STAND. COM. REP. NO. 2070

                                   Honolulu, Hawaii
                                                     , 2000

                                   RE:  S.B. No. 2486
                                        S.D. 1




Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Sir:

     Your Committee on Health and Human Services, to which was
referred S.B. No. 2486 entitled: 

     "A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

     The purpose of this measure is to establish a mandatory
cigarette stamp tax system as a means to assess, collect, and
enforce the cigarette and tobacco tax.

     Your Committee received testimony in support of this measure
from the Department of Taxation, Department of Health, Coalition
for a Tobacco Free Hawaii, Hawaii Food Industry Association, and
Hawaii Nurses' Association.  The Tax Foundation of Hawaii
submitted informational testimony.

     Your Committee finds that a mandatory cigarette tax stamp
system is vital to enhance the State's collection of cigarette
and tobacco taxes.  Your Committee further finds that enforcement
of the current system of collecting cigarette and tobacco taxes
is sporadic, haphazard, and ineffective, resulting in uncollected
potential tax revenue.  The current system of filing of returns
by licensed dealers is in effect a system of voluntary
compliance.  Persons may try to sell cigarettes and tobacco
without obtaining a license, or could have a license and not file
a return or understate the income on the return.

     Your Committee further finds that obtaining actual proof of
large-scale black market cigarette sales is nearly impossible,

 
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due to the nature of the activity which is necessarily
surreptitious and to the limitation of available resources.
However, your Committee believes that actual proof of the
magnitude of the black market is unnecessary, judging from the
the anecdotal evidence existing and continuing over a fifteen
year period that a black market exists.  Recent increases in the
cigarette tax contributes to the temptation to enter the black
market.

     Your Committee further finds that enforcement of a mandatory
cigarette tax stamp system need not be overly burdensome or
expensive to administer.  Any additional costs will more than
likely pay for itself in the form of additional tax revenues to
be derived.  Any administrative rules could be adopted within the
time frame provided for the effective date of this Act.

     Your Committee believes that this measure will augment
efforts to deter smoking, especially among youth.  This measure
also provides the necessary enforcement of the new stamping of
cigarette packs requirements by involving the liquor commission,
the attorney general, and the prosecuting attorney.

     Your Committee has amended this bill by:

     (1)  Adding the Attorney General to the distribution of
          revenues for enforcement activity;

     (2)  Adding violation of federal law relating to the sale of
          tobacco products as a basis for forfeiture; and

     (3)  Making technical, nonsubstantive changes for the
          purposes of clarity and style.

     As affirmed by the record of votes of the members of your
Committee on Health and Human Services that is attached to this
report, your Committee is in accord with the intent and purpose
of S.B. No. 2486, as amended herein, and recommends that it pass
Second Reading in the form attached hereto as S.B. No. 2486,
S.D. 1, and be referred to the Committee on Ways and Means.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Health and Human
                                   Services,



                                   ______________________________
                                   SUZANNE CHUN OAKLAND, Chair

 
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