South Carolina General Assembly
117th Session, 2007-2008

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Bill 3567

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COMMITTEE REPORT

April 18, 2007

H. 3567

Introduced by Reps. Rice, Gullick, Cotty and Agnew

S. Printed 4/18/07--H.

Read the first time February 21, 2007.

            

THE COMMITTEE ON WAYS AND MEANS

To whom was referred a Bill (H. 3567) to amend Section 12-21-620, Code of Laws of South Carolina, 1976, relating to taxation on cigarettes, so as to increase the amount of tax, etc., respectfully

REPORT:

That they have duly and carefully considered the same and recommend that the same do pass with amendment:

Amend the bill, as and if amended, by striking all after the enacting words and inserting:

/    SECTION    1.    Article 5, Chapter 21, Title 12 of the 1976 Code is amended by adding:

"Section 12-21-625.    (A)    There is imposed a surtax on cigarettes subject to the tax imposed pursuant to Section 12-21-620(1) in an amount equal to 1.5 cents on each cigarette.

(B)    Notwithstanding another provision of law providing for the crediting of the revenues by license or other taxes, the revenue of the surtax imposed by this section must be credited to the funds or allocated to the agencies in subsection (C) and used only for the purposes prescribed in subsection (C).

(C)(1)(a)    There is created in the State Treasury the Health Care Trust Fund that is separate and distinct from the general fund of the State and all other funds. Revenue must be expended to expand coverage under the state Medicaid program to children eighteen years of age and under whose family income does not exceed one hundred percent of the federal poverty level, up to, but not more than, the expenditure of seventy million dollars. Revenue remaining from the funds expended for that purpose, or seventy million dollars, whichever is less, must be credited to the Health Care Trust Fund and used by the Department of Health and Human Services as the state match for federal Medicaid funding to provide Medicaid coverage to individuals nineteen years of age and older who are uninsured and whose family income does not exceed one hundred percent of the federal poverty level.

(b)    Monies in the fund are supplementary and may not be used to replace recurring monies appropriated from the general fund of the State or from other funds for the support of the Medicaid program. This fund is exempt from reductions imposed by law as a result of general fund shortfalls. Earnings on fund revenues must be credited to the fund and used for the same purposes. Revenue in the fund not expended during a fiscal year are carried forward to the succeeding fiscal year and must be used for the same purposes.

(c)    Annually, the department shall revise the benefits offered pursuant to subsection (C)(1) so that no more funds are expended for this Medicaid coverage than are available in the Health Care Trust Fund.

(d)    The department shall apply for any waivers necessary for the implementation of this section.

(C)(2)    There is established a reserve fund for the state Medicaid program within the Department of Health and Human Services. The reserve fund derives from the department's existing reserves on hand, ongoing previous-year program refunds, and unobligated proceeds from the taxation on cigarettes. This reserve may not exceed a cap of one and one-half percent of agency appropriations for all funds as defined annually by the Office of State Budget. The reserve fund may be assessed only for unanticipated shortfalls occurring within the Department of Health and Human Service's annual operating budget. The reserve fund may not be used for new initiatives or program expansions. Requests for withdrawal from the fund must be certified by the Office of State Budget as representing operating shortfalls not generated from program expansions. Each request for withdrawal must be approved in advance by the Budget and Control Board. The reserve fund is a restricted account under the direction of the State Treasurer's Office with interest accruing to the fund. Interest earnings, previous-year program refunds, and unobligated proceeds from the taxation on cigarettes must accrue to the state general fund for use for nonrecurring capital projects when the reserve fund reaches the one and one-half percent cap limit.

(C)(3)(a)    There is created in the state treasury, separate and distinct from the general fund of the State, the Youth Smoking Prevention and Cessation Fund. Five percent of the revenue generated by the tax imposed pursuant to this section must be credited to the Youth Smoking Prevention and Cessation Fund and monies in the fund must be used by the Department of Health and Environmental Control in accordance with the Centers for Disease Control recommended comprehensive programs using best practices for youth smoking prevention and cessation programs.

