Tobacco Tax
2016 Annual Report


Tobacco Tax Reports
End Year



AS 43.50

Description

Alaska levies a tax on cigarettes and other tobacco products. The cigarette tax is levied on cigarettes imported into the state for sale or personal consumption. The other tobacco products tax is levied on tobacco products (other than cigarettes) imported into the state for sale. The Department of Revenue’s Tax Division collects tobacco taxes primarily from licensed wholesalers, distributors and retailers.

Rates

Cigarettes – See rates table below. The cigarette tax must be paid through the purchase of cigarette tax stamps. A stamp must be affixed to the bottom of every pack of cigarettes imported into the state for sale or personal consumption.

Cigarette Tax Rates Since July 1, 2007
Mill RateTax Per
Cigarette
Tax Per Pack
(20 cigarettes)
Base Rate (School Fund)38 mills$0.038$0.76
Additional Tax (General Fund)62 mills$0.062$1.24
Total100 mills$0.10$2.00


Non-Participating Manufacturer (NPM) Equity Tax – An additional tax of 12.5 mills ($0.25 per pack of 20 cigarettes) is levied on each cigarette imported or acquired from a manufacturer that did not sign the tobacco Master Settlement Agreement (MSA). All revenue collected from this tax is deposited in the General Fund.

Other Tobacco Products (OTP) – The tax rate on OTP, which includes tobacco products other than cigarettes such as cigars and chewing tobacco, is 75% of the wholesale price. The wholesale price is the established price at which a manufacturer sells tobacco products to a distributor. The division may adjust the wholesale price upon which tax was calculated if the wholesale price was not established in an arm’s-length transaction.

Returns

Taxpayers must pay the cigarette tax by purchasing cigarette tax stamps. The other tobacco products tax is paid at the time a tax return is filed. Tax returns are required to be filed on a monthly basis and are due the last day of the month following the month that cigarette tax stamps were purchased or other tobacco products were imported into the state for sale.

Taxpayers that purchase cigarette tax stamps are entitled to a stamp discount of 3% on the first $1 million and 2% on the second $1 million of cigarette tax stamps purchased in a calendar year. The total stamp discount in each calendar year may not exceed $50,000. Taxpayers who import other tobacco products for sale may deduct 0.4% of the other tobacco products tax due to cover expenses of accounting and filing returns. There is no limit on this deduction.

Exemptions

Sales to authorized military personnel by a military exchange, commissary, or ship store, and sales by an Indian reservation business located within an Indian reservation to members of the reservation are not subject to the tax.

Disposition of Revenue

Cigarette Taxes – Revenue from the base rate is deposited in the School Fund. Revenue from the additional tax is initially deposited into the General Fund. Of the amount deposited in the General Fund, 8.9% of the revenue is deposited into the Tobacco Use Education and Cessation Fund, a subfund of the General Fund.

Cigarette and Tobacco Products License Fees – The division deposits all cigarette and tobacco products license fees into the School Fund, to be used for the rehabilitation, construction, repair, and associated insurance costs of state school facilities.

Other Tobacco Products – The division deposits all revenue from OTP into the General Fund.

History

The tobacco tax dates to 1949 when the Territorial Legislature enacted a tax of $0.03 per pack on cigarettes and $0.02 per ounce on tobacco. There were no exemptions provided in the tax legislation.

1951 – The Territorial Legislature increased the cigarette tax to $0.05 per pack.

1955 – The Territorial Legislature eliminated the tobacco products tax, and, although the cigarette tax rate remained at $0.05, the Legislature converted the rate to a mill rate per cigarette (2.5 mills per cigarette). The Legislature enacted a 1% deduction provision to cover accounting expenses.

The Legislature also created the School Fund and directed all proceeds from the cigarette tax be deposited in this fund.

1961 – The Alaska Legislature increased the cigarette tax to 4 mills per cigarette ($0.08 per pack). The Legislature dedicated revenue from the additional $0.03 to the General Fund.

1977 – The Legislature exempted military sales from the cigarette tax.

1983 – The department adopted regulations exempting sales of cigarettes by Indian reservation businesses to members of the reservation.

1985 – The Legislature increased the cigarette tax to 8 mills per cigarette ($0.16 cents per pack).

1988 – The Legislature enacted the tobacco products tax imposing a tax of 25% of the product wholesale price. The Legislature authorized taxpayers to deduct 1% of the tax to cover accounting expenses.

1989 – The Legislature increased the cigarette tax rate to 14.5 mills ($0.29 per pack of 20).

1997 – Effective Oct. 1, 1997, the Legislature increased the cigarette tax rate to 50 mills or $1 per pack of 20; and the tobacco products tax rate was increased to 75% of wholesale price. The Legislature reduced the deduction percentage to cover accounting expenses from 1% to 0.4%.

1999 – Effective June 3, 1999, Alaska became a signatory to the nationwide tobacco Master Settlement Agreement (MSA). The MSA is an agreement between 46 states, including Alaska, and certain cigarette manufacturers that have voluntarily agreed to reimburse states for costs associated with cigarette smoking. The agreement applies only to “Participating Manufacturers” (those manufacturers who have agreed to participate in the settlement).

