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Cigarette taxes increase July 1

Cost to go up 20 cents per pack

Posted: Tuesday, June 12, 2007

Smokers will be paying higher taxes on cigarettes starting July 1, the Alaska Department of Revenue advised in a news release Monday.

The tax will increase by 20 cents a pack — or a penny per cigarette. The new tax is the final increase in a series of phased-in increases established by the Alaska Legislature during the June 2004 special session.

Cigarettes physically in the state before June 30 will be taxed at the current rate of 9 cents per cigarette, the department said. After that date, single cigarettes will be taxed at the rate of 10 cents each. Thus, the total state tax on most packs of cigarettes will equal $2.

However, this tax rate only applies to cigarettes manufactured by companies that signed the 1998 Master Settlement Agreement, an agreement between 46 states and several major tobacco companies.

Manufacturers who are not signatories to the agreement will see their products taxed at a higher rate of 11.25 cents per cigarette, up from the current 10.25 cents. That pushes the state tax on such packs from $2.05 to $2.25.

A question facing manufacturers is whether smokers will change there buying habits because of the price increase. Mostly, local retailers don’t seem to think they will.

“People are going to smoke cigarettes just like driving their car,” said Dillon Kimple, assistant manager of the Save-U-More on Kalifornsky Beach Road in Soldotna. “We are Americans, we need our vices. It’s a narcotic. Give me a break.”

Kevin Adams, a manager at Three Bears in Kenai, said paying the higher price for a pack won’t change any habits, including his own.

“As a smoker, I’ll probably still pay it,” he said, adding that for 20 years he’s been trying to quit.

“Every time I put one out!” he joked.

Adams pointed out that even with the additional 20 cents per pack, people pay a far smaller tax on cigarettes on the Kenai Peninsula than consumers in Anchorage, which has its own “sin tax,” he said.

On the other hand, Terry Andrews, general manager of Hole ‘E’ Smoke tobacco shop on K-Beach in Soldotna, said many of his customers are not happy with the state or the federal governments and the seemingly continuous succession of tax jumps in recent years.

“They always find some excuse to increase it,” Andrews said. “Our consumers are very concerned about it.”

Andrews said the store has lost a few customers. Perhaps some are discouraged from buying cigarettes by the price. Some may simply be switching to less expensive brands. Others, he said, just don’t care and will continue to buy smokes.

Overall, however, retailers are seeing an effect, he said.

Revenues derived currently from the cigarette tax are split, with most going to the state’s general fund and 3.8 cents per cigarette going to the state’s School Fund, the department said. All of the increases will go to the general fund. The Legislature has the option of appropriating 8.9 percent of the tax receipts deposited in the general fund to the Tobacco Use Education and Cessation Fund for anti-tobacco programs.

Alaska cigarette excise taxes are paid through the use of tax stamps. Tobacco products sold or possessed in Alaska not bearing a valid stamp are contraband and subject to seizure, the department said.

The origins of the Master Settlement Agreement began in 1994 when several states sued major tobacco companies saying they were legally responsible for massive costs facing states as a result of cigarette smoking. A settlement between the manufacturers and four states — Mississippi, Minnesota, Florida and Texas — was reached in 1997.

A separate settlement involving the 46 other states, the District of Columbia, Puerto Rico and four U.S. territories (collectively known as the “settling states”) also was reached later that year, but required Congress to pass legislation, which Congress failed to do.

In 1998, the settling states reached another agreement that required no action from Congress. It is the Master Settlement Agreement. Four major manufacturers, Philip Morris, R.J. Reynolds, Brown & Williamson and Lorillard, were the original companies involved, but since 1998, more than 30 other companies have signed the agreement.

They all have agreed to provisions restricting the advertising, promotion and marketing of cigarettes and to restrictions on industry lobbying. Among other things, the agreement also opened industry records and research to investigators.

A list of tobacco brands and companies approved for sale in Alaska may be found at www.tax.state.ak.us/LicQuery/cigarette_manu.aspx.

Hal Spence can be reached at hspence@ptialaska.net.



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