C.S.H.B. 3141 78(R)    BILL ANALYSIS

C.S.H.B. 3141
By: Wilson
Ways & Means
Committee Report (Substituted)


In 1997, Texas, along with four other states, agreed to individual state
tobacco settlements.  By 1998 the remaining states had joined into a
Master Settlement Agreement (MSA) that calculated the tobacco settlement
payments to the states. These payments were based on the total nationwide
sales by cigarette manufacturers that are parties to the agreement.
However, sales by manufacturers that are not parties to the agreement, or
nonparticipating manufacturers (NPM), do not result in payments to the

Since 1998 the 46 MSA states have required those NPM's that refused to
sign the MSA to instead escrow funds that could be used to satisfy the
judgments that might be entered against them in lawsuits brought by the

Some NPM's attempt to evade making these escrow payments by using the four
non-escrow states, Mississippi, Florida, Minnesota & Texas as a first
point of shipment.  They will then ship the product to other states and as
they do not make escrow payments, they are able to sell the product at a
substantially lower price.  Companies that comply with the state
requirements often have reduced sales due to these illegal practices.
This in turn costs the State of Texas settlement money. 

C.S.H.B. 3141 would require companies that pass tobacco products through
Texas for sale in another state to have a state tax stamp on those
products.  It allows a distributor in this state to transfer to that
distributor's location in another state or to an affiliated entity. It
will also require companies to submit reports to the attorney general
identifying the shipments of products and the destinations of the product. 


It is the committee's opinion that this bill does not expressly grant any
additional rulemaking authority to a state officer, department, agency, or


Amends Section 154.152, Tax Code, by requiring state cigarette tax stamps
to be affixed to cigarettes being shipped from Texas to other states for
sales.  It would require companies selling cigarettes to fully comply with
all state laws and tax requirements prior to affixing a tax stamp on the
products for sale. It allows a distributor in this state to transfer to
that distributor's location in another state or to an affiliated entity.
It also requires companies to provide to the Attorney General quarterly
reports of products that are transported to other states for sale.   


Immediate if the bill receives two-thirds vote in both houses.  If not,
effective date is September 1, 2003.  


C.S.H.B. 3141 differs from the original bill by adding language in
Subsection (c) that nothing in this section shall prohibit a distributor
from transporting from this state cigarettes to the distributor's location
in another state or to the distributor's affiliated entity located in
another state without first  affixing stamps to the cigarettes.   

Adds new subsection (d) to define "affiliated entity" which tracks the
language from the sales tax intercorporate services exemption found in
Sec. 151.346, Tax Code, as defined under 26 U.S.C. Section 1504, Internal
Revenue Code.    

Subsections (d) and (e) in HB 3141 as filed become new subsections (e) and
(f) respectively.