PUBLIC HEARING AND WORK SESSION ON SJR 7-A, SB 230, SB 858,

WORK SESSION HB 2368-A  

 

TAPE 148, 149, A-B; 150 A

 

HOUSE REVENUE COMMITTEE

MAY 1, 2003   8:30 AM   STATE CAPITOL BUILDING

 

Members Present:                        Representative Lane Shetterly, Chair

                                                Representative Wayne Scott, Vice Chair

                                                Representative Joanne Verger, Vice Chair

                                                Representative Phil Barnhart

                                                Representative Vicki Berger

                                                Representative Pat Farr

                                                Representative Mark Hass

                                                Representative Elaine Hopson

                                                Representative Max Williams                                               

 

Witness Present:                        Richard Jarvis, Chancellor Oregon University System

                                                Tim White, President, Oregon State University

                                                John Phillips, Department of Revenue (DOR)

                                                Betsy Earls, Harrang, Long, Gary, Rudnick

                                                Jack Benton, Sumco USA Corporation

                                                Larry Glassock, Salem Economic Development Corporation (SEDCOR),

                                                            Manager Salem Enterprise Zone

                                                Dexter Johnson, Legislative Counsel

                                                Pete Shepherd, Attorney General’s Office (AG)

                                                Bob Russell, Oregon Trucking Association

                                                Jim Gardner, Gardner and Gardner representing Phillip Morris

                                                Marshall Coba, Council of Independent Tobacco Manufacturers of America

                                                Dave Redmond, Carolina Tobacco

                                                Richard Kosesan, Brown and Williamson Tobacco Corp.

                                                Mark Nelson, R.J.R Tobacco

 

Staff Present:                            Paul Warner, Legislative Revenue Officer

                                                Richard Yates, Legislative Revenue Office

                                                Mazen Malik, Legislative Revenue Office

                                                Kathy Tooley, Committee Assistant

 

TAPE 148, SIDE A

004

Chair Shetterly

Calls meeting to order at  8:40 a.m.

 

OPENED PUBLIC HEARING SJR 7-A

 

016

Richard Yates

Provided description and background of SJR 7-A, (Exhibit 1).  Provided Fiscal Analysis, (Exhibit 2).

 

029

Chancellor Richard Jarvis

Spoke in support of SJR 7A.  Described affects of passage of Measure 5 on education facilities and need for more to meet enrollment needs.

 

060

Tim White

Spoke on behalf of 7 Oregon University Presidents, in unanimous support of SJR 7A, (Exhibit 3).  Discussed 5 points, (Exhibit 4), the measure would: 

 

·         Leverage more private investments in capital facilities on university campuses.

·         Encourage more donors to invest in universities.

·         Will allow an advantage in competing against other states.

·         Will not send Oregonians into an abyss of debt.

·         Oregon is a conservative when it comes to debt, this measure will not alter that.

 

102

 

Discussion regarding subsequent referral to Ways and Means?

 

119

Chair Shetterly

Closed public hearing on SJR 7A.

 

 

OPENED PUBLIC HEARING ON SB 230

 

127

Mazen Malik

Provided background and description of SB 230, (Exhibit 5). Provided Revenue Impact, (Exhibit 6).

 

196

Phillips

The issue for DOR is compliance, this bill would allow DOR to weight the penalty based on severity of non-filing, (Exhibit 7).  Discussed chart of raw data in (Page 2, Exhibit 7), shows incidence of chronic non filers.

 

278

 

Questions and discussion regarding chart of raw data.

 

292

 

Questions and discussion regarding filing due dates.

 

315

Rep. Phillips

These 85 non-filers simply do not want to file?

 

314

Phillips

Described a large company that said it would not be filing.  Penalty of $250 was not an issue for them vs. the amount of time to process.

 

330

Chair Shetterly

This is an annual statutory filing?

 

332

Phillips

Answered affirmatively.

 

334

Rep. Barnhart

There are some companies that never file a return at all?  Should the maximum penalty be higher, so penalty costs more than following the law?

 

335

Phillips

Answered affirmatively. Would like to see the penalty increased for centrally assessed properties and then evaluate it.

 

354

Rep. Hass

Reiterated Rep. Barnhart’s comments.

 

365

Rep. Barnhart

Assume DOR would reserve larger fines for big company.

