HB449 Alabama 2014 Session

Under current law, tobacco manufacturers which are not signatory to the tobacco master settlement agreement are required to deposit funds into escrow to secure payment of potential liability for tobacco related illnesses

This bill would amend Sections 6-12-2, 6-12-3, 6-12A-2, 6-12A-3, and 6-12A-5, Code of Alabama 1975, relating to the tobacco escrow fund provisions and tobacco master settlement complementary legislation, so as to define an importer of tobacco products, to further define "units sold" to include cigarettes sold to certain consumers without payment of the cigarette excise tax and exclusion of certain cigarettes made in certain tax exempt transactions, to make the importer jointly and severally liable with the tobacco products manufacturer of cigarettes for escrow deposit obligations, to provide for seizure and forfeiture of cigarettes for failure to deposit funds into escrow, to require both the nonparticipating manufacturer and importer or importers of cigarettes to appoint agents for service of process, to require the nonparticipating manufacturer to hold a valid permit under 26 U.S.C

§ 5713, to provide for nonparticipating manufacturer bond requirements, and to further provide for disclosure of information

To amend Sections 6-12-2, 6-12-3, 6-12A-2, 6-12A-3, and 6-12A-5, Code of Alabama 1975, relating to the Tobacco Master Settlement and Tobacco Escrow Fund; to define an importer of tobacco products, to further define "unit sold" to include cigarettes sold to certain consumers without payment of the cigarette excise tax and exclusion of certain cigarettes made in certain tax exempt transactions, to make the importer jointly and severally liable with the tobacco products manufacturer of cigarettes for escrow deposit obligation; to provide for seizure and forfeiture of cigarettes for failure to deposit funds into escrow; to require both the nonparticipating manufacturer and importer or importers of cigarettes to appoint agents for service of process; to require the nonparticipating manufacturer to hold a valid permit under 26 U.S.C. § 5713; to provide for nonparticipating manufacturer bond requirements; and to further provide for disclosure of information. BE IT ENACTED BY THE LEGISLATURE OF ALABAMA: Section 1. Sections 6-12-2, 6-12-3, 6-12A-2, 6-12A-3, and 6-12A-5, Code of Alabama 1975, are amended to read as follows: "§6-12-2. "As used in this chapter, the following terms shall have the following meanings: "(1) ADJUSTED FOR INFLATION. Increased in accordance with the formula for inflation adjustment set forth in Exhibit C to the Master Settlement Agreement. "(2) AFFILIATE. A person who directly or indirectly owns or controls, is owned or controlled by, or is under common ownership or control with, another person. Solely for purposes of this definition, the terms "owns," "is owned" and "ownership" mean ownership of an equity interest, or the equivalent thereof, of ten percent or more, and the term "person" means an individual, partnership, committee, association, corporation, or any other organization or group of persons. "(3) ALLOCABLE SHARE. Allocable share as that term is defined in the Master Settlement Agreement. "(4) CIGARETTE. Any product that contains nicotine, is intended to be burned or heated under ordinary conditions of use, and consists of or contains (i) any roll of tobacco wrapped in paper or in any substance not containing tobacco; or (ii) tobacco, in any form, that is functional in the product, which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a cigarette; or (iii) any roll of tobacco wrapped in any substance containing tobacco which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a cigarette described in item (i). The term "cigarette" includes "roll-your-own", i.e. any tobacco which, because of its appearance, type, packaging, or labeling is suitable for use and likely to be offered to, or purchased by, consumers as tobacco for making cigarettes. For purposes of this definition of cigarette, 0.09 ounces of roll-your-own tobacco shall constitute one individual cigarette. "(5) IMPORTER. Any person in the United States to whom non-tax paid tobacco products or cigarette papers or tubes, or any processed tobacco, manufactured in a foreign country, Puerto Rico, the Virgin Islands, or a possession of the United States are shipped or consigned; any person who removes cigars or cigarettes for sale or consumption in the United States from a customs bonded manufacturing warehouse; and any person who smuggles or otherwise unlawfully brings tobacco products or cigarette papers or tubes, or any processed tobacco, into the United States. Federal judicial and administrative determinations and precedents of 26 U.S.C. § 5702(k), as it exists from time to time, may be considered in interpreting this term. "(5)(6) MASTER SETTLEMENT AGREEMENT. The settlement agreement, and related documents, entered into on November 23, 1998, by the state and leading United States tobacco product manufacturers. "(6)(7) QUALIFIED ESCROW FUND. An