adds a $25 or 1% tax penalty for failure to
file electronically unless an exemption is received by
the taxpayer.
Sec. 2. Requires electronic submission of tax returns,
license applications, and other documents submitted to
the Department of Revenue. This changes the general
tax statutes, AS 43.05, and will apply to all tax
types administered by the department. Provides a
process to request an exemption if a taxpayer does not
have the technological capability to do so.
Sec. 3. Conforming language to add electronic smoking
devices to the current statute allowing the department
to share information with municipalities.
Sec. 4. Conforming language to reference the new
definition of "electronic smoking device" in Section
13.
Sec. 5. Increases the "additional tax levy" on each
cigarette from 62 mills to 112 mills.
Sec. 6. Increases the tax on tobacco products other
than cigarettes from 75% of the wholesale price to
100% of the wholesale price. Adds electronic smoking
devices to what is taxed.
Sec. 7. Conforming language to add electronic smoking
devices to an existing statute referencing federal tax
exemptions.
Sec. 8. Conforming language to add electronic smoking
devices to the license requirement.
Sec. 9.Conforming language to add electronic smoking
devices to the monthly tax return. Also adds new
language to require electronic filing of the return.
Sec. 10. Conforming language to add electronic smoking
devices to the procedures for issuing tax credits and
refunds.
Sec. 11.Conforming language to add electronic smoking
devices to the requirement to keep complete and
accurate records to support the tax return.
Sec. 12. Adds language to clarify that a cessation
product, tobacco dependence product or modified risk
tobacco product are excluded from the definition of a
tobacco product for purposes of taxation.
Sec. 13. Clarifies the definition of "wholesale price"
of a tobacco product or electronic smoking device as
the gross invoice price including all federal excise
taxes, less any trade discounts or other reductions.
Sec. 14. Adds the definition of "electronic smoking
device".
Sec. 15. Adds that the Act is applicable to tobacco
products sold on or after the effective date of the
Act and applies to the first monthly return submitted
after the first full month after the effective date.
Sec. 16. Allows the Department of Revenue to adopt
regulations necessary to implement the changes made by
this Act but not before the effective date.
Sec. 17. Section 16 of this Act takes effect
immediately under AS 01.10.070(c).
Sec. 18. Except as provided in Sec. 16-17, effective
date of July 1, 2016.
2:10:59 PM
CHAIR COSTELLO invited Mr. Alper to join Mr. Spanos.
2:11:12 PM
KEN ALPER, Director, Tax Division, Department of Revenue (DOR),
introduced himself.
CHAIR COSTELLO asked if there was any discussion about whether
the alcohol and tobacco taxes are regressive and the Alaskans
who would be most affected. She asked him to start with the
tobacco tax.
MR. ALPER suggested the committee ask the Department of Health
and Social Services (DHSS) because that agency have records of
how tax changes impact smoking rates. His experience from the
restaurant industry is that tobacco use trends towards certain
social groups and income levels, but use is declining. DOR's
baseline estimates for the tobacco tax going forward 2-4 years
shows a downward trend. The data indicates that there are fewer
smokers in Alaska every year.
Nine bills were introduced to the legislature this year. Three
are consumption taxes (alcohol, tobacco and motor fuel); three
are business taxes (fisheries, mining and commercial passenger
vessels); and three are bigger tax bills (income tax, oil and
gas tax credit reform, and the Permanent Fund Protection Act).
The broad idea of the Governor's fiscal plan is to solve the
problem in total with everyone doing their part. There was no
intent to single out any particular demographic or user group.
CHAIR COSTELLO asked what percentage of the deficit the tobacco
tax will attempt to fill.
MR. ALPER replied the $29 million estimated revenue is a little
less than one percent of the $3.7 billion estimated deficit.
CHAIR COSTELLO asked what percentage of the deficit the alcohol
tax will fill.
MR. ALPER replied the alcohol excise tax brings in $40 million
incrementally which is between 1 percent and 1.25 percent of the
deficit. Half of that goes to the Alcohol and Other Drug Abuse
Treatment and Prevention Fund in the mental health budget, which
is supplemented with about $60 million from the general fund. If
the additional $40 million were deposited to the general fund,
it would be a little more than 1 percent of the budget deficit.
2:15:13 PM
CHAIR COSTELLO asked Dr. Butler to respond to earlier questions
about who is smoking in Alaska and who would be most affected by
the tobacco tax bill if it were to pass.
DR JAY BUTLER, Chief Medical Officer, Department of Health and
Social Services (DHSS) agreed with Mr. Alper that overall
smoking rates are declining, and most rapidly among young
people. In general, cigarette smoking is associated with lower
education levels and the associated lower socio economic status.
