Senate Assessment and Taxation Committee Hearing on SB 233

Link to SB 233 – Bill Language

Link to SB 233 – Fiscal Note Explanation

Link to KABR Testimony by Jeff Jones, Grand Slam Liquor

Link to written testimony by Brown Bag Liquor

Neither the Senate nor the House is expected to take action on any of their tax proposals until after the April spring break which begins after Drop Dead Day - April 3.  Once the March and April revenues are reported, leaders will have a better idea how much is needed to fill the budget deficit.  At this point, the Senate is supposed to work on their budget bills tomorrow, while the House has postponed work on its budget proposal.  The House may elect to simply work with the Senate plan.  

Veto session is scheduled to begin April 29, when legislators will come back to Topeka to wrap up the session.  Most years, the veto session lasts only a week or two.  This year, some are predicting much longer.

Hearing:  Proponents

Richard Carlson, Dept. of Revenue

Governor’s budget includes proposals for revenues – encompassed in two pieces of legislation: SB 234 and SB 233.  Tomorrow, will hear SB 234 = 207.11 million revenue.  Today, SB 233 is the other half of the revenue package as proposed by the Governor.

SB 233 increases tobacco tax and enforcement tax.   Testimony, history.  While tax increases are unpopular, will become necessary to be able to put revenue on the table as the session comes to a close and the Legislature must balance expenditures with revenues.

Regan Cussimanio – Kansas Cancer Center/Cancer Action Network – pro-tobacco tax.  Good for public health, encourages people to quit.  Saves public health expenditures.

Dr. Roy Jensen – University of Kansas Cancer Center – no public policy action we can take that would make a bigger impact on my job, treating cancer.  Impacting the price at the counter has been shown over and over again to effectively reduce rates of smoking.  Will save 15,000 Kansans from premature death.  Five times the number of people who died 9-11 or at Pearl Harbor.  Do something that is visionary in nature and not solely focused on present concern of the budget.

Jeff Willett – Kansas Health Foundation – smoking is leading preventable cause of disease and death in Kansas.

Opponents

Jason Watkins, Kansas Beer Wholesalers Association – oppose.  Dunham Economic Impact Study showing loss of jobs and income.   We will lose additional sales to Missouri by making our tax even higher.  Craft beer industry is growing in Kansas.  Raising the liquor enforcement tax will stifle that growth.

Tuck Duncan, KS Wine and Spirits Wholesalers Association – jelly bean bowl – the more jelly beans are in the bowl, the more my niece will eat.  Taxes are the same.  The more revenue we collect, the more we spend. 

Filled a bottle with liquid to represent the percentage of the overall volume that is committed to taxes.

Manufacturer / Wholesaler (gallonage) / Liquor Retailer (enforcement) / Restaurant (drink tax) / other payroll, property taxes.    Over half of the consumer cost of alcohol products is taxes / fees.

One of the few taxes that has consistently brought increased tax revenues to the state annually.

James Franco – don’t have a tax problem, we have a spending problem.  Alcohol and tobacco taxes are terribly regressive.  Mr. Carlson’s testimony points out that Missouri has the lowest taxes on tobacco and very low taxes on alcohol.  Mackinaw Center – Tax Foundation = 15% of cigarettes in Kansas are already smuggled in with current tax rates.

William Kipe (?) – former Ohio budget director – Tobacco tax increase harmful to consumers and businesses.  It is a declining revenue source.   Some people will quit or cut back.  Some will look to the internet for smuggling.  Would be 13 times the tobacco tax rate in Missouri.  Some people will move to vapor products / e-cig products.   Smokers do have options. 

Bill Nigro – Overland Park homeowner – opened Torrie’s pizza in Missouri 1998.  Since then, have opened a number of businesses in Missouri and Kansas.  Sued KC, MO over smoking ban.  Consider myself something of an expert on impact of smoking bans on entertainment businesses.  Drives customers to one side of the state line or another based on policies.  Will drive customers to Missouri. 

Cheaper tax on gas, cheaper tax on alcohol, cheaper tax on food, all in Missouri.   Want to see the people employed in my industry keep their jobs.

Curt Diebel – premium cigar products retailer – all handmade – my customers are not addicted.  My customers are no underage.   I pay OTP tax – the proponents of this bill do not.  Increase would equal 1.19 per cigar (up 71 cents).   My customers have options   1. Might decide to pay their share to help Gov. Brownback balance the budget – unrealistic.  2.  Go to Missouri.  3.  Go to the internet.  4.  Quit altogether. 

Tobacco taxes appear to be the fifth highest tax source now.  Adding $80 million would make it #3.   Quoted article by Gov. Brownback re: Kansas pro-business environment and tax policy.

Whitney Damron – tobacco testimony – list of revenues Kansas received over six years.   Percentage increase in annual cost results in annual increase in revenues.  OTP tax increase will have a negative impact.

Doug Mays – cigar / tobacco industry – if you do nothing, the OTP receipts will continue to increase annually.   Very aggressive marketing of cigar and tobacco products online.   I don’t think anyone believes this bill is before this committee due to health reasons.  I think it is unconscionable to punish through taxation the people who make personal choices to use legal products.  If you can do it with tobacco and liquor, you can do it with all kinds of things. 

Philip Bradley, KS Licensed Beverage Association – skipped – he is at SFSA liquor bills hearing

Tom Palace, Petroleum Marketers and Convenience Stores Association of Kansas – independent fuel distributors and convenience stores.    $547 increase annually to a one pack a day smoker.  Last tax increase ultimately led to a 26% drop in tax paid to the state.  1300 convenience stores – tobacco is the number one product we sell inside the store.  Most people are a single pack buyer daily.  When they come in, they buy a sandwich or a beverage.   By sending buyers to Missouri, we lose those ancillary sales and the sales tax paid on those products.  Also – a big impact to our stores is the inventory tax – that is where your big bump comes in right away.  The convenience store industry is not protected by any laws, we compete against smoke shops

At one time, we had bad compliance – but we have improved to 90% statewide.  We do a good job.  This is a regressive tax we are going to put on 20% of the population, and then we know from history that those sales are going to go down.

Brad Smoot – Distilled Spirits Council of the U.S. – raising the cost of any product changes consumption habits.  The higher the tax rate, the less will be spent on those particular products within the state of Kansas, thereby impacting the jobs and other products sold by those businesses.  That then affects the revenues that come from payroll and sales taxes from the other products. 

This industry is already highly taxes.  For every dollar that businesses make from the sale of alcohol products, the state collects two dollars.

Jeff Jones, Bonner Springs, KABR – see testimony above.

Tom Jacobs – cigar stores and liquor store – have served on the board of the International Premium Cigar and Piper Retailers Association – about fifteen of these premium shops in Kansas.   Have tracked when states increase the targeted tax on these products – and they don’t pay off.   At federal level, looking at pulling premium handmade cigars from the

Also in opposition to the increased liquor tax.  It will affect everywhere – not just near Missouri.  People who buy wine, beer and spirits are for the most part creatures of habit.  When you take the typical $10 product and increase it to an $11 product, they will begin to look at other products.  Budweiser likes to raise their prices every year, so they now have to market 20 packs and smaller packaging because the consumer looks for similar pricing.

Spencer Duncan – Kansas Vapers Association – written opponent

 Multiple written opponents – Read Brown Bag Liquor Testimony at top of notes.