The agreement includes language to prevent “Non-Participating Manufacturers” (those manufacturers who have not agreed to participate in the settlement) from deriving short-term profits and from becoming judgment-proof before liability arises. This language requires every Non-Participating Manufacturer to place funds in an escrow account for each cigarette sold in the state. Per the agreement, the State of Alaska is responsible to obtain data to determine the amount required to be placed in an escrow account by each Non-Participating Manufacturer.

2001 – Effective July 1, 2001, the department gained new tools to enforce the nationwide MSA signed by the major cigarette manufacturers and states. It allows the department to share information with other states and entities that may aid in the enforcement of the agreement. It also prohibits tobacco products licensees from importing and selling cigarettes in Alaska made by Non-Participating Manufacturers that fail to comply with the agreement.

2003 – The Legislature required all cigarette manufacturers to certify to the division that they are either a signatory to the tobacco MSA or in compliance with AS 45.53. The division is required to post on its website a list of the compliant cigarette manufacturers and their brands. Only those brands of cigarettes included in the list may be sold in Alaska.

2004 – Effective Jan. 1, 2004, the cigarette tax must be paid through the use of cigarette tax stamps. An Alaska cigarette tax stamp must be affixed to each cigarette pack prior to sale, distribution or consumption. Cigarettes found in the state that do not bear a cigarette tax stamp are contraband and subject to immediate seizure by the department or any other law enforcement agency in the state. Additionally, the sale of cigarettes at less than cost is prohibited.

During a special session in June 2004, the Legislature passed legislation that:

  • Increased the cigarette tax by 30 mills to $0.08 per cigarette or $1.60 per pack of 20 cigarettes, effective Jan. 1, 2005.
  • Levied an additional tax of 12.5 mills or $0.25 per pack of 20 cigarettes on cigarettes imported into the state for sale or personal consumption if the cigarettes were manufactured by a Non-Participating Manufacturer. An NPM is a manufacturer that did not sign the tobacco MSA. Revenue from the entire cigarette tax increase and the additional tax on NPM product is deposited in the General Fund.
  • Required 8.9% of cigarette tax revenue deposited in the General Fund to be deposited into the Tobacco Use Education and Cessation Fund, effective Jan. 1, 2005. Amounts deposited in the fund may be appropriated by the Legislature for tobacco use education and cessation programs.
  • Increased the cigarette tax by 10 mills to $0.09 per cigarette or $1.80 per pack of 20 cigarettes, effective July 1, 2006. The revenue from this increase will be deposited in the General Fund.
  • Increased the cigarette tax by 10 mills to $0.10 per cigarette or $2.00 per pack of 20 cigarettes, effective July 1, 2007. The revenue from this increase will be deposited in the General Fund.

2008 – Effective Aug. 1, 2008, only fire-safe certified cigarettes can be imported into Alaska.

2010 – The Legislature changed the methodology for establishing the minimum price at which cigarettes must be sold.

2014 – House Bill 193 (CH 74 SLA 14) added a new section to AS 43.50.150 granting the department the authority to collect, supervise, and enforce tobacco taxes in a manner that would allow the department to enter into agreements with a municipality to administer tobacco taxes on behalf of the municipality. These agreements may allow the department and a municipality to jointly administer cigarette stamps and audit taxpayers for cigarette/tobacco taxes. The law requires municipalities to reimburse the state for administration costs if the municipality decides to enter into an agreement with the department. The department may also share taxpayer information with municipalities relating to tobacco tax.



Click here for data with additional years.

  Collections Summary

Fiscal Year

2016 2015 2014 2013

   Cigarette Tax

$55,270,369 $52,790,556 $55,238,631 $57,247,497

   OTP Tax

12,963,602 12,805,977 12,152,537 12,599,764

   Penalties and Interest

15,440 39,543 55,563 81,041

   License Fee

3,425 3,450 3,539 4,950

   Accounting Expense and Stamp Deduction

(334,330) (398,094) (552,889) (358,591)

   Total Tax

$67,918,506

$65,241,432

$66,897,381

$69,574,661

   General Fund

45,152,376 40,504,473 42,840,508 44,825,681

   School Fund

19,879,917 21,601,325 21,006,793 21,611,515

   Education and Cessation Fund

2,886,213 3,135,635 3,050,080 3,137,465


  Filing Information

Fiscal Year

2016 2015 2014 2013

   Number of Returns

670 714 900 901

   Number of Taxpayers

60 66 78 101

  Cigarettes

Fiscal Year

2016 2015 2014 2013

   Total Cigarettes Reported on Tax Returns

521,428,678 549,993,906 552,548,995 576,510,265

   Military and Indian Exempt Cigarettes

(4,662,400) (21,912,600) (4,674,586) (4,550,600)

   Cigarette Credits for Returns

(48,000) (1,059,675) (1,630,510) (2,426,945)

   Taxable Cigarettes

516,718,275 527,021,631 546,243,899 569,532,720
  Value

Fiscal Year

2016 2015 2014 2013

   Other Tobacco Products

$18,730,045 $18,572,760 $17,589,890 $17,143,371

   Military and Indian Exempt OTP

(125,014) (148,179) (147,589) (155,400)

   OTP Credits for Returns

(217,730) (249,805) (325,857) (301,332)

   Taxable OTP Wholesale

$18,387,300 $18,174,776 $17,116,444 $16,686,639




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