Smoking rates are also higher in rural areas and among Alaska
Natives, particularly in Western Alaska and the North Slope.
CHAIR COSTELLO asked Mr. Alper to define a regressive tax.
MR. ALPER explained that it is generally understood to mean that
lower income individuals pay a higher percentage of their income
toward the tax than a higher income person.
CHAIR COSTELLO asked if the tobacco tax is regressive.
MR. ALPER confirmed that the effect would be regressive.
CHAIR COSTELLO asked how much a pack of cigarettes costs today.
MR. ALPER estimated it's between $9.00 and $10.00, $2.00 of
which is the current excise tax on tobacco. SB 133 seeks to
increase the tax $1.00 per pack.
CHAIR COSTELLO requested information on the impact in rural
Alaska.
2:18:10 PM
MR. ALPER agreed to try to get the information. He added, "It
will probably be somewhat different than the cost differences
you see in alcoholic beverages because there isn't the local
restriction you see in certain parts of rural Alaska for
alcoholic beverages and it's a lighter weight product. It's
easier to ship around than bottles of alcohol."
SENATOR STEVENS commented that he'd be the last to defend the
use of tobacco, but he questions the tax on electronic
cigarettes. He maintained that they are designed to help end an
addiction to tobacco.
MR. ALPER offered his understanding that large portions of
electronic products contain nicotine and he doesn't think of
electronic smoking products as cessation devices. He said a
different rate for OTPs could probably be implemented if that's
what the committee wishes. He deferred further comment to Dr.
Butler.
SENATOR STEVENS restated his understanding that people use
electronic cigarettes to try and break the addiction to
cigarettes. "If that's the case, why would we discourage people
from trying to use that form to stop an addiction?" he asked.
2:21:58 PM
DR BUTLER agreed that some people have found that e-cigarettes
help them stop using combustible cigarettes. He described that
as a step in the right direction with a few caveats. One, there
is no solid data showing that e-cigarettes have a role in
combustible tobacco cessation and there is no FDA approved
mechanism for nicotine replacement therapy. Also, a recurring
observation is that the greatest impact of increasing tax on
tobacco is the decreased uptake among youth. As states increase
tobacco tax there is a decreased uptake on youth. However, it is
concerning that about 18 percent of Alaska youth report having
used e-cigarettes in the last month. He also discussed a study
that suggests that there may be a role for taxation as a way to
reduce the uptake of e-cigarettes among youth.
SENATOR STEVENS asked if he expects the FDA to do further
studies on e-cigarettes.
DR, BUTTLER opined that the issue will be whether any of the
manufacturers choose to file with the FDA for that approval.
CHAIR COSTELLO asked Dr. Butler to address the point that the
tax bill won't achieve its intended goal if the increased tax
results in fewer users. "Can we expect that that 18 percent will
stop purchasing?" she asked.
DR. BUTLER replied the data on e-cigarettes is limited but for
cigarettes there is a linear correlation between increasing
taxes and decreasing use. The decrease in uptake by youths is
even more pronounced.
CHAIR COSTELLO recalled a bill about 20 years ago that intended
to decrease youth smoking by increasing the cost of a single
cigarette.
2:26:57 PM
MR. ALPER pointed out that an FDA approved tobacco cessation
product would be exempted from the tobacco tax.
SENATOR STEVENS asked if e-cigarettes currently are not taxed.
MR. ALPER confirmed they aren't taxed, but the expanded
definition of "other tobacco products" brings e-cigarettes under
that tax structure.
SENATOR STEVENS requested he consider carving out a lower tax
for e-cigarettes.
MR. ALPER agreed and noted that the administration has revised
language for the definition of e-cigarettes for the committee to
consider. It clarifies that the product itself is taxed, not the
batteries and chargers.
2:29:17 PM
CHAIR COSTELLO asked if the driving principle of the Governor's
Sustainable Alaska Plan is to touch as many Alaskans as possible
and how the tobacco tax increase meets that goal.
MR. ALPER said fairness was an overriding principle, trying to
spread the impact among all Alaskans. The estimated revenue is
$29 million, but if half the smokers quit it might be revenue
neutral.
CHAIR COSTELLO asked him to provide that information to the
committee.
MR. ALPER said he'd try but he wasn't sure about its
availability.
CHAIR COSTELLO asked him to discuss the long-term impact that a
tax would have on the economy weighed against the expected
revenue.
