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Cigarette Markup Would Nearly Double Under Lawmakers’ Proposal

Tennesseans would pay more for their smokes under a bill working its way through the General Assembly.

The measure, SB788/HB644, would increase the amount Tennessee retailers are required to mark up cigarettes from 8 percent to 15 percent of cost. It would be the first change to the requirement since 1950. 

“The Legislature in the past has passed the cigarette minimum markup law to prohibit retailers from using cigarettes as a loss leader and to discourage consumption of cigarettes, including, of course, underage usage of cigarettes,” state Rep. Matt Hill, R-Jonesborough, said in a House Agriculture Subcommittee meeting Feb. 27.

“Unfortunately, we’ve had some large, out-of-state cigarette manufacturers who have come in and used the minimum price laws by contractually requiring our convenience stores, primarily, and other retailers to sell tobacco products at or near the state minimum.” 

A “loss leader” is a good sold at or below its market cost in order to stimulate the sales of other, more profitable goods.

The bill would provide relief from a situation, created in part by the state, that crimps revenue for tobacco retailers, said Senate sponsor Rusty Crowe, R-Johnson City.

According to Sen. Jack Johnson, R-Franklin, pricing pressure comes from the top down with “quasi-monopolistic” manufacturers compelling retailers into pricing contracts, which push prices down toward the state minimum. Johnson chairs the Senate Commerce and Labor Committee, which passed the bill unanimously Wednesday.

Two companies in the state own 80 percent to 90 percent of the state’s market share of tobacco, according to Emily LeRoy, the executive director of the Tennessee Fuel & Convenience Store Association. Their outsize role contributes to the pressure on operators to either sell cigarettes nearly at a loss or simply not carry those products, LeRoy said.

In the Senate hearing, both Bo Watson, R-Hixson, and Reginald Tate, D-Memphis, questioned why the state was responsible for setting a mark-up rate at all. 

Answer: Protecting children.

Setting the price helps prevent “age-sensitive” products, such as tobacco, alcohol and lottery tickets, from being “among the so-called loss-leader products, Johnson said in the hearing. He added that it is also in the state’s interest to deter smoking.

A 2011 Gallup ranking of smoker-percentages by state put Tennessee at No. 8 in the country. Kentucky was No. 1. Alabama No. 9.

“I don’t know, but I see the poorest people are mostly the ones that smoke, and they’re going to smoke no matter what, and it takes that much out of their family’s budget,” said state Sen. Charlotte Burks, D-Monterey. She ended up voting for the measure.

The bill passed the House agriculture committee on a voice vote, with Rep. Billy Spivey, R-Lewisburg, requesting to be recorded as voting no.

The bill’s next stop is the Finance Committee in both chambers. According to Crowe, the measure will boost local revenue but cause a decrease in state revenue.

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Business and Economy Liberty and Justice News

‘English-on-the-Job’ Bill Advances

Legislation that would allow employers to require that their employees speak English in the workplace passed a House subcommittee on Wednesday, but not without some back-and-forth between the bill’s sponsor and the Tennessee state government’s human rights overseer.

The bill would shield Tennessee businesses from some discrimination lawsuits. It is designed to serve the interests of “business necessity and safe workplace environment,” according to the chief sponsor, Rep. Matthew Hill, R-Jonesborough.

But Tennessee Human Rights Commission Executive Director Beverly Watts initially spoke against the legislation, in part because she said her agency doesn’t have funding to deal with the possible fallout from the bill.

“We believe that it will increase our workload,” she said. “Right now we’re about 2,000 calls above what we were last year. And this bill will also create some language requirements that we cannot necessarily fulfill with our current staff. We have staff (members) that are bilingual in Spanish only, but there are many, many more languages.”

Watts also said training employers about the proposed law would be another additional cost for the agency.

The big snag, however, was Watts’ opposition to the portion of the bill that read, “it shall not be unlawful” for English to be required to be spoken in the workplace. But an employer could only make it a requirement if speaking English is a safety factor or if it is necessary for doing business. “If you read ‘it is not unlawful,’ I might just look at it and decide, ‘I can do this,’ whatever ‘this’ may be, and not look at the controlling parameters,” she said.

“To determine if it is unlawful or not, in my opinion, would require us to do an investigation because (a case) cannot on its face be determined to be discriminatory or non-discriminatory just by viewing it,” Watts said. “There might be some additional factors that need to be looked at.”

“So, when it’s written this way, I think it’s broader than if it is says, ‘it’s allowable,’” Watts continued. “In essence, we want employers to know what they can do.”

Watts’ concerns drew an impatient response from Rep. Hill.

“There was a representative or a member from the Human Rights Commission at every single meeting that we had,” he said. “She still has not talked to me about the legislation directly this year, and, of course, at the last second, she comes and opposes this legislation.”

Subcommittee Chairman Mike McDonald, D-Portland, then suggested Hill and Watts get together to discuss their differences. Hill initially refused.

“We’ve had enough meetings,” Hill said. “I have met with every single person about a half a dozen times now and I’m really tired of being hijacked at the last second on something as important as this piece of legislation.”

“We can play ‘what if’ scenarios all day long with the director’s previous comments,” he continued. “The bottom line is ‘it might do this; it could do that’ and (Fiscal Review Committee Executive Director Jim White) and his fiscal staff said it would not.”

Watts said she had not been in town for the meetings, and she maintained that representatives from the Human Rights Commission who did attend never agreed to the language of the bill.

After Hill and Watts huddled while the subcommittee handled other legislation, Hill agreed to an amendment that changed the words “it shall not be unlawful” to “it shall be an allowable employment practice.”

The bill now heads to the Consumer and Employee Affairs Committee, which meets Wednesday at 8:30 a.m.