(b)    There is allocated to the Department of Health and Environmental Control Superb Fund one cent of the surtax imposed on each pack of cigarettes pursuant to this section to be used only for the purpose of satisfying any existing Environmental Protection Agency deficiency. After satisfaction of that deficiency, this one-cent amount must be deposited in the Reserve Trust Fund with the Department of Health and Human Services as provided in (C)(2).

(C)(4)    One million dollars of the revenue generated by the surtax imposed pursuant to this section must be credited to the Department of Agriculture for research and promotion of healthy lifestyles with food grown in this State.

(D)    For all purposes of reporting, payment, collection, and enforcement, the surtax imposed by this section is deemed to be imposed pursuant to Section 12-21-620."

SECTION    2.    Section 12-36-910(D) of the 1976 Code, as added by Act 388 of 2006, is amended to read:

"(D)(1)    Notwithstanding the rate of the tax imposed pursuant to subsection (A) of this section or the rate of any other sales tax imposed pursuant to this chapter and the rate of any use tax imposed pursuant to this chapter, the sales and use tax on the gross proceeds of sales or sales price of unprepared food which lawfully may be purchased with United States Department of Agriculture food coupons is three one and one-half percent.

(2)    There is transferred from the general fund of the State to the EIA Fund in fiscal year 2007-2008 the revenue estimated by the Board of Economic Advisors to equal EIA revenue not received as a result of the two three and one-half percent sales tax differential provided pursuant to this subsection (D)(1).

(3)    Notwithstanding the rate of the tax imposed pursuant to subsection (D)(1), the sales and use tax on the gross proceeds of sales or sales price of unprepared food which lawfully may be purchased with United States Department of Agriculture food coupons is reduced to one and one-half percent effective January 1, 2008. There is transferred from the general fund of the State to the EIA Fund the revenue estimated by the Board of Economic Advisors to equal EIA revenue not received as a result of the loss of this sales tax revenue."

SECTION    4.    Article 2, Chapter 6, title 44 of the 1976 Code is amended by adding:

"Section 44-6-157.    (A)    The Department of Health and Human Services shall expand coverage under the state Medicaid program to children eighteen years of age and under whose family income does not exceed one hundred percent of the federal poverty level.

(B)    Revenue generated pursuant to Section 12-21-625 must be expended to fund the Medicaid coverage provided for in subsection (A), and the remaining funds must be credited to the Health Care Trust Fund created pursuant to Section 12-21-625(C)(1).

(C)    Revenue remaining from the funds expended pursuant to subsection (B) must be credited to the Health Care Trust Fund and used by the Department of Health and Human Services as the state match for federal Medicaid funding to provide Medicaid coverage to individuals nineteen years of age and older who are uninsured and whose family income does not exceed one hundred percent of the federal poverty level. Annually, the department shall revise the benefits offered pursuant to this subsection so no more funds are expended for this Medicaid coverage than are available in the Health Care Trust Fund.

(D)    The department shall apply for any waivers necessary for the implementation of this section."

SECTION    5.A.    Section 12-21-90 of the 1976 Code is amended to read:

"Section 12-21-90.    In case any goods, wares or merchandise If cigarettes upon which business or soft drinks license stamps or soft drinks license crowns cigarette tax stamps have been placed or have been sold and shipped to a regular dealer in such articles cigarettes in another state, the seller in this State shall be is entitled to a refund of the actual amount of the tax paid upon condition that if the seller in this State shall make makes an affidavit that the goods were so sold and shipped and that if he shall furnish furnishes from the purchaser a written acknowledgment that he the purchaser has received such the goods and the amount of stamps or crowns thereon on it, together with the name and address of the purchaser. Upon receipt of such the affidavit and acknowledgment the department shall issue to the seller in this State its warrant or order upon the State Treasurer for the amount thereof of the refund, which warrant or order shall must be paid by the State Treasurer or, in the case of soft drink license stamps or crowns, such stamps or crowns of sufficient value to cover the refund."

