The Juneau Assembly directed city staff Monday night to draft an ordinance that would double the municipal tax on tobacco.
With cuts at the state level and rising costs for city employees' health care and the public employee retirement system, officials have been brainstorming ways to generate revenue, including higher fees and taxes.
"If we doubled our tax, we would have the same tax burden as Anchorage," said Assembly member Marc Wheeler, who introduced the motion. "This money could be used to replace some of that general fund money (used to fund social services)."
At Monday's meeting of the Committee of the Whole, Assembly members asked staff to draft an ordinance creating a flat tax of roughly 12 percent of the wholesale value of cigarettes and a 12 percent excise tax on all other tobacco products.
A flat tax would be a fixed tax per cigarette. An excise tax would be a tax for the wholesale manufacture of cigarettes and could fluctuate depending on tobacco cost.
Cigarettes make up most of tobacco sales. The 12 percent tax would mean about $.46 per pack of cigarettes. Currently, the city has a 6 percent excise tax, or about $.23 per pack. A new tax would replace the 6 percent excise tax.
If the Assembly passes the ordinance, the tax proposal would appear on October's ballot.
Mike Elerding, president of Northern Sales Co. in Ketchikan, distributes most of the tobacco in Juneau. He explained that on the wholesale level, tobacco is taxed by federal, state and municipal governments already. The taxes total about $17.50 per 10-pack carton of cigarettes, Elerding said.
Customers pay another 5-percent sales tax on top of that in Juneau, bringing the tax to about $1.84 per pack. With the increase, the amount of taxes per pack would rise to about $2.07.
"Right now the cost of a carton of cigarettes at Super Bear is $46.19; 38.5 percent is for taxes in one form or another, state, federal or local," Elerding told the Assembly.
Elerding agreed that tobacco poses a health risk, and said his business was willing to work with the city to develop the tax.
He suggested the city use a flat tax on cigarettes, rather than an excise tax, which is a percentage of the wholesale value. With the percentage excise tax, many factors can change the wholesale value, making the tax less fair, Elerding said.
Elerding also warned that a higher tax could encourage people to find other ways to buy cigarettes, instead of patronizing local businesses.
"If you consider an increase in the excise tax then you increase an element of bootlegging and black-market sales. You realize it becomes worthwhile for people to start cheating and not paying that tax," Elerding said.
City Manager Rod Swope said that Anchorage and Fairbanks also tax tobacco, and that the proposed tax increase would put Juneau on the "upper end" in terms of the national average for local tobacco taxes.
City officials estimate the existing excise tax will bring in between $250,000 and $290,000 in 2004. Doubling the tax would mean twice the revenue. Assembly members suggested the revenue from the new tax should be committed to funding social services.
The draft ordinance will be introduced at the regular Assembly meeting, scheduled for August 11.
Julia O'Malley can be reached at firstname.lastname@example.org.