escrow arrangement with a federally or state chartered financial institution having no affiliation with any tobacco product manufacturer and having assets of at least one billion dollars ($1,000,000,000), where such arrangement requires that such financial institution hold the escrowed funds' principal for the benefit of releasing parties and prohibits the tobacco product manufacturer placing the funds into escrow from using, accessing, or directing the use of the funds' principal except as consistent with subdivision (2) of Section 6-12-3. "(7)(8) RELEASED CLAIMS. Released claims as that term is defined in the Master Settlement Agreement. "(8)(9) RELEASING PARTIES. Releasing parties as that term is defined in the Master Settlement Agreement. "(9)(10) TOBACCO PRODUCT MANUFACTURER. An entity that, after June 9, 1999, directly, and not exclusively through any affiliate: "a. Manufactures cigarettes anywhere that such manufacturer intends to be sold in the United States, including cigarettes intended to be sold in the United States through an importer (except where such importer is an original participating manufacturer, as that term is defined in the Master Settlement Agreement, that will be responsible for the payments under the Master Settlement Agreement with respect to such cigarettes as a result of the provisions of subsections II(mm) of the Master Settlement Agreement and that pays the taxes specified in subsection II(z) of the Master Settlement Agreement, and provided that the manufacturer of such cigarettes does not market or advertise such cigarettes in the United States); "b. Is the first purchaser anywhere for resale in the United States of cigarettes manufactured anywhere that the manufacturer does not intend to be sold in the United States; or "c. Becomes a successor of an entity described in paragraph a. or b. "The term "Tobacco Product Manufacturer" shall not include an affiliate of a tobacco product manufacturer unless such affiliate itself falls within any of a., b., or c. above. "(10)(11) UNITS SOLD. The number of individual cigarettes sold in the state by the applicable tobacco product manufacturer, whether directly or through a distributor, retailer, or similar intermediary or intermediaries, during the year in question, as measured by excise taxes collected by the state on packs, or roll-your-own tobacco containers, bearing the excise tax stamp of the state. In addition to, and without limiting the foregoing, the term "units sold" shall also include the number of individual cigarettes sold in the state by the tobacco product manufacturer, whether directly or through a distributor, retailer, or similar intermediary or intermediaries, during the year in question, as to which the state had power to, but did not, impose and/or collect excise tax. This term specifically includes cigarettes which were not sold in a transaction that is exempted from Alabama taxation by federal statute or constitution but which are: a. cigarettes sold to a consumer without payment of the cigarette excise tax on the reservation lands of a federally recognized Native American tribe; b. cigarettes sold for retail sale in Alabama which were exempted from taxation pursuant to Chapter 9, Article 1 of Title 40 and/or any rule or regulation promulgated pursuant thereto; and c. cigarettes sold by a seller located outside of Alabama directly to a consumer in this state, without payment of the cigarette excise tax, via mail order, telephone, Internet, or other remote means. The Department of Revenue shall may promulgate such regulations as are necessary to ascertain the amount of state excise tax paid on the cigarettes of such tobacco product manufacturer for each year. "§6-12-3. "(a) Any tobacco product manufacturer selling cigarettes to consumers within the state, whether directly or through a distributor, retailer, or similar intermediary or intermediaries, after June 9, 1999, shall do one of the following: "(1) Become a participating manufacturer, as that term is defined in Section II(jj) of the Master Settlement Agreement, and generally perform its financial obligations under the Master Settlement Agreement; or "(2) a. Place into a qualified escrow fund, by April 15 of the year following the year in question, the following amounts, as such amounts are adjusted for inflation: "1999: $.0094241 per unit sold after June 9, 1999; "2000: $.0104712 per unit sold; "For each of 2001 and 2002: $.0136125 per unit sold; "For each of 2003 through 2006: $.0167539 per unit sold; "For each of 2007 and each year thereafter: $.0188482 per unit sold. "b. A tobacco product manufacturer that places funds into escrow pursuant to paragraph a. shall receive the interest or other appreciation on such funds as earned. Such funds themselves shall be released from escrow only under one of the following circumstances: "1. To pay a judgment or settlement on any released claim brought against such tobacco product manufacturer by the state or any releasing party located or residing in the state. Funds shall be released from escrow