B.    The first undesignated paragraph of Section 12-21-660 of the 1976 Code is amended to read:

"Section 12-21-660.    Every A person who is engaged in the business of purchasing, selling, or distributing cigars, cheroots, stogies, cigarettes, snuff or smoking or chewing tobacco at wholesale tobacco products and is required to remit the tax via stamps, tax returns, or both, in accordance with this article, or who is engaged in the business of selling or distributing cigarettes or tobacco products at wholesale or through vending machines within the State and all a cigarette, cigar, and tobacco product manufacturers' sales representatives representative who conduct conducts business in this State shall file with the Department of Revenue an application for a license permitting him to engage in such the business. When such the business is conducted at two or more separate places, a separate license for each place of business shall be is required. A person whose business is conducted through vending machines needs to shall obtain only one license but shall maintain an up-to-date list of the location of each vending machine operated under this license and each manufacturers' sales representative needs to must obtain only one license. The provisions of this section shall do not apply to persons who own and stock vending machines for use on their own premises."

C.    Section 12-21-735 of the 1976 Code is amended to read:

"Section 12-21-735.    Each person or distributor of cigarettes taxable under this article, first receiving untaxed cigarettes for sale or distribution in this State, is subject to the tax imposed in Section 12-21-620. Each distributor required to pay the tax shall make a report to the department, in the form the department prescribes, of all cigarettes sold or disposed of in this State, and pay taxes due thereon not later than the twentieth day of the month next succeeding the month of the sale or disposition. However, any person or distributor making shipments of cigarettes to retail locations in and out of this State shall apply to the department for a license which enables them to purchase cigarettes free of tax, and report and pay tax as provided in this section on sales of cigarettes sold to locations in this State.

The department shall require bonds or statements of financial stability satisfactory to the department to cover possible losses resulting from failure to remit taxes due. When the return required by this section is timely filed and the taxes shown to be due are paid by the date specified in this section, the person or distributor may deduct three and one-half percent of the tax due. (A)    A person or distributor of cigarettes taxable pursuant to this article, first receiving untaxed cigarettes for sale or distribution in this State, is subject to the tax imposed in Section 12-21-620.

(B)(1)    The tax imposed on cigarettes is paid by affixing stamps as described in this section. A person or distributor subject to the tax shall affix stamps to each individual package received in the State. In the case of a distributor, including a wholesaler, jobber, and similar business, the individual packages must be stamped within seventy-two hours after the cigarettes are received by them. In the case of a retailer and other persons, the individual packages must be stamped within twenty-four hours after the cigarettes are received by them, except that all individual packages must be stamped before being offered for sale. In the case of cigarettes manufactured within this State and sold directly to consumers, the individual packages must be stamped when and as sold.

(2)    A stamp evidencing the tax must not be of a denomination of less than one cent and if the tax computed at the rate prescribed in this article is a specified amount plus a fractional part of one cent, the package must be stamped for the next full cent.

(3)    The stamps must be purchased from the department and the department must allow a discount of five percent on the entire amount of the purchase if the total purchase is equal to or greater than twenty-five dollars. The discount is not allowed for the purchase of stamps with respect to stamp purchases made by a person as a result of a discovery by the department that the cigarettes were not stamped in a manner as required by this section.

(4)    For purposes of this section , stamps include other tax indicia as approved by the department including, but not limited to, meter impressions.

(5)    For purposes of a penalty imposed for failure properly to affix stamps, each individual package not properly stamped constitutes a separate failure. An illegible tax indicia also constitutes a failure properly to affix a tax stamp.

(C)    A person or distributor subject to the tax shall make a report each month to the department, in the form the department prescribes, of (i) the beginning inventory, purchases, and ending inventory of cigarettes for South Carolina; (ii) the beginning inventory, purchases, and ending inventory of tax stamps for South Carolina purposes; and (iii) other information considered necessary by the department. The person also must pay taxes due on the sale or disposition of cigarettes in South Carolina during the month they were not stamped before sale or disposition during the month. The report and any tax due must be filed with and paid to the department not later than the twentieth day of the month next succeeding the month for which the report is filed.

(D)(1)    A person or distributor making shipments of cigarettes to retail locations in and out of this State shall apply to the department for a license that enables him to purchase cigarettes free of tax, and stamp, report, and pay tax as provided in this section on sales of cigarettes sold to locations in this State.