 

371

Phillips

The limit is $5000. Do not want to paint all companies this way.  Associated Oregon Industries is not opposing because they file and want others to file.

 

384

Chair Shetterly

Closed the Public Hearing on SB 230.

 

 

OPENED WORK SESSION ON SB 230

 

386

 

 

393

Rep. Hass

MOTION:  MOVED SB 230 TO THE HOUSE FLOOR WITH A DO PASS RECOMMENDATION

 

ROLL CALL:  MOTION PASSED 9-0-0

REPRESENTATIVES VOTING AYE:  Barnhart, Berger, Farr, Hass, Hopson, Scott, Verger, Williams, Chair Shetterly.

 

Rep. Berger will carry the bill.

 

400

Chair Shetterly

Closed the Work Session on SB 230.

 

 

402

Yates

Ways and Means would like to see SJR 7; would like to review university construction budget, and debt service.

 

 

REOPENED WORK SESSION ON SJR 7

 

411

Rep. Verger

MOTION:  MOVED SJR 7 TO THE HOUSE FLOOR WITH A DO PASS RECOMMENDATION AND SUBSEQUENT REFERRAL TO WAYS AND MEANS.

 

ROLL CALL:  MOTION PASSED 8-0-1

REPRESENTATIVES VOTING AYE:  Barnhart, Berger, Farr, Hopson, Scott, Verger, Williams, Chair Shetterly.  EXCUSED:  Hass.

 

 

OPENED PUBLIC HEARING ON SB 858

 

427

Malik

Provided background and description of SB 858, (Exhibit 7).  Provided Revenue Impact (Exhibit 8).

 

480

Rep. Verger

What changes would be made to the minimum employment requirements? Who would determine how many jobs created in the enterprise zone?

 

487

Malik

Described statute requirements.  SB 858 would allow readjustment of the starting level of employees, if capital investment is at least $20 million.

 

TAPE 149, SIDE A

 

051

Malik

Discussed -2 amendments (Exhibit 9).

 

067

Betsy Earls

Representing SUMCO Oregon, regarding employee headcount issues.

 

072

Chair Shetterly

To the bill in chief or –A2, both?

 

072

Earls

Both.

 

077

Jack Benton

Spoke in favor of SB 858, (Exhibit 10) discussed investment $750 million in property and equipment in Salem since 1982. In the last four years have lost $250 million in Salem.  Need to revise cost structures for survival.

 

133

Benton

Key issue is headcount requirement for enterprise zone and maintenance of employees.  As part of pre-certification requirement, if investing more than $25 million can ask sponsor for a waiver of the headcount requirement which SUMCO did not request.  Discussed collapse of semi-conductor industry in 2001. Company still struggling to recover, discussed drop in headcount. Statute on enterprise zones would disqualify SUMCO; SB 858 allows the City of Salem to waive head count requirement based on investment in excess of $20 million. Discussed letter to Senator Ryan Deckert included in Exhibit 10, and SUMCO’s intent to stay in Salem.

 

199

Benton

Discussed SUMCO’s willingness to commit to head count requirement going forward.  The objective is to maintain an active enterprise in Salem.

 

192

Chair Shetterly

Do you want to speak to -A2

 

202

Benton

The –A2 amendment is a technical issue regarding time frame of enactment.  Clarifies any taxes paid affected by SB 858 because it had not been enacted would be refunded to SUMCO, for this year only.

 

209

Rep. Farr

As far as you know is SUMCO the only company statewide affected by this?

 

221

Benton

There is no other specific company mentioned.  There may be 1 and possibly 5.

 

230

Rep. Hass

I bet you wish you weren’t here needing this bill, pragmatism says this is something you do to keep this industry alive to get away from reputation of government mandates.

 

244

Chair Shetterly

Important to attract business, but important to retain.

 

245

Rep. Barnhart

It appears that the -2’s put in what the -1’s took out?

 

253

Benton

No.  The original bill as it was drafted contemplated a refund of a payment made in 2002 which was not SUMCO’s intent. -2A limits refund to payments made this year.

 

262

Larry Glassock

Spoke in support of SB 858 as amended. Discussed history of SUMCO, assured committee that predecessor Mitsubishi would not have been there, but for the enterprise zone. Spoke to retaining SUMCO and being receptive to their needs.

 

302

Rep. Barnhart

Are products sold to other companies in Oregon for further manufacturing?

