Agreement reached on cigarette tax

BOISE – The House and Senate agreed Thursday that Idaho’s cigarette tax should stay at 57 cents a pack permanently – rather than dropping back to 28 cents this summer or in two years.

But the two sides wrangled into the night Thursday over a series of other differences on the bill, including a $500,000-a-year windfall senators wanted to give tobacco wholesalers, and plans to divert the tax proceeds into state capitol renovation costs from 2007 on.

At nearly 8 p.m., a rare conference committee agreed to have compromise amendments drafted to give the wholesalers a $300,000-a-year boost, and to divert the tax proceeds only from 2007 until the capitol renovation is covered. After that, the money from the tax would go to an economic recovery reserve fund – the same fund where next year’s tax money will go – to make it available for statewide water projects.

Rep. Jim Clark, R-Hayden, said he was glad the House got the Senate to back off from the plan to direct all the money to the building fund “in perpetuity” from the second year on. But Clark said he didn’t like the boost in payments to wholesalers.

“It’s the taxpayers’ money,” he said. “I don’t know if it’s fair to the taxpayer.”

The wholesalers’ windfall was added by the Senate when it amended HB 386, boosting the wholesalers’ take from the cigarette tax from 2.61 percent to 4 percent. The wholesalers get the payments in return for affixing tax stamps on packs of cigarettes.

Their lobbyist, Jerry Deckard, had been pushing for 5 percent. That’s what wholesalers got when the cigarette tax was still 28 cents a pack – when that percentage meant much less money. The House bill gave them no increase, leaving their percentage at 2.61.

At the conference committee’s first meeting mid-day Thursday, Rep. Dell Raybould, R-Rexburg, said the panel should examine the workload for stamping – how many cigarettes are being sold, a figure that’s dropping – and come up with a new percentage. Deckard, who was sitting in the room, muttered to the lobbyists and reporters around him as the crowd filed out, “I’m about to get screwed, in case you haven’t noticed – I can feel it coming.”

When the panel reconvened at 4 p.m., Deckard was huddling with members and demanding to address the committee. He and partner Roger Seiber presented three hastily prepared reports to the lawmakers showing that three different wholesalers estimate their costs to affix stamps at anywhere from 2.8 to 3.4 cents per pack, while their current state payments give them just 1.48 cents per pack.

However, cigarette sales in Idaho have been dropping steadily since the tax was raised two years ago. State figures show they’ve dropped from 91,000 packs sold in 2003, to 82,000 in 2004, to a projected 78,000 this year. The wholesalers aren’t paid by the pack; they get a percentage of the total proceeds from the tax.

The conference committee agreed to set the new percentage at 3.3 percent, to split the difference between the House’s 2.61 and the Senate’s 4. That’ll give the wholesalers roughly an additional $300,000 a year at state expense, where the 4 percent would have given them roughly half a million more a year.

“I think that they want to balance their budgets on the backs of small businesses in the state of Idaho, that’s what I think,” Deckard snapped after the vote, as he and Seiber stood in the capitol rotunda.

Conference committee members were still at odds on whether $8 million from the tax that goes to the general fund should do so next year. Clark wanted that money shifted to the water projects, but Senate Finance Chairman Dean Cameron, R-Rupert, said the state budget for next year already has been set, and it counted on that money.

Cameron said legislative budget writers could write a new bill to shift the money around to address the gap, but asked why they should “go to the trouble.”

“So Rep. Clark and 65 percent of the House of Representatives will go along with this,” Raybould responded. Cameron shot back, “They’ve got to go along with it anyway, because we need this bill.”

Sen. Hal Bunderson, R-Meridian, said he had some amendments drafted to “deal with contraband cigarettes” by trying to collect Idaho tax on tribal and Internet sales. “If the Legislature passes that kind of legislation, I think our wholesalers would be better off,” he said.

Rep. Wendy Jaquet, D-Ketchum, responded sharply, “We don’t want to go there.”

If the conference committee gives final approval to the changes in HB 386 this morning, the Senate still would have to formally re-amend the bill, and then it would need another vote in each house.

Lawmakers who had hoped to adjourn this year’s session today acknowledged that that’s no longer in the cards.