Tobacco Documents Online

~R 0 4 U3 ! D il , K i./PiY's LAW'OFFICES NVk_ZTLSELL, MOPROR'' ~~ ^k1 .'.Tt?:; ; P.C. POST OFFICE BO%2480. MONTGOMERY. ALABAMA 36103 CALVIN M, WHITESELL ROGER S.MORROW. WESLEY ROMINE November 3, 1983 Mr. Roger Mozingo Senior Vice President The Tobacco Institute 1875 I Street, Northwest Washington, D. C. 20006 Dear Roger: 411 WASHINGTON AVENUE TELEPHONE 262-1867AREA CODE 205 We have two taxes on cigarettes in Alabama. The first tax is a millage tax. Title 40-25-2, Code of Alabama, 1975, reads as follows: "(a) In addition to all other taxes of every kind now irrposed' by law, every person, firm, corporation, club or association, within the state of Alabama, who sells or stores or receives for the purpose of distribution to any person, firm, corporation, club or association within the state of Alabarrra, cigars, cheroots, stogies, cigarettes, smoking tobacco, chewing tobacco, snuff or any substitute therefor, either or all, shall pay to the state of Alabama for state purposes only a license or privilege tax which shall be measured by and graduated in accordance with the volume of sales of such person, firm, corporation, club or association in Alabama. There is hereby levied licera,se or privilege taxes on articles containing tobacco enumerated in this article in the following amounts: (8) Cigarettes. - Upon all cigarettes made of tobacco, or any' substitute therefor, three and thwo_-fifths inche_s_ long or less and weighing not rrore than three pounds per 1,000, six mills on each such cigarette. (9) Cigarettes. - Upon all cigarettes made of tobacco, or any substitute therefor, over~ three_.and_t'wo-fifths inches_ long and less than five and'one-hal'f inches long, weighing not more than six pounds per 1,000, 12 mills on each such cigarette. (101) Cigarettes. - Upon all cigarettes made of tobacco, or any substi,tute therefor, five _andi one-half inchcs long or. longer, one and one-third cents on each such cigarette."

Ir Mr. Roger Mozingo Page 2' No one has ever paid the tax set forth in (9) and (10) above but: paid the lowest rate of 12 cents. Anyone can measure the cigarettes presently on the market and find a potential liability for three years, which is the statutory period on collection of back taxes, of socr*ewhere between 150-160 million dollars. If fraud could be proven in the failure to pay, the state could go back to the inception of the longer cigarettes. I was never aware that the correct tax was not being paid until about three weeks ago just as I was unaware that the tax was not paid on sanple packages. Everyone in the industry knows the tax structure in this state as it has been in effect since 1935; and has been amended periodically in armunt since that time. This burden, in my opinion, would fall on the distributor and' not the manufacturer but there may be some question about it. The additional tax, added in 1980, is as follows: Title 40-25-60, Code of Alabama, 1975 "(1) On each package of cigarettes containing 20 cigarettes or less, four cents; (2) On each package of cigarettes containing more than 20 but not exceeding 40 cigarettes, eight cents." The revenue department infornm me that this tax has not been paid by any tobacco corrpany on samples since it was passed. It adopted a rule recently so there could be no doubt about the tax being due. How much was unpaid on sarrples would have to be computed. The above is background for recent developments. It appears that Lorilard, Brown and Williams, and Reynolds have all been in touch wi th the revenue department on packs of 4, 8, and; 25. Jimnie Bradshaw, Assistant Corrmissioner of Revenue, now heading up tobacco taxes, is a veteran of 38' years service primarily in income tax and sales tax. When Mr. Bradshaw started receiving these calls, he apparently met with~ his adrninistrative staff to take a new look at Alabarm tobacco taxes. Without any input from anyone outside of his staff, he decid'ed that the law should be revised. He then advised me as a representative of the industry that he would like to entertain a:pre- errptive tax on cigarettes which I reported inmediately to The Tobacco Institute last week, and made an appointment to moeet with him and staff crn~nbers yesterday. The meeting was between Mr. Bradshaw, Mr. McCrory, Ms. Lawson and rnyself. Mr. Bradshaw gave me the attached list of local taxes in Alabama. He stated that the state presently collected sales taxes for alli cities and counties in the st'ate except two. He said the

Mr. Roger Mozingo Page 3 trend was apparent that tobacco taxes are going to be raised at local levels, and the further trend was for the state to collect them as it presently collects for seven counties. It would be easier for the state to collect one tax and remit to cities and counties on some forrrula basis rather than have some 238 taxes. Mr. Bradshaw would expect the tobacco industry to prepare the legislation which they would review, and then it could be presented as an agreed bi 11. The discount for distributors would not be cut alithough there was sentiment to do so. All stanps on all other tobacco products would be eliminated and paid on reporting forms. The department would want the right to use stanps or reporting forns on cigarettes. He would want the effective date to be October 1, 1984, to coincide with the fiscal year and to give them time to program their corrputer and get rid of their starrp inventory. He favors only one tax and this tax to be on a package of cigarettes without length or weight requirements. Ho made a point that he knew all corrpanies were in violation on the lengths but would be willing to waive the violations and do away with~lengths or weights and just tax cigarettes. He prefers a millage tax as being the fairest method of taxation. 'Ihis would~ be difficult to corrpute and would certainly mean a higher state tax but not necessarily a higher total tax. At first blush, it appears an increase of five cents would do it. Depending on the nurrbers and the support we could muster, it is feasible to pass this measure. I find the proposal intriguing and am pleased to have a progressive man at the helm for a change. It should be emphasized that this proposal came solely from the department without any outside influence by me or any corrpany according to Mr. Bradshaw. He made another suggestion in the meeting that was unique. W. McCrory (adninistrative) is retiring January 1 and he stated that if the industry pursued his idea, it might be that Mr. McCrory could be errployed' as a consultant by ei ther the state, the industry, or both, to undertake this task as a personal project so that he could testify as an expert before the conanittees and give full time to all the details. This may or may not work out. Please give me an answer on this as soon as possible. The task is formidable and work needs to begin irrzr,ediately due to the corrplex nature of it. In order to have any chance of success, we would need a bill acceptable to the revenue d'epartnnent which would get approval from the administration; agreement arnong the distributors and their active backing; and! liast, but not least, approval from at least the larger rrx.inilcipal i t i es.

Mr. Roger Mozingo Page 1 All of this would take a lot of time and effort between now and February and' I am mindful that this bilil would allow companies selling "odd" size packages of cigarettes entry in Alabama. No further action on this bill wild be taken by me untill I receive some instructions from you. Qvltkllbtm Enclosure