(2)    Cigarettes maintained in the State and stamped with the tax indicia of another state, or not otherwise stamped, for the purpose of shipping the cigarettes to another state, must be kept in a compartment separate from South Carolina-stamped cigarettes pursuant to guidelines established by the department."

D.    Section 12-21-750 of the 1976 Code is amended to read:

"Section 12-21-750.    All A retail dealers dealer in manufactured tobacco products, shells, cartridges or playing cards purchasing or receiving such the commodities from without the State, whether they shall have been ordered through a wholesaler or jobber in this State, by drop shipment or otherwise, shall, within five days after receipt of them, shall mail a duplicate invoice of all such the purchases or receipts to the department. Failure to furnish duplicate invoices as required shall be is a misdemeanor and, upon conviction, be is punishable by a fine of not more than one hundred dollars for each offense or imprisonment for a period not exceeding thirty days."

E.    Section 12-21-770 of the 1976 Code is amended to read:

"Section 12-21-770.    Every Any person, firm, corporation, club, or association who sells, stores, or receives for the purpose of distribution to any person, firm, corporation, club, or association any shotgun or other shells, cartridges, manufactured tobacco products or playing cards otherwise taxable under pursuant to the provisions of this chapter shall must pay the tax at the rates provided in this article for the sale of such articles those products."

SECTION    6.    This act takes effect January 1, 2008.    /

Renumber sections to conform.

Amend title to conform.

TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING SECTION 12-21-625 SO AS TO IMPOSE AN ADDITIONAL LICENSE TAX ON EACH CIGARETTE SUBJECT TO THE LICENSE TAX ON CIGARETTES IN AN AMOUNT EQUAL TO 1.5 CENTS ON EACH CIGARETTE, TO ESTABLISH THE HEALTH CARE TRUST FUND TO PROVIDE FOR MEDICAID BENEFITS FOR CURRENTLY UNINSURED CHILDREN, TO ESTABLISH A RESERVE TRUST FUND AND PROVIDE FOR ITS EXCESS BALANCE, AND TO PROVIDE THAT A PORTION OF THE REVENUE BE ALLOCATED TO THE DEPARTMENT OF HEALTH AND ENVIRONMENTAL CONTROL, FOR SMOKING CESSATION PROGRAMS AND TO ITS SUPERB FUND TO SATISFY ANY ENVIRONMENTAL PROTECTION AGENCY DEFICIENCY, AND TO THE DEPARTMENT OF AGRICULTURE FOR THE PROMOTION OF HEALTHY FOODS, AND TO PROVIDE FOR A ONE AND ONE-HALF-CENT REDUCTION OF THE STATE SALES AND USE TAX ON THE GROSS PROCEEDS OF THE SALE OR SALES PRICE OF UNPREPARED FOOD, AND TO PROVIDE FOR THE COLLECTION AND ENFORCEMENT OF THIS ADDITIONAL TAX; TO AMEND SECTION 12-36-910, AS AMENDED, RELATING TO THE IMPOSITION OF THE STATE SALES AND USE TAX, SO AS TO PROVIDE FOR A ONE AND ONE-HALF PERCENT SALES AND USE TAX ON THE GROSS PROCEEDS OF THE SALE OR SALES PRICE OF UNPREPARED FOOD; TO ADD SECTION 44-6-157 SO AS TO PROVIDE FURTHER FOR THE EXPANSION OF THE STATE MEDICAID PROGRAM AND THE CREATION OF THE HEALTH CARE TRUST FUND; AND TO AMEND SECTIONS 12-21-90, 12-21-660, 12-21-735, 12-21-750, AND 12-21-770, ALL RELATING TO THE STAMP TAX ON CIGARETTES AND TOBACCO PRODUCTS, SO AS TO PROVIDE FOR THE PROPER AFFIXING OF STAMPS OR OTHER TAX INDICIA TO CIGARETTES, INCLUDING PROVISIONS FOR IN-STATE AND OUT-OF-STATE CIGARETTES AND FOR MONTHLY REPORTS.

Majority favorable.    Minority unfavorable.

DANIEL T. COOPER    KENNETH KENNEDY

For Majority.    For Minority.