 

308

Benton

Product is silicon wafer, base material in semi-conductor; key customers are Hewlett Packard, Motorola, Intel, Fairchild, and International Rectifier.  Silicon wafer minor part of the silicon industry.  It’s a worldwide product.

 

310

Rep. Berger

Discussed history and importance of SUMCO and predecessor to Salem.  Important to help company as they helped Salem through difficult economic times.

 

344

Rep. Farr

Fiscal statement doesn’t include the refund contained in the amendment.

 

330

Malik

Refund would be in the year 2003; it would be addressed next biennium.

 

359

Chair Shetterly

Revenue impact would be based on local government approval of this amendment to the agreement, something the state is not imposing, but something they would encounter.

 

361

Malik

Answered affirmatively.

 

354

Phillips

Discussed -2 amendments, DOR does not have a problem with them and as a practical matter the property has not yet been disqualified for 2002-2003 tax year. Described process of disqualification.

 

387

Chair Shetterly

Are you suggesting an amendment?

 

385

Phillips

No, do not want to hold the bill up.

 

387

Rep. Williams

Could you do administratively?

 

392

Phillips

Trying to think of a way to do that.

 

392

Chair Shetterly

Refund applies to penalties and interest as well?

 

403

Dexter Johnson

Suggested tax abatement language.

 

413

Chair Shetterly

Are you comfortable making that a conceptual amendment?

 

418

Johnson

I’m comfortable.

 

422

Chair Shetterly

Closed Public Hearing SB 858

 

 

OPENED WORK SESSION ON SB 858

 

426

Chair Shetterly

Are you comfortable with this?

 

428

Rep. Verger

Indicated approval, would like the conceptual amendment repeated word for word.

 

468

Johnson

After line 17 of the –A2 amendment provided conceptual language.

 

478

Rep. Williams

MOTION:  MOVED ADOPTION OF THE CONCEPTUAL AMENDMENT THE –A2 AMENDMENT INTO SB 858, INSERTING AFTER LINE 17, “(4) IF PROPERTY TAXES, INTEREST AND PENALTY DESCRIBED IN (1) OF THIS SECTION HAVE NOT BEEN PAID, SUCH AMOUNT SHALL BE ABATED”.

 

ORDER:  HEARING NO OBJECTION, THE CHAIR SO ORDERS. (ALL MEMBERS PRESENT).

 

493

Rep. Williams

MOTION:  MOVED ADOPTION OF THE –A2 AMENDMENT, AS CONCEPTUALLY AMENDED INTO SB 858.

 

ORDER:  HEARING NO OBJECTION, THE CHAIR SO ORDERS. (ALL MEMBERS PRESENT).

 

498

 

 

 

511

Rep. Williams

MOTION:  MOVED SB 858 AS AMENDED, INCLUDING CONCEPTUAL AMENDMENTS, TO THE HOUSE FLOOR WITH A DO PASS RECOMMENDATION

 

ROLL CALL:  MOTION PASSED 9-0-0

REPRESENTATIVES VOTING AYE:  Barnhart, Berger, Farr, Hass, Hopson, Scott, Verger, Williams, Chair Shetterly.

 

Rep. Berger will carry the bill.

 

 

OPENED WORK SESSION ON HB 2368

TAPE 148, SIDE B

 

060

Yates

Provided description of HB 2368 Corrected A Engrossed. Described amendments, lack of disagreement among parties.

 

077

Chair Shetterly

Acknowledged nods indicating no disagreement among parties in hearing room.

 

079

Yates

Discussed –A6 amendments which changed delivery sales have been replaced; -A7 are replaced.  Discussed differences in -A8, (Exhibit 11); -A9 (Exhibit 12) amendments.

 

087

Chair Shetterly

Do –A8s and –A9s incorporate the –A7s.

 

086

Yates

-A7s have been replaced by –A10 (Exhibit 13).

 

092

Yates

Discussed differences in -A8s and -A9s address concerns between non-participating manufacturers under the Master Settlement Agreement (MSA), and the major tobacco producers who are a party to those agreements.

 

127

Yates

Issue who has authority to enforce the act, only the AG or by civil case and people in the industry.

 

130

Rep. Farr

Which is which?

 

131

Chair Shetterly

The –A8s would create the broader private/AG enforcement.

 

134

Rep. Barnhart

The –A8s are broader in both areas and –A9s are narrower in both areas.