under this subparagraph (i) in the order in which they were placed into escrow and (ii) only to the extent and at the time necessary to make payments required under such judgment or settlement; "2. To the extent that a tobacco product manufacturer establishes that the amount it was required to place into escrow on account of units sold in the state in a particular year was greater than the Master Settlement Agreement payments, as determined pursuant to Section IX(i) of that agreement, including, after final determination of all adjustments, that such manufacturer would have been required to make on account of such units sold had it been a participating manufacturer, the excess shall be released from escrow and revert back to such tobacco product manufacturer; or "3. To the extent not released from escrow under subparagraphs 1. or 2., funds shall be released from escrow and revert back to such tobacco product manufacturer 25 years after the date on which they were placed into escrow. "c. Each tobacco product manufacturer that elects to place funds into escrow pursuant to this section shall annually certify to the Commissioner of the Department of Revenue that it is in compliance with this section. The Attorney General may bring a civil action on behalf of the state against any tobacco product manufacturer that fails to place into escrow the funds required under this section. Any tobacco product manufacturer that fails in any year to place into escrow the funds required under this section shall: "1. Be required within 15 days to place such funds into escrow as shall bring it into compliance with this section. The court, upon a finding of a violation of this section, may impose a civil penalty to be paid to the General Fund of the state in an amount not to exceed 5 percent of the amount improperly withheld from escrow per day of the violation and in a total amount not to exceed 100 percent of the original amount improperly withheld from escrow; "2. In the case of a knowing violation, be required within 15 days to place such funds into escrow as shall bring it into compliance with this section. The court, upon a finding of a knowing violation of this section, may impose a civil penalty to be paid to the General Fund of the state in an amount not to exceed 15 percent of the amount improperly withheld from escrow per day of the violation and in a total amount not to exceed 300 percent of the original amount improperly withheld from escrow; and "3. In the case of a second knowing violation, be prohibited from selling cigarettes to consumers within the state, whether directly or through a distributor, retailer, or similar intermediary, for a period not to exceed 2 years. "Each failure to make an annual deposit required under this section shall constitute a separate violation. "(b) In the case of units sold which are cigarettes manufactured outside the United States and imported into the United States by an importer: "(1) Importers of the cigarettes shall be jointly and severally liable with the tobacco product manufacturer of the cigarettes for the escrow deposits required under subsection (a)(2). "(2) Importers of the cigarettes may be sued under subsection (a)(2)c. to the same extent as the tobacco product manufacturer, and shall be subject to all of the same civil penalties, remedies, or other relief that may be awarded against the tobacco product manufacturer of the cigarettes as provided in that subsection. "(3) If the importer of the cigarettes fails or refuses within 15 days of the Revenue Commissioner's or the Attorney General's written demand to deposit the funds into escrow for which it is jointly and severally liable under subsection (b)(1), all cigarettes imported into the United States by the importer shall constitute contraband in the State of Alabama as provided in Section 6-12A-6(b) and shall be subject to seizure and forfeiture as provided under that section. "§6-12A-2. "For the purposes of this chapter, unless otherwise indicated, the following terms shall have the meanings respectively ascribed to them by this section: "(1) BRAND FAMILY. All styles of cigarettes sold under the same trade mark and differentiated from one another by means of additional modifiers or descriptors, including, but not limited to, menthol, lights, kings, and 100s and includes any brand name (alone or in conjunction with any other word) trademark, logo, symbol, motto, selling message, recognizable pattern of colors, or any other indicia of product identification identical or similar to, or identifiable with, a previously known brand of cigarettes. "(2) CIGARETTE. As defined under subdivision (4) of Section 6-12-2. "(3) COMMISSIONER. The Commissioner for the Department of Revenue for the State of Alabama. "(4) DISTRIBUTOR. A person, wherever resident or located, who purchases non-tax-paid cigarettes and stores, sells, or otherwise disposes of the cigarettes. "(5) IMPORTER. As defined in subdivision (5) of Section 6-12-2. "(5)(6) MASTER SETTLEMENT AGREEMENT. The tobacco Master Settlement Agreement as