STAND. COM. REP. NO. 2764

                                   Honolulu, Hawaii
                                                     , 2000

                                   RE:  S.B. No. 2486
                                        S.D. 2




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

Sir:

     Your Committee on Ways and Means, to which was referred
S.B. No. 2486, S.D. 1, 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 (DOTAX), Attorney General,
Department of Health (DOH), Honolulu City and County Department
of Budget and Fiscal Services, Hawaii Medical Service
Association, and Legislative Information Services of Hawaii.
Informational testimony was provided by the Tax Foundation of
Hawaii.

     This measure is intended to enhance the State's collection
of cigarette and tobacco taxes.  Your Committee 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.


 
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     Your Committee further finds that obtaining actual proof of
large-scale black market cigarette sales is nearly impossible,
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
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 be offset by additional tax revenues.  Any administrative
rules can be adopted within the time frame provided for by the
effective date of this Act.

     For obvious health reasons, your Committee believes that
this measure will supplement efforts of the State to deter
smoking, especially among youth.  This measure will fit in nicely
with the efforts of the DOH under chapter 328L, Hawaii Revised
Statutes, relating to Hawaii tobacco settlement moneys, in
tobacco prevention and control.

     Your Committee has amended this measure on the
recommendation of the Attorney General:

     (1)  Providing for a stamping license system for wholesalers
          and dealers to purchase and affix stamps;

     (2)  Giving the Attorney General exclusive jurisdiction over
          enforcement, and deleting references to county liquor
          commissions and police;

     (3)  Increasing the price of the stamps to 1.7 percent of
          the denominated value, to be comprised of .2 percent
          for the cost of the stamps, and 1.5 percent for the
          cost of enforcement;

     (4)  Clarifying the forfeiture provision to specify the
          disposition of the property and the proceeds from the
          sale;

     (5)  Adding new definitions to apply to the new amendments;

     (6)  Clarifying that the Attorney General has inspection
          authority of books and records kept for tobacco tax
          purposes;

 
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     (7)  Deleting references to arrest procedures,
          administrative procedures for violation, administrative
          appeal procedures, and claims for return of seized
          cigarettes;

     (8)  Deleting appropriations to the county liquor
          commissions and reporting by the liquor commissions;

     (9)  Deleting the specific appropriation amount and leaving
          an unspecified appropriation amount to the DOTAX;

    (10)  Making an unspecified appropriation to the Attorney
          General for the purposes of this measure; and

    (11)  Making technical, nonsubstantive changes for clarity to
          improve understanding of the text, for preferred
          drafting style, for proper Ramseyer formatting, and for
          the renumbering of new statutory sections and sections
          within the measure.

     Your Committee notes that the Attorney General has been
given the duty of enforcing the stamp provisions in this measure.
The Attorney General will improve the efficacy of this measure,
particularly concerning provisions relating to forfeiture which
is part of the penal code.  Your Committee believes that amending
the forfeiture statutes would improve the capabilities of the
Attorney General in enforcing the provisions of this measure.
Your Committee suggests that consideration be given to this
matter as the measure proceeds through the legislative process.

     As affirmed by the record of votes of the members of your
Committee on Ways and Means that is attached to this report, your
Committee is in accord with the intent and purpose of
S.B. No. 2486, S.D. 1, as amended herein, and recommends that it
pass Third Reading in the form attached hereto as S.B. No. 2486,
S.D. 2.


 
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                                 Respectfully submitted on behalf
                                 of the members of the Committee
                                 on Ways and Means,



                                 ________________________________
                                 CAROL FUKUNAGA, Co-Chair



                                 ________________________________
                                 ANDREW LEVIN, Co-Chair

 
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