Cigarette tax bill has first hearing; businesses warn of bootlegging

Posted: Thursday, March 25, 2004

Doubling the tax on cigarettes could prompt 3,500 Alaskans to quit smoking and raise $35.5 million for state government, Murkowski administration officials said Wednesday.

But businesses that sell tobacco say the governor's proposal would encourage bootlegging and burden those selling the products legally.

Gov. Frank Murkowski is asking lawmakers to raise the tax on a pack of cigarettes from $1 to $2 and increase the tax on other tobacco products tax from 75 percent to 100 percent of the wholesale cost. The increase would make Alaska's tax the third-highest in the nation.

Health and Social Services Commissioner Joel Gilbertson said the tax increase would reduce health costs, as well as raise money, by encouraging people to stop - or never start - smoking.

"Quite simply, tobacco consumption, tobacco use in the state of Alaska is our leading public health threat," Gilbertson told the House Ways and Means Committee during the first hearing on the governor's bill.

Tobacco use is the number one cause of death, disability and chronic illness in Alaska, he said.

Gilbertson said studies show each 10 percent increase in the price of tobacco products reduces tobacco use among young people by 3.7 percent.

Between 1997, when the last big increase in Alaska's tobacco tax took effect, and 2002, the number of cigarettes smoked in Alaska dropped 30 percent. Youth smoking dropped almost 50 percent between 1995 and 2003, Gilbertson said.

But Tim Schrage, operations manager for several Brown Jug stores in Anchorage, said increasing the tax will prompt smokers to seek cheaper deals on the Internet and create jobs in illegal smuggling.

"I'm not confident the state is prepared to effectively manage this tax," Schrage said.

Johanna Bales of the state Department of Revenue said increased attempts at tax evasion are expected, and the answer will be stepped-up enforcement. The state plans to spend another $828,000 on enforcement, including hiring six more employees in the Revenue Department.

Schrage and other tobacco sellers also objected to a provision of the bill that would require tobacco sellers to pay the higher tax on inventory they have in stock the day the bill goes into effect.

Bales said that is intended to prevent the stockpiling of inventory at a lower tax rate that occurred the last time Alaska's tobacco tax went up.

Schrage said that "floor stock tax," which would be due within 30 days, would pose a hardship.

The money raised won't come close to solving the state's budget gap, which in the coming year is estimated at about $500 million, he said.



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