defined under subdivision (5) of Section 6-12-2. "(6)(7) NON-PARTICIPATING MANUFACTURER. Any tobacco product manufacturer that is not a participating manufacturer. "(7)(8) PARTICIPATING MANUFACTURER. As defined in Section II(jj) of the Master Settlement Agreement, and all amendments thereto. "(8)(9) QUALIFIED ESCROW FUND. As defined in subdivision (6) of Section 6-12-2. "(9)(10) TOBACCO PRODUCT MANUFACTURER. As defined in subdivision (9) of Section 6-12-2. "(10)(11) UNITS SOLD. As defined in subdivision (10) of Section 6-12-2. "(11)(12) WHOLESALER. A person, firm, corporation, club, or association that is authorized to affix tax stamps to packages or other containers of cigarettes under Chapter 25 of Title 40. "§6-12A-3. "(a) Certification. Every tobacco product manufacturer whose cigarettes are sold in this state whether directly or through a distributor, retailer, or similar intermediary or intermediaries shall execute and deliver on a form prescribed by the commissioner, a certification to the commissioner no later than the thirtieth day of April each year, certifying that, as of the date of the certification, the tobacco product manufacturer either: Is a participating manufacturer or is in full compliance with Section 6-12-3, including all quarterly installment payments required by subsection (e) of Section 6-12A-5. "(1) Each participating manufacturer shall include in its certification a list of its brand families. The participating manufacturer shall update its list 30 days prior to any addition or modification to its brand families by executing and delivering a supplemental certification to the commissioner. "(2) Each non-participating manufacturer shall include in its certification: "a. A complete list of all of its brand families. "b. A separate listing containing the names of the brand families of cigarettes and the number of units sold for each brand family in the state during the preceding calendar year. "c. A separate listing containing the names of its brand families that have been sold in the state at any time during the current calendar year. "d. An indication by an asterisk of the names of any brand family sold in the state during the preceding calendar year that are no longer being sold in the state as of the date of the certification. "e. An identification by name and address of any other manufacturer of any of the listed brand families in the preceding or current calendar year. "f. In the case of cigarettes, brands, or brand families imported into the United States by one or more importers, an identification by name and address of any and all importers of the cigarettes. "Each non-participating manufacturer shall update its list at least 30 days prior to any addition or modification to its list of brand families by executing and delivering a supplemental certification to the commissioner. "(3) Additionally, each non-participating manufacturer shall further certify in its certification: "a. That it is both the nonparticipating manufacturer, and, if applicable, the importer of the cigarettes, are registered to do business in the state or has appointed an agent for service of process and provided notice thereof as required by Section 6-12A-4. "b. That it has: "1. Established and continues to maintain a qualified escrow fund. "2. Executed a qualified escrow agreement that has been reviewed and approved by the commissioner and that governs the qualified escrow fund. "c. That it is in full compliance with Section 6-12-3 and this chapter, and any regulations promulgated pursuant thereto. "d.1. The name, address, and telephone number of the financial institution where it has established the qualified escrow fund required pursuant to Section 6-12-3 and all regulations promulgated thereto. "2. The account number of the qualified escrow fund and any sub-account number for the State of Alabama. "3. The amount the non-participating manufacturer placed in the qualified escrow fund for cigarettes sold in the state during the preceding calendar year, the date and amount of each deposit, and any evidence or verification as may be deemed necessary by the commissioner to confirm the foregoing. "4. The amount and date of any withdrawal or transfer of funds the non-participating manufacturer made at any time from the qualified escrow fund or from any other qualified escrow fund into which escrow payments were ever made pursuant to Section 6-12-3 and all regulations promulgated thereto. "5. That it, and if applicable, the importer of the cigarettes, holds a current and valid permit under 26 U.S.C. § 5713. "(4) A participating manufacturer may not include a brand family in its certification unless it affirms that the brand family is to be deemed to be its cigarettes for purposes of calculating its payments under the Master Settlement Agreement for the relevant year, in the volume and shares determined pursuant to the Master Settlement Agreement. "(5) A non-participating manufacturer may not include a brand family in its certification unless it affirms that the brand family is to be deemed to