 

136

Yates

Answered affirmatively.

 

137

Yates

-A10s replaced –A7s, the objective is to provide funding for the Task Force out of cigarette/product taxes.  Discussed scope of –A7s.  –A10s are proportionately responsible for these costs.

 

145

Chair Shetterly

Are the –A10s a consensus amendment?

 

146

Yates

I believe so.

 

149

Rep. Barnhart

The affect of this is to apportion the enforcement costs over all of the recipients of the various pieces of the tax.

 

152

Yates

That is the affect. Ways and Means intends to hold the health plan harmless.

 

160

Chair Shetterly

MOTION:  MOVED ADOPTION OF THE –5 AMENDMENT INTO HB 2368.

 

ORDER:  HEARING NO OBJECTION, THE CHAIR SO ORDERS. (ALL MEMBERS PRESENT EXCEPT REP. WILLIAMS, EXCUSED)

 

167

Chair Shetterly

MOTION:  MOVED ADOPTION OF THE –10 AMENDMENT INTO HB 2368.

 

ORDER:  HEARING NO OBJECTION, THE CHAIR SO ORDERS. (ALL MEMBERS PRESENT EXCEPT REP. WILLIAMS, EXCUSED

 

181

Pete Shepherd

At the request of the Chair, convened a work group and arrived at consensus on the –A5 and –A10 amendments.  Developed the alternative –-A8s and -A9s for the Committee’s consideration.

 

187

Shepherd

Department of Justice does not object to -A8s, but -A9 are adequate to do what the state needs to do in adding enforcement tools. 

 

198

Rep. Barnhart

-A9s and -A8s do everything the state wants?

 

110

 

 

206

Shepherd

 

 

Shepherd

-A8s is not necessary because -A9s are sufficient; does not object to the –A8s.

 

Provided history of NPM statute to explain why the -A9s are adequate.

 

273

 

279

 

Shepherd

 

Shepherd

Discussed noncompliant manufacturer.

 

Discussed private cause of action and private remedies under HB 2094.

 

297

 

324

Shepherd

 

Shepherd

Discussed private cause of action and injunctive relief.

 

Discussed the difference been the –A8 and -A9

 

337

Rep. Farr

The -A9s plus HB 2094 equal -A8s other than in the case of a compliant manufacturer?

 

342

Shepherd

Answered affirmatively.

 

345

Rep. Farr

Does either provision allow the manufacturer to not sell product while the lawsuit is in process?

 

349

Shepherd

Did not understand question.

 

350

Rep. Farr

One manufacturer could sue another for noncompliance and while being sued, they would be prevented from selling product in the state of Oregon.

 

358

Shepherd

Explained preliminary injunction, nothing to prevent litigant from seeking such an order.

 

378

Rep. Farr

How many states grant enforcement authority for tobacco regulation by manufacturers?

 

382

Shepherd

Did not know the answer.

 

391

Rep. Verger

Clarify the non participating manufacturer companies (NPMs) that are reputable, did not participate, but paid into the escrow and are compliant? Discussed gray and black markets.  Do NPMs include all of those good people or all the black hat people?

 

406

Shepherd

Tried to distinguish between NPMs who are compliant with Oregon law and those who are not.  There are people in both categories.

 

412

Rep. Verger

So a NPM that is non-compliant would include all of those illegally selling cigarettes in Oregon?

 

418

Shepherd

Nodded affirmatively.

 

422

Chair Shetterly

Regarding injunctive relief, the state has the same ability to obtain a preliminary injunction.

 

423

Shepherd

Answered affirmatively.

 

432

Bob Russell

Has small issue with –A8 and -A9, superfluous provision relating to delivery service.  No longer have a role in making sure tax has been paid.

 

502

Russell

This says the shipper has to show stamps on bottom of cigarettes.

 

505

Rep. Farr

This takes the burden off the delivery service and places it on the seller?

 

506

Russell

The amendments do that, there is no burden on the delivery service. This says the shipper has to show the tax on the bottom of the cigarettes for no purpose, because the delivery service no longer has the burden.

 

 

TAPE 149, SIDE B

 

047

Rep. Barnhart

Section 75 says what you are supposed to do, that does not include making sure the taxes are paid?

 

051

Russell

Section 75 deals with seller, 78 deals with seller but also tells how they must ship the tobacco products, including verifying age of majority at the time of delivery to the ultimate consumer which trucking industry supports.