MR. ALPER conceded that the consumption taxes are less essential
to the bottom line, but they're important in that they show the
intent to share the burden among all Alaskans.
CHAIR COSTELLO asked if the administration is thinking more
about the budget than the overall economy. "Am I wrong in saying
it's the economy, the economy, the economy that we should be
focusing on?" she asked.
MR. ALPER agreed it's important to consider the impact on the
overall economy, but it's also important to consider the danger
in running unstainable budget deficits. He recognized that
efficiencies could be gained by reducing the size of government,
but a too dramatic and immediate change could hurt the overall
economy.
2:34:48 PM
SENATOR MEYER offered his belief that the more money kept in the
private sector the better off the economy will be. He also
questioned why a sales tax isn't part of the Governor's tax
proposals because that seems to be the fairest way to have
everyone pay.
MR. ALPER pointed out that a sales tax is inherently more
regressive than an income tax, and doesn't account for regional
price differences. The Governor also felt there would be uneven
impacts in communities that already have a sales tax.
2:38:16 PM
SENATOR MEYER asked if he would favor a sales tax if it was
introduced.
MR. ALPER replied it would be given the same consideration as
any other revenue matter.
MR. SPANOS, responding to further questions, told the committee
that the Stamp Act was passed in 2004 and the cigarette tax was
increased to 8 cents per cigarette or $1.60 a pack at that time.
2:38:45 PM
SENATOR MEYER asked how much the proposed tax would increase a
$1.00 cigar or a can of snuff.
MR. ALPER said other tobacco products are taxed as a percentage
of the wholesale value so it's difficult to figure out the tax
on one cigar, but roughly 43 cents of the $1.00 price is the
excise tax under current law.
SENATOR MEYER commented that he doesn't know where Alaska stands
relative to other states in terms of cigar and snuff consumption
but he looks at them as nicotine products.
MR. SPANOS said the Federation of Tax Administrators publishes a
report showing other tobacco product taxes for each state; it
ranges from 25 percent to 100 percent of the wholesale price and
others tax it by the ounce.
SENATOR MEYER requested a report to show how Alaska compares to
other states.
2:42:40 PM
CHAIR COSTELLO asked for visuals for both alcohol and tobacco
showing the current cost of a variety of products in both urban
and rural areas throughout the state and how these tax proposal
would affect those prices.
SENATOR MEYER stressed the importance of treating Alaskans
fairly and then asked if marijuana is taxed differently.
MR. SPANOS confirmed that marijuana is taxed under separate
statutes. He clarified an earlier response saying the tobacco
taxes increased in 2004 and stepped up in 2005-2007 to arrive at
$2.00 per pack.
CHAIR COSTELLO asked Mr. Alper if he could say that the
administration is for, against or neutral on SB 131 and SB 133.
MR. ALPER replied the administration supports all the Governor's
bills. He related that there was an internal conversation of a
need for a statewide, broadly applicable tax and the Governor
made the final decision to introduce an income tax rather than a
sales tax.
^sb133
2:45:37 PM
CHAIR COSTELLO opened public testimony on SB 131 and SB 133.
2:46:26 PM
CHRYSTAL SCHOENROCK, representing herself, said she owns
Forelands Bar in Nikiski and is a state CHARR member. She
described the tax on cigarettes as outrageous and sure to hurt
her business. The alcohol tax will impact her about the same.
Her business is already hurting and it's bound to get worse. She
asked the committee to take into consideration "that I think
this is just bunk."
2:47:57 PM
JOEL KADARAUCH said he represents the ODOM Corporation and the
Alaska Beer, Wine and Spirits Wholesalers Association. He
pointed out that over 50 percent of the 100 small brewers listed
on the DOR website are out of state, that the dime a drink
increase is misleading, and that Alaska already has among the
highest alcohol tax in the nation. Should SB 131 become law, the
taxes would be 7 times the national average for beer, 6 times
the national average for wine and over 5.5 times the national
average for spirits. He stressed that the proposal is a broad
brush approach to increasing selective taxes that fails to
recognize the existing burden that is disproportionately onerous
and inequitable. Furthermore, only half of the estimated $40
million increase in revenue will be deposited to the
unrestricted general fund, which will provide an insignificant
monetary contribution to the overall deficit.
2:52:13 PM
RYAN MAKINSTER, Brewers Guild of Alaska, Anchorage, Alaska,
testified in opposition to SB 131. He provided preliminary,
draft numbers from a study of the economic impact of the
legislation. In 2015, the alcohol industry provided about 1,700
direct and indirect jobs and a payroll that expanded to about
$78 million. The industry was also directly and indirectly
responsible for fees and taxes totaling approximately $34.5
million. In-state spending for things like product needs and
property development and construction totaled about $71 million.
