Tobacco lobby accuses Revenue Dept. of blowing smoke
By Austin Fisher
KU Statehouse Wire Service
TOPEKA — The Kansas Department of Revenue wants to toughen tobacco tax law but the tobacco lobby and some lawmakers see the move as a step toward big government.
In a series of 22 amendments, Senate Bill 203 would change the Kansas Cigarette and Tobacco Products Act by redefining certain tobacco products, increasing fees and penalties, beefing up the department’s ability to collect taxes and seize contraband, cracking down on Internet tobacco sales, and allowing the Governor to sign contracts with tribal governments to collect taxes on tobacco sold on reservations.
It’s estimated that the bill would increase revenue to the Cigarette and Tobacco Products Regulation Fund by $300,000 each year starting in 2016.
John Michael Hale, attorney for the department, argued Thursday that the laws need to be strengthened so the state can meet its requirements under the latest legal battle as part of the Master Settlement Agreement (MSA).
“To help ensure that Kansas continues to receive these annual payments, and to prevent the possibility of Kansas having to pay back any payments previously received under the settlement, the department firmly believes that these amendments need to be implemented and enforced,” Hale said.
In 1998 Kansas was one of 46 states to reach an agreement under MSA with the large American tobacco companies. The agreement requires the companies to pay approximately $206 billion over the course of 25 years to the states to repay smoking-related Medicaid expenses and restrict tobacco sales and promotion, particularly toward children.
By 2006 some of the tobacco companies complained of falling market share and withheld MSA payments to 18 states, including Kansas. A legal battle ensued until a settlement in 2012. Hale says many of the amendments are meant to meet the enforcement requirements of that latest settlement.
Kansas Action for Children, a non-profit advocacy organization, estimates that Kansas received $55 million from the settlement in 2014.
Senate Majority Leader Terry Bruce (R-Hutchinson) said he opposed the bill.
“This is a power grab using the Master Settlement Agreement as a guise to get these amendments passed,” Bruce said. “It’s going a little bit too far. Is there any way that perhaps we could get a substitute that gets rid of all this garbage so we can have a real bill and not waste the committee’s time?”
Tobacco companies including the Kansas Vapors Association, the Cigar Association of America, the Petroleum Marketers and Convenience Store Association of Kansas, and Casey’s General Stores took issue mainly with the changing definitions of products.
They were also concerned about the increased licensing fees for dealers and penalties for violations they might commit, and the fact that the extra revenue would pay for a department task force with the sole purpose of auditing those dealers.
Whitney Damron, a lobbyist for Swisher International, Inc., opposed part of the bill that redefines little cigars, also called cigarillos, as cigarettes.
“This language has nothing to do with the Master Settlement Agreement,” Damron said. “I’m not sure why it’s being brought forth other than possibly a revenue source.‘
The bill increases fines for convictions of trafficking untaxed tobacco or obstructing tax collection on tobacco. Initial convictions would come with a fine of $1,000 to $2,500 and repeat convictions could result in a $100,000 fine or jail time.
Dealers seeking wholesale licenses would pay a $500 fee and have to file a surety bond of at least $10,000 with the tax director, a tenfold increase on current law.
Curt Diebel, president of Diebel’s Sportsmens Gallery, opposed part of the bill that would tax the premium cigars that he sells in the same way as cigarettes.
“Gov. Brownback is trying to have a business-friendly state,” Diebel said. “I don’t find this bill friendly at all.”
Austin Fisher