September 8, 2006
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About a Bill: Luxury tax; tobacco stamps

Sen. Dean Martin S1066 aims to snuff out cigarette tax cheaters, assist distributors

What it will do: Establish harsher punishment for the evasion of Arizona’s luxury tax on tobacco products and make guidelines for paying the tax clearer and more practical for the state’s licensed distributors, starting Oct. 1, 2006.

Legislators and the Arizona Department of Revenue have joined forces with cigarette manufacturers and distributors to modernize the tobacco tax code and ensure that it accommodates both citizens and businesses without providing loopholes for criminals.

The resulting legislation, S1066 (Chapter 278), imposes stricter penalties for evasion of Arizona’s tobacco luxury tax and also expands the freedom of licensed distributors.

The final version of the bill passed the Senate 29-0 and the House 54-0 before being signed into law by Governor Napolitano on May 16.

“This is not one of the sexiest issues out there, but it is very important in making enforcement of the tobacco tax more functional,” said Sen. Dean Martin, R-6, the bill’s sponsor. The tax revenues from taxes on cigarettes are growing, according to statistics released by Arizona Department of Revenue. For example, Cigarette taxes collected in May of this year total $25,892,922, compared to $24,014,152 in May of 2005.

Currently, licensed tobacco distributors pay $1.18 in luxury tax on each pack of cigarettes they sell via non-removable stamps that they purchase from the Department of Revenue and affix to each pack within 48 hours of receiving them from manufacturers.

“A distributor might be distributing in multiple states, but when they place an order from the manufacturer, they don’t know which cigarettes are going to which states,” Mr. Martin added.

When his bill takes effect on Oct. 1, distributors will only be required to tag packs on their way out of warehouses, not on their way in, sparing them an unnecessary hassle, he said.

Also, those who sell smokes without stamps from the Department of Revenue will be subject to more stringent fines, felony prosecution and property forfeiture.

Mr. Martin said S1066 was particularly difficult to draft because it balanced the needs of tobacco manufacturers, distributors and the Department of Revenue, in addition to those of the attorney general.

“I also wanted to upgrade the stamps themselves to improve the technology, but we weren’t able to come to an agreement on that so we’ve got a study group working on that for next year or down the road,” he added.

— By Daniel Raven, Arizona Capitol Times correspondent