May 19, 2000

The Honorable Chester Culver
Secretary of State
State Capitol
L O C A L

Dear Mr. Secretary:

I hereby transmit House File 2548, an act relating to the administration of the tax and related laws by the department of revenue and finance, including administration of state individual income, corporate income, sales and use, hotel and motel, real estate transfer, environmental protection charge on petroleum diminution, property, motor fuel, special fuel, cigarette and tobacco products, and inheritance taxes, treatment of motor fuel under the local option taxes, and authorizing tax agreements with Indian tribes, and including effective and retroactive applicability date provisions.

I am unable to approve House File 2548 and hereby transmit it to you in accordance with Article III, Section 16, of the Constitution of the State of Iowa.

House File 2548 includes many worthwhile provisions asked for by the Department of Revenue and Finance. I regret that one provision, not requested by the department but included in the bill, is a change in way moist snuff tobacco products are taxed. Under current law, moist snuff tobacco products are taxed at 22 percent of the wholesale price. House File 2548 changes the taxation to a $.42 per ounce flat tax.

I cannot approve House File 2548 with this tobacco tax policy change included in the bill. Iowa has one of the highest moist snuff usage rates in the country; ranking ninth out of 33 states that monitor moist snuff usage by males over the age of 18 years. As tobacco prices increase in the future, a taxation rate based upon a percentage of the cost will continue to impose a tax that is proportionate with the cost of the product. However, taxation on a per ounce basis will remain the same, regardless of the cost of the product. This results in a potential loss of tax revenue to the state. It may eventually create an incentive for persons to purchase moist snuff products since they will be available at a lower overall cost than other snuff or other tobacco products. This is a policy direction I cannot approve.

Concerns have also been raised regarding the confusing definition of "moist snuff" in the bill. Current law does not define snuff, but House File 2548 defines moist snuff as "any finely cut, ground or powdered tobacco intended to be placed in the oral cavity, except dry snuff". The definition of moist snuff introduces the term "dry snuff" which is unused and undefined elsewhere in the Iowa Code, in federal law or in House File 2548 itself.

Finally, the method of taxation described in the bill creates differing treatment of products, with no apparent rational basis. Under current law in Iowa, cigarettes are taxed in the same manner, regardless of the type of cigarette. Similarly, under federal law smokeless tobacco products, including snuff, are taxed in the same manner in that a flat rate of tax is imposed on a per unit basis. Under current Iowa law, all snuff products are taxed on the same basis, a percentage of cost. However, under House File 2548, a distinction is made between moist and dry snuff so that the two products are taxed in a different manner, creating unnecessary work for both retailers and for the Department of Revenue and Finance in determining the appropriate amount of tax to be paid and collected.

For the above reasons, I hereby respectfully disapprove House File 2548.

Sincerely,

Thomas J. Vilsack
Governor

TJV:jmc

cc: Secretary of the Senate
   Chief Clerk of the House

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Last update: MON May 22 2000
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