FAIRBANKS, Alaska (KTVF) – A vape and tobacco excise tax bump within the Fairbanks North Star Borough passed on a narrow 5-4 margin at Thursday’s borough assembly meeting, but the specter of a loose online marketplace still looms.
The first legislation put forward by Assemblymember Scott Crass, the ordinance increases an existing 8% borough tobacco excise tax to 20% and loops into its purview any vape liquids or disposable vapes that aren’t FDA-approved smoking cessation products.
The change carries the borough closer to the excise taxes imposed by the local governments in Alaska’s two other urban centers, with Anchorage levying a 55% tobacco and vape excise tax and Juneau City and Borough’s at 45%. Sitka has the highest in the state, levying a 90% tax.
“This isn’t an extreme step at all. If anything, it’s a half measure,” Crass said. “I feel that we should aim for parity with our region.”
With the City of Fairbanks increasing its tobacco tax from 8% to 20% beginning Jan. 1 of this year, vape and tobacco distribution within city limits will face a 40% total local tax. In North Pole, the existing 18% local tobacco tax will go to 30%.
Outside of either municipality, but within the borough, the excise tax will jump from 8% to 20%.
That begs the question: At what frequency will distributors pay those differing amounts?
“The majority of our taxation comes through wholesale distributors in the City of Fairbanks. That’s 88% of it,” Crass said, adding that 8.5% comes from distributors in North Pole and 3.5% from distribution outside either city.
The local tax levels are in addition to the state tobacco excise tax, which sits at 75%.
This type of tax is not levied directly on the consumer, but rather on distributors bringing the product into a given area such as the borough, though in theory higher costs will make their way down to the point of sale.
“I think that will create a situation where it will be more restrictive for the youth,” Crass said.
Crass maintained reports from the U.S. Surgeon General show upping the tobacco tax is an effective method to curtail usage, citing the Alaska Youth Risk Behavior Survey that found a statistically significant jump in vape use among high school students, from 15.7% in 2017 to 26.1% in 2019.
He also presented statistics from the Fairbanks North Star Borough School District, saying 87 middle school kids were caught with some sort of nicotine-containing product in 2023, an all-time high.
Crass projected, overall, the measure would drop usage by 8% borough-wide and roughly double the related tax revenue to about $3 million, though that projection excludes revenue to be gained from vape sales because the borough lacks baseline data to form that prediction.
At Thursday’s meeting, owners of local businesses, including vape and tobacco shops and gas stations, turned out in opposition to the measure.
Their biggest fear: search, select, add to cart, buy now.
Rat Pack Cigars owner Jeff Masters worried the measure will push buyers to the internet in pursuit of lower prices.
“As far as trying to keep kids off of it, they can go online and buy it just as easy as I can,” he added.
Assemblymembers picked up that thread in their debate.
“I really understand how hard it is to have a small business here that has competitors everywhere — online, down the road, across the state — and I value small business,” Assemblymember Mindy O’Neall said.
“We already made it illegal to protect the kids. Guess what? We’re doing a terrible job because they seem to be doing a pretty good job of getting their hands on it,” Assemblymember Brett Rotermund said.
A Newscenter Fairbanks search of three websites found a carton of Marlboro Reds could be purchased for between $46 and $76 with free standard shipping, expected to take 16-24 business days.
From the Fairbanks Costco, that same carton runs at $120.
A pack of four Juul pods, a common disposable vape option, costs around $12 on two of those sites. Smokin’ Deals FBK on Airport Way sells the same product for about $17.
All three websites accepted only PayPal or cryptocurrency for payment, and none of the three verified age. Scam detectors did give the sites low trust scores, however, with customers often reporting unfulfilled orders.
A fourth site, Saucey.com, did ask whether a user is 21 and said in its checkout instructions that a person 21 or older must be present upon delivery; the site also had slightly higher prices for tobacco and vape products and had better reviews from scam detectors, but it does not deliver its tobacco or vape products to Alaska.
Speaking on a condition of anonymity, a high school student in the Fairbanks North Star Borough School District said underage people often purchase vapes from “dealers” on the social media app, Snapchat. The student told Newscenter Fairbanks those dealers tend to buy the products from the Internet, saying they can turn the cheaper online products for a 100% to 400% profit per vape when selling to underage buyers.
The student clarified, however, there are still many high school students who simply purchase vapes from older people they know.
Crass expressed worry over the possibility of underage folks acquiring the products online as well as the fact that web-based companies can skirt the local excise tax. The only way for the borough to collect on those sales is through a point-of-sale sales tax, which would have to be put on a ballot for borough voters to approve.
Some assembly members also predicted consumers would legally dodge the increased prices by purchasing the products elsewhere, like Nenana or Delta Junction.
“Those places will just say, ‘thank you for the revenue,’” Assemblymember Barbara Haney said.
Not everyone saw it that way.
“When people are out of cigarettes they’re not going to drive down to Nenana, get a pack of cigarettes, and come back,” Assemblymember Kristan Kelly responded.
Crass wasn’t convinced either.
“Currently, we’re that loophole … there’s a value in us levelizing this tax across Alaska,” he said. “We can’t do that for Delta Junction. We’ve got to control what we can control.”
So far, neither online sales nor out-of-town trips have blocked the City of Fairbanks from generating more revenue on its newly raised and expanded tobacco excise tax.
In the first month of 2024, the city brought in $202,000 in tobacco excise tax revenues, compared to $84,000 in January of 2023, according to city records. That’s a 140% increase.
The borough measure mirroring the city’s change ultimately passed 5-4. Assembly members Crass, Kelly, Liz Reeves-Ramos, Savannah Fletcher and David Guttenberg voted yes; assembly members Haney, Nick LaJiness, O’Neall and Rotermund voted no.
The ordinance takes effect July 1 to align with the borough’s new fiscal year.
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