Board OKs hiring of three to monitor cigarette tax

CARSON CITY -- The Department of Taxation was authorized Tuesday to hire three investigators to ensure small tobacco companies are paying 2 cents per cigarette to the state.

Taxation Director William Chisel told the state Board of Examiners that the employees must make sure that the funds are being received, or the state could lose a portion of the $40 million a year paid by all tobacco companies as part of a nationwide settlement.

In 1998, the four major tobacco companies, which account for 97 percent of the sales, agreed to pay 46 states, including Nevada, a combined $206 billion over 25 years. The money was to cover 17 percent of state costs of paying for treatment of tobacco illnesses suffered by Medicaid patients.

Subsequent to that agreement, 41 other tobacco companies signed on as participants. But companies that produce brands such as Union, US-one, Decade, Cheyenne, Pulse, Smokin Joes, Exact, Market and Sandia are not participating in the settlement agreement but are required to pay the 2-cent tax to the state.

These are the companies that the Taxation Department will monitor, Chisel said. But he said there is no evidence that the small tobacco companies are cheating the state out of any tax money.

No representatives of the small companies showed up for the Board of Examiners meeting.

Chisel said the major tobacco companies have filed litigation that charges states are not taking steps to "diligently enforce" the 2-cent tax on the small companies. An arbitration hearing on the lawsuit will be conducted in February. After that hearing, additional arbitration hearings will be conducted in the states.

"We are doing some monitoring now," he said. "With the additional staff, we will do more oversight."

Gov. Brian Sandoval, chairman of the Board of Examiners, and other members voted to hire the staff, but he complained that funds should come from the master settlement agreement, not from the general fund.

Chisel agreed but said the Legislature adjourned in June before the need to hire the employees became apparent. He said the Taxation Department receives none of the $40 million master settlement funds.

About $98,000 of the money for the three new employees -- a taxation examiner, a audit investigator and an information technology professional -- will be paid by existing Taxation Department funds. With the state appropriation, the total costs will be the unit will be $357,855.

That will cover the investigators' pay through June 30, 2013.

Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901.