            

STATEMENT OF ESTIMATED FISCAL IMPACT

REVENUE IMPACT 1/

This bill, as amended, is expected to increase business license tax revenue by an estimated $53,635,000 in FY2007-08. This bill would also reduce general fund business license tax revenue by an estimated $1,090,750 in FY2007-08. The food tax reduction would reduce general fund revenue by $50,625,000 in FY2007-08 for one-half of the fiscal year. This bill, as amended, also contains an E.I.A. hold harmless provision that would reduce general fund revenue by $23,636,813 in FY2007-08. Additionally, the cigarette stamp tax would increase general fund business license tax revenue by an estimated $1,700,000 in FY2007-08. The food tax reduction would reduce general fund revenue by an estimated $101,250,000 in FY2008-09.

Explanation of Amendment (March 20, 2007) - By the Licenses, Fees, Insurance Tax Subcommittee

This amendment would add Section 12-21-625 to increase the levy on each cigarette made of tobacco or any substitute for tobacco by one and one-half cent on each cigarette. This equates to a 30-cent surcharge on each pack of 20 cigarettes, raising the state excise tax to 37 cents per pack of 20 cigarettes. The higher surcharge is expected to generate an estimated $107,270,000 of business license tax revenue in FY2007-08. Since the effective date of this act is January 1, 2008, the higher surcharge is expected to generate an estimated $53,635,000. The Department of Health and Environmental Control must be allocated five percent, or an estimated $2,681,750 of cigarette tax revenue, to fund a Youth Smoking Prevention and Cessation Fund. DHEC is also allocated an amount equal to one cent of the cigarette tax increase, or an estimated $1,787,500, that must be used in the Superb Fund for the cleanup of underground gasoline tanks to satisfy any existing Environmental Protection Agency deficiencies. Upon satisfaction of the deficiency, the one cent must be returned to the Reserve Trust Fund in the DHHS. The Department of Agriculture is allocated $1,000,000 for research and promotion of healthy lifestyles with food grown in South Carolina. The remaining $48,165,750 is allocated to a new Health Care Trust Fund to be used by the Department of Health and Human Services (DHHS) to expand coverage under the state Medicaid program to children eighteen years of age and under whose family income does not exceed one hundred percent of the federal poverty level. Any remaining funds must be used by the DHHS to provide Medicaid coverage to individuals nineteen years of age and older who are uninsured and whose family income does not exceed one hundred percent of the federal poverty level. There is created within the DHHS a new Reserve Trust Fund for the state Medicaid program to fund any shortfalls in the DHHS operating budget up to one and one-half percent of DHHS's operating budget from any unobligated proceeds from the surcharge on cigarettes. Because the higher tax will reduce cigarette demand, the Business License tax currently allocated to the general fund will be reduced by an estimated $1,090,750 in FY2007-08.

Section 2 of the amendment would amend Section 12-36-910(D) to reduce the sales and use tax on food purchased for home consumption by U.S. Department of Agriculture food coupons from the current rate of three percent to one and one-half of one percent. This would reduce the sales and use tax on grocery store items by an estimated $101,250,000 in FY2007-08. Since the effective date of this provision is January 1, 2008, sales and use tax revenue would be reduced by one-half, or an estimated $50,625,000 in FY2007-08. The amendment contains an EIA hold harmless provision and requires the transfer of an estimated $23,636,813 from the general fund to the EIA Fund in FY2007-08 as a result of the three and one-half percent reduction in the sales tax rate of eligible food items.

Section 5 of the amendment would authorize that cigarette tax stamps be affixed to each package of cigarettes before they may be sold at retail establishments. The stamps must be purchased at the Department of Revenue and the amendment allows for a five percent discount on stamp purchases of $25 or more. Based on an estimated 357,567,000 packs of cigarettes and applying the one-cent stamp tax and the five percent discount for one-half of the fiscal year, this section would increase general fund business license tax revenue by an estimated $1,700,000 in FY2007-08.

Section 6 of the amendment would allow the act to take effect January 1, 2008.

