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C C PROPOSAL Submitted By Executive Public Relations Corporation to The Tobacco Institute Contents * Objective * Background * Action Plan * Fees and Expenses * Telephone Election Surveys Conducted October 1982 * Arguments Advanced in January 1981 against raising excise taxes on tobacco in Arizona

PROPOSAL This proposal is submitted to the Tobacco Institute by Executive Public Relations Corporation. We are an Arizona Corporation and have been doing business in government affairs and public relations since 1959. Our clients include: - The Tobacco Institute Getty Oil Hanna Mining Company Humana Hospitals AFCO Premium Financing Independent Insurance Agents of Arizona Arizona Automatic Merchandising Association Casa Grande Project for agriculture and mining Florence Copper Project (owned by Conoco) Searle Optical Lee Optical Cole National Corporation and others OBJECTIVE Create a citizens' grassroot organization or gain support within an existing one to oppose any INCREASES IN TOBACCO EXCISE TAXES. In addition work toward forming a coalition with other business interests in Arizona to oppose additional excise taxes. BACKGROUND "The budget is going to be the major priority for the next session, " said veteran House Majority Leader Burton Barr (R) Phoenix. "There's lots of figures out but the deficit certainly has to be in the $80 to $100 million class." Governor Bruce Babbitt, a Democrat, expects revenue to fall about $91 million short of the $1.7 billion fiscal 1982-83 budget. Arizona Daily Star November 12, 1982 These public news items tell the story of what faces Arizona's 36th Legislature when it convenes in January. They are confronted with harsh limits in fiscal resources and as a consequence they have many alternatives such as: 1. Services must be provided more efficiently. 2. Set spending priorities to a "bare essential's budget." 3. Raise existing taxes on items least likely to meet voter resistance. 4. Create new taxes on areas where there are loopholes and where strong lobbies will not oppose it at the hearing process. C

( In ancitipation of the State's revenue crunch, State agencies have reduced their budgets by 10 percent to reflect drops in state sales and income tax revenues. In addition, Arizona's three major universities have reduced expenditures by $23.1 million in the past six months. Arizona is prohibited by its Constitution to go into debt and with our current fiscal year ending on June 30, 1982, it is a certainty that something has to be done by•the incoming State Legislature to avoid a "red ink" budget. There is even some question from some lawmakers that they are liable for legaaction if they do not provide for a balanced budget. . EXPLORATIVE ACTION PLAN ( ) media. * Meet with Taxpayers' Associations throughout the State to discuss general excise taxes in general as well as other levies which may be considered during the incoming session of the Arizona Legislature. The largest 'in the State is the Sun City Taxpayers' Association where they have 17,000 members. Others are in Tucson and the Phoenix area. Seek to enlist their support to oppose any tax increase which will affect their members and that includes so-called luxury taxes on tobacco. * Meet with various liquor trade associations to possibly form an active coalition to oppose additional excise taxes. * Formulate plan, subject to legislative scrutiny, to form a new taxpayer's association which will oppose excise-tax increases. One such group could be called H.A.L.T. or Homeowners Alliance for Lower Taxes. Their mission could be to 0 ose all taxes which would affect the u timate consumer.includin those who use tobacco and liquor products. * Arrange meetings with trade associations, service clubs, and other citizens' groups to discuss taxes in general and in particular the big share being paid by Arizona's smokers. * Design a brochure indicating what Arizona smokers have been paying in tobacco excise taxes. This vehicle can be distributed by supporters of the tobacco industry such as TAN. * Consider a sample survey to be officially conducted for use by the Arizona Legislature on how citizens feel about increased excise taxes. (This would have to be separately funded if this action is taken.) * Meet with editorial writers of State's major newspapers as well as broadcast * Take any other action, as the opportunity arises during this initial investiga- tive stage, to further the goals of the Institute insofar as excise taxes are concerned. C ~ . ~ N ca

FEES ( c C With the uncertainties of what type of receptiveness will be met with such an Action Plan, a basic fee of $5,000 is submitted which will include all expenses including meeting, travel and others incidental to appearing before associations and individuals throughout the State.