 

060

Chair Shetterly

Noted Pete Shepherd indicated approval for deleting that provision of the amendments.

 

065

Jim Gardner

Discussed policy differences between -A8 and -A9.  Discussed enforcement tools, characterized –A8s as more aggressive on internet sales protection of minors and protection of state revenue.

 

123

Gardner

Discussed press release, and support of Alcohol, Tobacco and Firearm enforcement, (Exhibit 14), discussed private sector enforcement allowed under –A8 amendments.  Provided “ORS 293.535”, (Exhibit 15).

 

174

Rep. Farr

Shepherd’s testimony said, HB 2094 allows the allegiance to happen without the using the –A8’s, do you disagree with that statement?

 

177

Gardner

Disagreed as HB 2094 gives injunctive standing, NPM statute has nothing to do with minors and internet sales.

 

185

Marshall Coba

Described CITMA as an association of complying NPMs.  Spoke in support of HB 2368, the -9 amendment, and the regulation of internet sales to minors. CITMA believes -8s are a backdoor attempt to regulate NPMs, believes there is adequate enforcement of regulations. 

 

218

David Redmond

Defined CITMA membership should not be characterized as foreign. CITMA supports requiring mail order sellers to affix an Oregon stamp to cigarettes and non-cigarettes to be in full compliance. Supports delivery system of licensed distributors in Oregon.

 

254

Redmond

Regarding Gardner’s comments.  Allowing big tobacco to be an enforcer is a vigilante concept.  CITMA is comfortable with the AG taking necessary course of action.  Does not support the –A8 amendment.  Supports –A9 with HB 2094 for state enforcement of internet and delivery sales.

 

290

Dick Kosesan

Discussed Tax Collections from 1995-96 fiscal, through 2003-04 fiscal year, (Exhibit 16).  Growth in collections is not commensurate with tax increase.  Lost revenue is not a function of decreased consumption.

 

352

Mark Nelson

Centers for Disease Control studies suggest there has not been a reduction in consumption of cigarettes in Oregon.  Discussed “Loophole in NPM Exhibit T Legislation – Western Region”, (Exhibit 17).  Discussed NPMs avoidance of mandated escrow payments in all states.

 

485

Chair Shetterly

-A8 does not close the loop hole.

 

490

Nelson

AG prefers –A9, but can live with –A8.  –A8 needs every piece of authority to go after delivery violators.

 

 

TAPE 150, SIDE A

 

045

Nelson

Discussed resources of tobacco industry that would bring violators to court.  Discussed shrinkage in Master Settlement Agreement to Oregon due to NPMs; discussed 12-13% NPM sales of cigarettes in Oregon.

 

065

Chair Shetterly

Closed Work Session on HB 2368-A.

 

071

Chair Shetterly

Meeting adjourned at 10:30 a.m.

 

Tape Log Submitted by,

 

 

 

Kathy Tooley, Committee Assistant

 

Exhibit Summary:

1.       Yates, “Staff Measure Summary SJR 7-A”, 3 pages

2.       Yates, “Fiscal Analysis SJR 7-A”, 2 pages

3.       White, “Letter of Support for Passage of SJR 7”, 2 pages

4.       Malik, “Staff Measure Summary SB 230-A”, 1 page

5.       Malik, “Revenue Impact SB 230-A”, 1 page

6.       Phillips, “Testimony SB 230:  Late Filing Penalties”, 2 pages

7.       Malik, “Staff Measure Summary SB 858-A”, 1 page

8.       Malik, “Revenue Impact SB 858-A”, 1 page

9.       Malik, “SB 858-A2 Amendment”, 1 page

10.   Benton, “Sumco Oregon Corporation”, 7 pages

11.   Yates, “HB 2368-A8 Amendments”, 9 pages

12.   Yates, “HB 2368-A9 Amendments”, 8 pages

13.   Yates, “HB 2368-A10 Amendments”, 5 pages

14.   Gardner, “Administration of Public Funds”, 2 pages

15.   Gardner, “Phillip Morris USA Applauds ATF’s Effort to Eliminate Contraband Cigarettes”, 1 page

16.   Kosesan, “Oregon Cigarette Tax Review”, 1 page

17.   Nelson, “Loophole in NPM Exhibit T Legislation – Western Region”, 2 pages