Responding to an earlier question, he reported that there are 25
breweries in the state; an additional five or six are in the
planning stage and one is waiting for an occupancy permit. He
explained that all breweries start small and their growth is
generally exponential. "The next step takes bigger equipment and
bigger space. Subsequently, more employees to run tasting rooms
and eventually retail and a few of them, out-of-state
distribution." He cited examples throughout the state.
2:56:31 PM
DALE FOX, President and CEO, Alaska CHARR (Alaska Cabaret,
Hotel, Restaurant and Retailers Association), stated that his
organization is obviously opposed to SB 131. He pointed out that
Alaskans are generally the least taxed in the nation, but the
alcohol industry is the most taxed in the nation. When the
committee was told that doubling the tax on distilled spirits
would bring it to $25.60 per gallon, there was no mention of
what other states are charging. The average is $4.45 per gallon
with many states much lower than that. The tax on wine would be
$5.00 per gallon when the national average is 83 cents. The tax
on beer would be $2.14 per gallon when the national average 28
cents. Even the small brewers in Alaska are paying above the
national average.
MR. FOX told the committee that an unintended consequence of the
proposed alcohol tax is that it will encourage Alaskans to buy
off the Internet, either offshore and pay no tax or from another
state and pay a much lower tax. The savings will more than pay
the FedEx bill. This will cause some Alaskans to go out of
business.
2:59:48 PM
SENATOR GIESSEL offered her understanding that when someone that
lives in a state with a state sales tax buys something online,
the vendor has to charge them the equivalent tax. She asked if
that was correct.
MR. SPANOS clarified that a retailer that sells to someone in a
state that does not have a sales tax does not have to charge the
tax, but their records have to show that the product was shipped
out of the state.
3:01:01 PM
JACK MANNING, representing himself, said he's the owner of Duck
Creek Market in Juneau and president of the local CHARR. He told
the committee that consumers of alcohol will ultimately pay the
tax and it might be more than double, because every merchant has
their own markup. He remarked that everyone needs to pull
together to help with the fiscal situation, "except if you're a
drinker of alcohol you've got to pull a little harder." He
agreed with previous testimony that if SB 131 were to become
law, the effect will turn sales to the Internet. One of the
issues with online sales is the state not only loses the tax, it
also loses control over who can purchase alcohol. "Anybody who
can type on a keyboard can order product."
3:03:29 PM
JOHN JACKOVICH, member, Alaska CHARR, Fairbanks, Alaska,
testified in opposition to SB 133. He discussed the taxes and
fees that he pays and passes along to the consumer. These
include the state alcohol tax and the fees levied by the
insurance company based on prior year sales. He tries to keep
the costs to his customers as low as possible, which is why he
is opposed to this proposed tax increase. Quite simply, it's
going to be passed along to the customers.
3:06:43 PM
CHRYSTAL SCHOENROCK, representing herself, said she owns
Forelands Bar in Nikiski and is a state CHARR member. She is
opposed to SB 131 because it will hurt businesses. She's already
had to lay off some of her employees and cut the hours of
others. This will add to the existing burden and cause small
businesses to close. She favors a sales tax and legalized
gambling as alternative revenue sources.
3:09:06 PM
BILL FRY, Bear Creek Winery, Homer, Alaska, testified that SB
133 is excessive. The first year he sold 600 gallons of wine and
12 years later he sold 18,000 gallons, which contributed $45,000
in excise taxes. Last year he and his wife spent $55,000 to
purchase over 37,000 pounds of fruit and berries from Alaskan
pickers. This is money that stays in the state. He requested an
amendment to expand the small brewery exemption to Alaska
wineries and possibly distilleries or remove it altogether.
3:11:32 PM
LARRY HACKENMILLER, Secretary, Interior CHARR, Fairbanks,
Alaska, testified in opposition to SB 131. He emphasized that
there is no need to double the alcohol excise tax that brings in
about $40 million per year. Instead, repeal the statute that
allocates 50 percent of the alcohol excise tax to the Treatment
and Prevention Fund and deposit the entire $40 million to the
unrestricted general fund. This is the same amount that doubling
the tax would bring.
3:16:50 PM
CHAIR COSTELLO stated that public testimony on SB 131 and SB 133
will continue at 6:00 pm tonight.
3:17:17 PM
There being no further business to come before the committee,
Chair Costello adjourned the Senate Labor and Commerce Standing
Committee meeting at 3:17 p.m.