RESULTS ( C Telephone Surveys Conducted in Conjunction With Legislative Elections Arizona fiscal year, how would you suggest alleviating the situation? 1. Cut State spending and exercise greater efficiency in government. October 13, 1982 - 300 Calls Legislative District 16 mid-town Phoenix (middle income) ~ If the State of Arizona continues to have financial difficulties during this Yes: 82% No: 7% Undecided: 11% 2. Raise personal income taxes on a temporary basis to make up for the tax revenue deficiencies this year. Yes: 10% No: 85% Undecided: 5% 3. If we had to raise taxes in Arizona, which form of taxation would you prefer? Yes No Unsure a. State sales taxes: 6% 88% 6% b. Gasoline taxes: 3% 90% 7% c. Tax real estate transactions: 25% 40% 35% d. Reinstitute the sales tax on food for a two-year period: 4% 91% 5% e. Raise luxury taxes on tobacco and liquor: 74% 12% 14% f. Raise excise taxes: 23% 60% 17% October 24, 1982 - 325 Calls Legislative District 14 Tucson's far eastside (middle income and up) If the State of Arizona continues to have financial difficulties during this fiscal year., how would you suggest alleviating the situation? 1. Cut State spending and exercise greater efficiency in government. Yes: 71% No: 20°a . Undecided: 90 2. Raise personal income taxes on a temporary basis to make up for the tax revenue deficiencies this year. C G.: ~' Yes: 8% No: 80% Undecided: 12% ~ ` . ~ W /-+

3. If we had to raise taxes in Arizona, which Yes No Unsure ( a. State sales taxes: 8% 83% 9% b. Gasoline taxes: 2% 89% 9% c. Tax real estate transactions: 18% 35% 47% d. Reinstitute the sales tax on food for a two-year period: 2% 89% 9% e. Raise luxury taxes on tobacco and liquor: 79% 7% 14% f. Raise excise taxes: 17% 63% 20% form of taxation would you prefer? a 4. Do you feel that there should be separate areas for smokers and non-smokers? Yes: 76% No: 14% Unsure: 10% 5. Should there be a law designating separate areas for smoking in the following' places: Yes No Unsure a. Restaurants 60% 21% 19% b. Work Places 47% 33% 20% c. Public Buildings 45% 28% 27% 6. If a smoking law were to be enacted, would you ask that it be strictly enforced by officials even if it meant taking vital services away from more serious offenses: Yes No Unsure 38% 48% 14 0 c 7. Would you prefer that no laws be enacted and that more emphasis be given to asking smokers to be more courteous and mindful of their surroundings? Yes No Unsure 47% 42% 11 % Note: These questions were part of a series of questions asked of registered voters in telephone surveys conducted in these two legislative districts. Other matters dealt with the following: 1. crime 2. unemployment 3. inflation 4. education 5. environment 6. government spending 7. transportation 8. water I

. C REASONS FOR OPPOSING AN INCREASE IN THE ARIZONA CIGARET TAX RATE 1. The Arizona Legislature is considering a proposal to increase the state cigaret tax rate from 13 cents to 19 cents a pack. . This proposed six cents increase would be ear-marked for a "Law Enforcement Enhancement Package." . It is discriminatory to force cigaret smokers to bear the cost of a program, however badly needed, that does not tax any other segment of Arizona's population. . Traditionally, the cigaret tax revenue in Arizona has gone to the-general fund_ . An increase in the cigaret tax rate in Arizona does not take into -consideration the needs and rights of the 625,000 Arizona citizens who smoke cigarets. . These cigaret consumers. a.re alread shouldering a disproportionate share of taxes in Arizona for which they receive no-special benefits. While all state residents receive the benefits of cigaret taxes, cigaret tax revenue is produced by approximately 36 percent of the adult population. . The state's cigaret tax already generates 2.3 percent of the state's total tax revenue. . Any increase in the tax rate will add to the inequity of the cigaret tax structure in Arizona. Selected Sales and Gross Receipts Tax Revenue, 1980 Motor Fuels Cigare ts Insurance Public Utilities Alcoholic Beverages Parimutuels Percent of Total Tax Revenue State Revenue $118,158,000 7.0% 39,386,000 2.3 29,457,000 1.7 23,232,000 1.4 22,093,000 1.3 : 9,580,000 0.6 3. The Arizona cigaret industry not only pays taxes, it collects them. . The fiscal year 1981 Arizona gross cigaret tax ( revenue amounted to $40,210,749 or $110,166 daily.

