INFORMATIONAL MEETING

TAPES 43-44 A, 43 B

INFORMATIONAL MEETING

003

Acting Chair Berger

Calls meeting to order at 1:03 p.m.

006

Paul Warner

Gives overview of Oregon Tobacco Task Force (Exhibit 1). Discusses decrease of revenue from cigarette sales and increases in other tobacco products (OTP).

033

Pete Shepherd

Gives overview of Task Force (Exhibit 2). Gives overview of Master Settlement Agreement (MSA) and Non-Participating Manufacturer (NPM) Law.

057

Shepherd

Discusses Master Settlement Agreement (MSA). It gives a financial benefit by providing annual payments and requires companies to adhere to certain codes of conduct such as advertising to minors. Discusses financial impacts of the MSA.

097

Shepherd

Discusses NPM law. Every manufacturer who doesn’t participate in MSA pays an amount into an escrow fund equal to the amount they would have paid had they belonged to the MSA. The NPM law doesn’t generate revenue for OR.

159

Shepherd

Discusses Task Force created in 2001. Discusses internet purchasing of cigarettes and the tax collection process involved.

Taxes for in-state sales are collected from the distributor by using revenue stamps.

246

Shepherd

Discusses task force accomplishments regarding compliance issues. Discusses current revenue projections.

390

Shepherd

Discusses internet sales compliance issues. This is an area of focus for the task force.

TAPE 44, SIDE A

009

Shepherd

Discusses statutory funding of task force.

035

Rep. Olson

Asks what measurement is used to show that the state has failed to enforce its NPM law?

042

Shepherd

Responds that there has not yet been a litigated challenge to a state not receiving its share of the MSA by failing to enforce its NPM law. The mechanism is an uncertainty because this situation has not yet occurred.

061

Rep. Olson

Asks what is the measurement rate for the compliance rate?

071

Eric Smith

Responds that the Dept. of Revenue field agents did a statistical survey of retailers. The two measures used were: how many retailers were out of compliance, and how many cigarette packs didn’t have an OR tax stamp. Findings were that 99% of the packs had legitimate OR tax stamps.

093

Rep. Boquist

Asks for recap of how each agency is funded for the task force.

095

Shepherd

Responds that the total funding is first received by the Dept. of Revenue from cigarette tax collections. Both the Dept. of Justice and State Police send bills to the Dept. of Revenue for the personnel costs and are then reimbursed by the Dept. of Revenue. Dept. of Revenue funds for the task force are considered “other funds”

138

Chair Butler

Requests clarification of the term “other funds” for freshmen members.

142

Smith

Defines “other funds” as revenue from other tobacco products (OTP) to operate the task forces. Discusses the two task forces (see Exhibit 1, page 4) created in the 2001 and 2003 legislatures and how they were funded. 

178

Rep. Boquist

Asks about Task Force 1 and Task Force 2 funding for the full-time equivalent (FTE) positions.

185

Shepherd

Discusses proposed budget proposals to consolidate both task forces and the impact on the staffing.

210

Rep. Boquist

Asks what is the rationale to eliminate 27 positions on task force 2?

220

Shepherd

Responds that while the Dept. of Justice does not agree with the governor’s proposal, all three agencies have already downsized most of the affected positions. There is merit in reducing the size of task force 2, but targeting internet sales still needs to be pursued.

240

Chair Butler

Asks if the Dept. of Justice has a position regarding re-selling of tobacco products from other states?

250

Shepherd

Refers this question to the Oregon State Police representative, Mike McKiernan.

260

Mike McKiernan

Responds to resale question. Rarely sees double-stamped packets.

282

Chair Butler

Asks if he has seen OTP stamping by other states.

285

McKiernan

Responds that he has seen some stamping of OTP, but not very many.

295

Chair Butler

Asks about fair market pricing of tobacco.

296

Shepherd

Discusses distributor market in OR. There are 244 licensed distributors in the state. One distributor in Portland has discussed a proposal with the Dept. of Justice regarding fair market pricing. The Dept. of Justice has not taken a policy position on this issue. 

345

Chair Butler

Asks about surveillance of neighboring states’ non-taxation of other tobacco products that have no revenue stamps.

372

McKiernan

The State Police frequently monitors other state operations, such as the Yakima Nation, where some Oregon retailers purchase their products.

400

Chair Butler

Asks about the standard operating procedure on the surveillance program.

425

McKiernan

Responds that some of the steps include identifying suspects. Then the Dept. of Revenue identifies products that are suspect by reviewing suspect invoices. Law enforcement then steps in and investigates.

TAPE 43, SIDE B

022

Chair Butler

Provides information to members regarding reselling issues. Asks Mr. Shepherd about which state receives the share of the MSA or NPM if the cigarette pack is double-stamped by two states

055

Shepherd

The OR share of the MSA is fixed, independent of the jurisdiction where the sale takes place. Will check on information requested and respond to the Chair.

103

Smith

Dept. of Revenue is actively pursuing this issue and has meetings scheduled in March with distributors to update technology on preventing the reselling.

128

Rep. Berger

Asks: 1) what percentage of tobacco tax revenue is attributed to cigarettes as opposed to OTP. 2) what strategies are proposed for the internet cigarette sales issue.

136

Smith

Cigarette revenues for this biennium were $463 M as of 12/04; OTP was $42 M for a total of $505 M.

143

Steve Briggs

Responds to internet strategies question: 1) the task force is making an outreach to third party facilitators such as credit card companies, pay pal, USPS, distributors in order to make them aware of their obligations. (see letter in Exhibit 2). 2) serving indictments against internet distributors for racketeering. 3) pursuing civil lawsuits against distributors to provide a list of consumers to recoup tax that was evaded.

192

Rep. Hass

Asks about similar communication with shippers such as UPS and Fed Ex.

199

Smith

Responds that is being done

204

Rep. Boquist

Discusses issue of smuggling.

240

Chair Butler

Responds that the task force is addressing this issue. Dept. of Justice has an interim work group working on this and suggest Rep. Boquist follow-up with them.

250

Chair Butler

Committee business discussed.  

290

Warner

Discusses schedule for week of 2/21/05. Revenue projection meeting on 2/25/05.

308

Rep. Hass

Committee business discussed.

328

Chair Butler

Adjourns meeting at 2:20 p.m.

Tape Log Submitted by:

Reviewed by:

Kristi Bowman, Committee Assistant

Kim Taylor James, Committee Coordinator