Explanation of Bill filed February 21, 2007

This bill would amend Section 12-21-620 to increase the levy on each cigarette made of tobacco or any substitute for tobacco to two cents on each cigarette. This equates to a 33-cent surcharge on each pack of 20 cigarettes, raising the state excise tax to 40 cents per pack of 20 cigarettes. The higher surcharge is expected to generate an estimated $116,948,000 of business license tax revenue in FY2007-08. Of this amount, an estimated $22,956,606 is allocated to the Department of Health and Human Services (DHHS) to expand coverage under the state Medicaid program to children eighteen years of age and under whose family income does not exceed two hundred percent of the federal poverty level. The remaining funds must be allocated to a new Health Care Trust Fund to be used by the DHHS to provide Medicaid coverage to individuals nineteen years of age and older who are uninsured and whose family income does not exceed one hundred percent of the federal poverty level. Because the higher tax will reduce cigarette demand, the Business License tax currently allocated to the general fund will be reduced by an estimated $2,403,252 in FY2007-08. This bill also reduces the sales and use tax rate on the sales of unprepared food purchased in grocery stores to two percent from July 1, 2007 through June 30, 2008, and to one percent from July 1, 2008 through June 30, 2009, and is eliminated effective July 1, 2009. The reduced rates of sales taxation on eligible food items purchased in grocery stores will reduce sales and use tax revenue by an estimated $73,828,000 in FY2007-08, $80,754,000 in FY2008-09, and $88,181,000 by FY2009-10. This bill also contains an Education Improvement Act (EIA) hold harmless provision. The amount of revenue that the EIA would have received is to be estimated by the BEA and transferred from the general fund to the EIA Fund. We estimated the EIA hold harmless amounts to be $14,800,000 in FY2007-08, $16,200,000 in FY2008-09, and $17,600,000 in FY2009-10.

Approved By:

William C. Gillespie

Board of Economic Advisors

1/ This statement meets the requirement of Section 2-7-71 for a state revenue impact by the BEA, or Section 2-7-76 for a local revenue impact or Section 6-1-85(B) for an estimate of the shift in local property tax incidence by the Office of Economic Research.

A BILL

TO AMEND SECTION 12-21-620, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO TAXATION ON CIGARETTES, SO AS TO INCREASE THE AMOUNT OF TAX ON EACH CIGARETTE FROM THREE AND ONE-HALF MILLS TO TWO CENTS; TO ADD SECTION 44-6-157 SO AS TO PROVIDE THAT THE REVENUE GENERATED FROM THE TAXATION ON CIGARETTES MUST BE USED TO EXPAND MEDICAID COVERAGE TO CHILDREN EIGHTEEN YEARS OF AGE AND YOUNGER WHOSE FAMILY INCOME DOES NOT EXCEED TWO HUNDRED PERCENT OF THE FEDERAL POVERTY LEVEL; AND TO CREATE THE HEALTH CARE TRUST FUND TO PROVIDE MEDICAID BENEFITS TO INDIVIDUALS WHOSE FAMILY INCOME DOES NOT EXCEED ONE HUNDRED PERCENT OF THE FEDERAL POVERTY LEVEL AND WHO ARE UNINSURED AND TO PROVIDE THAT REVENUE IN EXCESS OF THE CHILDREN'S MEDICAID COVERAGE FROM THE CIGARETTE TAX MUST BE CREDITED TO THE HEALTH CARE TRUST FUND; AND TO AMEND SECTION 12-36-910, AS AMENDED, RELATING TO SALES TAXES GENERALLY, SO AS TO PROVIDE THAT AS OF JULY 1, 2009, THE THREE PERCENT SALES TAX IS ELIMINATED ON UNPREPARED FOOD WHICH LAWFULLY MAY BE PURCHASED WITH UNITED STATES DEPARTMENT OF AGRICULTURE FOOD COUPONS, TO PROVIDE FOR CERTAIN GENERAL FUND TRANSFERS TO THE EDUCATION IMPROVEMENT ACT FUND FOR EACH FISCAL YEAR TO OFFSET EIA REVENUES LOST AS A RESULT OF THE LOSS OF SALES TAX ON THE SALE OF UNPREPARED FOOD, AND TO REDUCE THE SALES TAX ON UNPREPARED FOOD TO TWO PERCENT AS OF JULY 1, 2007, AND ONE PERCENT AS OF JULY 1, 2008.