-2- Arizona smokers also paid more than $24.7 million in federal cigaret excise taxes in fiscal year ending June 30, 1981. . The Arizona s- tate general sales tax on cigaret sales amounted to over $8.5 million in•fiscal year 1981. . The 625,000 smokers in Arizona paid out more than $73.4 million in fiscal year ending June 30, 1981 in taxes on cigarets. 4. An additional increase in.the state cigaret tax rate will adversely affect other state tax revenue. . Higher cigaret taxes and the resulting decline in the purchase of tax-paid cigarets will reduce state revenue from other sources such as the general sales tax, corporate income tax, and the individual income tax. . For example, cigarets are traffic builders for the state's 8,099 retail establishments which sell cigare,ts. When people stop buying cigarets the revenue derived from the sales and profits of other products suffer as in-store traffic declines. Additionally, Arizona.has nine primary tobacco wholesalers and 17 other grocery, drug and miscel- laneous wholesalers who handle cigarets. •Decreased consumption due to a higher cigaret tax rate affects supermarkets and convenience stores. For example, 41 percent of all cigarets are sold in supermarkets according to Supermarket Business magazine. In convenience stores, excluding gasoline sales, cigarets are the number one product sold. Tobacco products comprise 15.4 percent of the gross profit dollars of convenience stores. . The estimated retail value of cigarets sold in Arizona in fiscal year 1981 was over $195.7 million. S. The Arizona cigaret tax is already a regressive and inequitab le tax. More than 33 percent of what Arizona smokers pay .for a pack of cigarets goes to the federal and state governments in the form in cigaret excise taxes. The cigaret tax discriminates against the 625,000 residents of the states who smoke, but the tax falls most heavily on those least able to pay.

-3- C r ( c . Since the percentage of income devoted to buying cigarets falls as income rises, Arizona cigaret taxes are already levied at hi her effective rates on the disadvantaged t ah n on t e more affluent. . An increase in the current cigaret tax rate will add to the tax.burden on the lower income groups and contribute further to the overall regressivity of the Arizona tax.structure. . For a family with two pack-a-day smokers, the following chart illustrates the burden of cigaret taxes in Arizona as they fall on different income levels at the current rate and at the proposed rate. Income . 'Percentage Of Income . Percentage Of Income Paid In Taxes On Cigarets Paid In Taxes on Cigare- At Current Rate At Proposed Rate $ 3,000 5.8% 7.3% 5,000 3.5 4.4 8,000 2.2 2.7 •10,000 • 1.8 2.2 15,000 . 1.2 1.5 25,000 _ 0.7 0.9 35,.000 - 0 _S 0.6 More than 20 percent of Arizona families have an average buying income of less than $8,000 per year. It is these families who will suffer the most from an increase in the cigaret tax rate. . A family with a buying income of $5,000 a year with two pack-a-day smokers pays five times as much of its income- in taxes on cigarets as does the family making $25,000 a year. . For those elderly and poor Arizona residents living on fixed incomes during these days of double-digit inflation, any increase in•the Arizona cigaret tax rate may take away this last affordable pleasure. . Average household. effective buying income in Arizona is $20,406 a year. Under the current tax the average household with two smokers is required to pay $175.20 .in taxes on cigarets a year for the pleasure of smoking. . If the cigaret tax is increased by six cents a pack, this same family will be paying $219.00 a year in taxes on cigarets.- 6. A'higher state cigaret tax will lead to an increase in W ~ ~ ~ illegal cigaret sales. w Lr1 •

4 C . In other states where high cigaret taxes exist, criminal element has quickly become involved. . At the current rate of 13 cents a pack, Arizona at the average rate for all states. the is . Even at this average rate, Arizona is losing some cigaret sales to illegal traffic.. . In a study done by the Advisory Commission on Intergovernmental Relations in 1975, and updated by the Federal Bureau of Alcohol, Tobacco and Firearms in 1979, it was estimated that Arizona was losing $700,000 annually due to cigaret tax evasion. . If Arizona were to increase its cigaret tax rate, it would probably change a minor bootlegging problem into one of major proportions. : In recent years, Arizona has suffered losses in cigaret and sales tax revenue because of bootleg cigarets coming into the state from Mexico and from untaxed cigarets being sold to non-Indians on reservations. f . This year Majority Whip James Sossaman backed an amendment to require businesses operating on Indian reservations to charge the state's 13 cents luxury tax on cigarets to non-reservation customers. The amendnent-was defeated in a fiery.House floor debate. Mr. Sossaman said the collected luxury tax from this-source would amount to $2.7 million. . If the six cents increase should could expect to see Indian sales members increase and deprive the tax revenue. pass, Arizona to non-reservation state of more cigaret 7. Arizona and Surrounding States Cigaret Tax Data, 1981 Cigaret Sales State Total Tax Difference Difference at at State Tax Rate Tax Per Pack Current Rate Prooosed Rate California 10t 5t 15t - 1.0~ - 7.0t Nevada 10t 4t 14t - 2.0¢ - 8.0~ Utah 10t 4,# 14 - 2.0¢ - 8.0~ Colorado 10~ - 10~ - 6.0t -12.0t New Mexico 12t 3t 15~ - 1.0t - 7.0t O ----------------------------------------------------------------- tr' Arizona Current 13-~ 3~ 16~ C Proposed 19~ 3~ 22t