Bill Summary – FastDemocracy

State of Alaska
                                                            Fiscal Note
                                                                                               Bill Version:                   CSHB 94(L&C)
 2020 Legislative Session
                                                                                               Fiscal Note Number:             1
                                                                                               (H) Publish Date:               3/21/2020
 Identifier:        HB094-DOR-TAX-12-27-2019                                    Department:        Department of Revenue
 Title:             ELECTRONIC SMOKING PRODUCTS EXCISE                          Appropriation: Taxation and Treasury
                    TAX                                                         Allocation:        Tax Division
 Sponsor:           HANNAN                                                      OMB Component Number:                 2476
 Requester: (H) Labor & Commerce
 Expenditures/Revenues
 Note: Amounts do not include inflation unless otherwise noted below.                                                                (Thousands of Dollars)
                                                 Included in
                                    FY2021       Governor's
                                Appropriation      FY2021                                             Out-Year Cost Estimates
                                  Requested       Request
 OPERATING EXPENDITURES               FY 2021        FY 2021       FY 2022                       FY 2023             FY 2024         FY 2025         FY 2026
 Personal Services
 Travel
 Services
 Commodities
 Capital Outlay
 Grants & Benefits
 Miscellaneous
 Total Operating                            0.0           0.0          0.0                             0.0               0.0              0.0              0.0
 Fund Source (Operating Only)
 None
 Total                                            0.0             0.0                  0.0             0.0               0.0              0.0              0.0
 Positions
 Full-time
 Part-time
 Temporary
 Change in Revenues
 1004 Gen Fund (UGF)                                                            1,000.0           2,500.0            2,500.0          2,600.0         2,700.0
 Total                                            0.0             0.0           1,000.0           2,500.0            2,500.0          2,600.0         2,700.0
 Estimated SUPPLEMENTAL (FY2020) cost:                                    0.0                (separate supplemental appropriation required)
 Estimated CAPITAL (FY2021) cost:                                         0.0                (separate capital appropriation required)
 Does the bill create or modify a new fund or account?       No
 (Supplemental/Capital/New Fund - discuss reasons and fund source(s) in analysis section)
 ASSOCIATED REGULATIONS
 Does the bill direct, or will the bill result in, regulation changes adopted by your agency?                  No
 If yes, by what date are the regulations to be adopted, amended or repealed?                                  N/A
 Why this fiscal note differs from previous version/comments:
 Not applicable; Initial version.
 Prepared By:             Brandon Spanos, Deputy Director                                                             Phone:       (907)269-6736
 Division:                Tax Division                                                                                Date:        12/27/2019
 Approved By:             Brad Ewing, Administrative Services Director                                                Date:        01/14/20
 Agency:                  Office of Management and Budget
Printed 3/21/2020                                                        Page 1 of 2                                                        Control Code: Fwlzd
                                                                                                          CSHB 94(L&C) - Fiscal Note 1
                                                 FISCAL NOTE ANALYSIS
STATE OF ALASKA                                                                   BILL NO. HB 94
2020 LEGISLATIVE SESSION
Analysis
   Background
   Alaska first imposed an excise tax on cigarettes and other tobacco products in 1949. The excise tax on tobacco products
   other than cigarettes was repealed in 1955. In 1988 the legislature enacted the excise tax on tobacco products other than
   cigarettes in its current form but at a rate of 25% of the wholesale price. The last major change to the excise tax on
   tobacco products was in 1999 when the rate was increased to its current value of 75% of the wholesale price. All the
   revenue from this tax is deposited into the General Fund.
   This bill would make the vapor product or solution used in electronic cigarettes subject to the excise tax on tobacco
   products. The tax rate for tobacco products would remain unchanged at 75% of the wholesale value. Vapor products
   used in electronic cigarettes arent currently taxed in Alaska. This bill would levy the tax when the product is brought into
   the state for sale or when the product is manufactured in Alaska. The person bringing a vapor product into the state for
   sale or manufacturing the product in the state would be required to be licensed by the Tax Division. There is an
   application fee of $50 for an excise tax on tobacco products license.
   Revenue Impact
   DOR assumes that dates in the legislation will be updated by one year. DOR estimates that taxing the vapor products used
   in electronic cigarettes in the same method as other tobacco products, at 75% of the wholesale price, would generate an
   additional $1 million in revenue in FY22 and $2.5 million in FY23, rising with inflation to $2.7 million in FY26. 100% of this
   revenue would be deposited into the General Fund. The reason for the lower revenue estimate in FY22 is twofold(1)
   revenue would only be collected for half of the fiscal year because the bill would take effect half way through FY22, and (2)
   DOR assumes that distributors will stockpile inventory before the tax takes effect.
   DOR's research suggests that most vapor products brought into the state are currently purchased by the final consumer
   over the internet. Shipments to the final consumer would not be taxable under this bill because the excise tax on tobacco
   products is only levied on products brought into the state for sale or manufactured in the state. This fiscal analysis does
   not include vapor products purchased online by the final consumer. This estimate uses data gathered by Matanuska
   Susitna Borough on their Other Tobacco Product tax revenues attributable to ecigarette sales, and scales those figures to
   fit Alaskas population.
   Widespread industry analyst consensus predicting strong growth in the US ecigarette retail market during FY2019FY2025
   leads DOR to believe that there will be corresponding growth in ecigarette retail purchases by Alaskans during the
   forecast period. Expected growth in retail ecigarette purchasing by Alaskans is not reflected in this revenue forecast,
   because the Department expects that the tax burden imposed by this bill on brickandmortar retail sales will drive the
   majority of ecigarette retail sales online, where they would not be subject to the tax.
   Implementation Cost
   This legislation would require the Department of Revenue to update its Tax Revenue Management System (TRMS) and
   Revenue Online (ROL) which allows a taxpayer to file a return online. The update would consist of reprogramming both
   systems, updating the return rules in TRMS and testing both systems thoroughly to verify that they function as expected.
   DOR would also need to update the current tax return forms. If the operating budget increment for FY 2021 for the Tax
   Division is approved, DOR would be fully funded for the ongoing operations and maintenance of TRMS, and would not
   need funding for this request. If the operating budget increment is not approved, then DOR would need $50,000 capital
   funding to make the programming changes required by this bill.
   DOR does not anticipate any continuing costs or additional staff needs. DOR does estimate hundreds of new taxpayers
   the specialty vape shops that bring vapor products into the state for salewhich will be an additional administrative
   burden on the Division, but one the Department believes it can absorb.
(Revised 10/22/19 OMB/LFD)                                                                                          Page 2 of 2
HB094-DOR-TAX-12-27-2019                                       Page 2 of 2                                                Control Code: Fwlzd
Statutes affected: 
HB0094A, AM HB 94, introduced 03/13/2019: 43.50.150, 43.50.010, 43.50.390, 43.50.300, 43.50.310, 43.61.010, 43.61.030, U.S.C, 43.50.320, 43.50.330, 43.50.335, 43.50.340
HB0094B, AM CSHB 94(L&C), introduced 03/21/2020: 43.50.105, 43.70.075, U.S.C, 43.50.150, 43.50.010, 43.50.390, 43.50.300, 43.50.310, 43.61.010, 43.61.030, 43.50.320, 43.50.090, 43.50.190, 43.50.330, 43.50.335, 43.50.340