Be it enacted by the General Assembly of the State of South Carolina:

SECTION    1.    Section 12-21-620 of the 1976 Code is amended to read:

"Section 12-21-620.    There shall be levied, assessed, collected, and paid in respect to the articles containing tobacco enumerated in this section the following amounts:

(1)    upon all cigarettes made of tobacco or any substitute for tobacco, three and one-half mills two cents on each cigarette;

(2)    upon all tobacco products, as defined in Section 12-21-800, five percent of the manufacturer's price.

Manufacturer's price as used in this section is the established price at which a manufacturer sells to a wholesaler."

SECTION    2.    Article 2, Chapter 6, Title 44 of the 1976 Code is amended by adding:

"Section 44-6-157.    (A)    The Department of Health and Human Services shall expand coverage under the state Medicaid program to children eighteen years of age and under whose family income does not exceed two hundred percent of the federal poverty level.

(B)    Revenue generated pursuant to Section 12-21-620(1) must be expended to fund the Medicaid coverage provided for in subsection (A), and the remaining funds must be credited to the Health Care Trust Fund created pursuant to subsection (C).

(C)(1)    There is created in the State Treasury the Health Care Trust Fund that is separate and distinct from the general fund of the State and all other funds. Revenue remaining from the funds expended pursuant to subsection (B) must be credited to the Health Care Trust Fund and used by the Department of Health and Human Services as the state match for federal Medicaid funding to provide Medicaid coverage to individuals nineteen years of age and older who are uninsured and whose family income does not exceed one hundred percent of the federal poverty level.

(2)    Monies in the fund are supplementary and may not be used to replace recurring monies appropriated from the general fund of the State or from other funds for the support of the Medicaid program. This fund is exempt from reductions imposed by law as a result of general fund shortfalls. Earnings on fund revenues must be credited to the fund and used for the same purposes. Revenue in the fund not expended during a fiscal year are carried forward to the succeeding fiscal year and must be used for the same purposes.

(3)    Annually, the department shall revise the benefits offered pursuant to subsection (C)(1) so that no more funds are expended for this Medicaid coverage than are available in the Health Care Trust Fund.

(D)    The department shall apply for any waivers necessary for the implementation of this section."

SECTION    3.    Section 12-36-910(D) of the 1976 Code, as added by Act 388 of 2006, is amended to read:

"(D)(1)    Notwithstanding the rate of the tax imposed pursuant to subsection (A) of this section or the rate of any other sales tax imposed pursuant to this chapter and the rate of any use tax imposed pursuant to this chapter, the sales and use tax on the gross proceeds of sales or sales price of unprepared food which lawfully may be purchased with United States Department of Agriculture food coupons is three percent.

(2)    There is transferred from the general fund of the State to the EIA Fund in fiscal year 2006-2007 the revenue estimated by the Board of Economic Advisors to equal EIA revenue not received as a result of the two percent sales tax differential provided pursuant to this subsection subsection (D)(1).

(3)    Notwithstanding the rate of the tax imposed pursuant to subsection (D)(1), the sales and use tax on the gross proceeds of sales or sales price of unprepared food which lawfully may be purchased with United States Department of Agriculture food coupons is eliminated effective July 1, 2009. There is transferred from the general fund of the State to the EIA Fund the revenue estimated by the Board of Economic Advisors to equal EIA revenue not received as a result of the loss of this sales tax revenue."

SECTION    4.    Notwithstanding the rates of tax imposed pursuant to Section 12-36-910 of the 1976 Code, as amended in Section 3 of this act, or any other sales or use tax imposed pursuant to Chapter 36, Title 12, the rate of tax imposed on the gross proceeds of sales or sales price of unprepared food eligible for purchase with United States Department of Agriculture food coupons is two percent from July 1, 2007, through June 30, 2008 and one percent from July 1, 2008 through June 30, 2009.

SECTION    5.    This act takes effect July 1, 2007.

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