By: Otto H.B. No. 3536

A BILL TO BE ENTITLED

AN ACT

relating to the imposition of a fee on the sale of cigarettes and cigarette tobacco products manufactured by certain companies; providing penalties.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Chapter 161, Health and Safety Code, is amended by adding Subchapter V to read as follows:

SUBCHAPTER V. FEE ON CIGARETTES AND CIGARETTE TOBACCO PRODUCTS

MANUFACTURED BY CERTAIN COMPANIES

Sec. 161.601. PURPOSE. The purpose of this subchapter is to:

(1) recover health care costs to the state imposed by non-settling manufacturers;

(2) prevent non-settling manufacturers from undermining this state's policy of reducing underage smoking by offering cigarettes and cigarette tobacco products at prices that are substantially below the prices of cigarettes and cigarette tobacco products of other manufacturers;

(3) protect the tobacco settlement agreement and funding, which has been reduced because of the growth of sales of non-settling manufacturer cigarettes and cigarette tobacco products, for programs that are funded wholly or partly by payments to this state under the tobacco settlement agreement and recoup for this state settlement payment revenue lost because of sales of non-settling manufacturer cigarettes and cigarette tobacco products;

(4) ensure evenhanded treatment of manufacturers and further protect the tobacco settlement agreement and funding by imposing a partial payment obligation on cigarettes and cigarette tobacco products of non-settling manufacturers that already make payments on Texas sales under the Master Settlement Agreement until an amendment to that agreement that will provide those manufacturers with a credit for payments to Texas, as defined herein, is effective; and

(5) provide funding for any purpose the legislature determines.

Sec. 161.602. DEFINITIONS. In this subchapter:

(1) "Monthly fee" or "fee" means the fee imposed on a distributor pursuant to Section 161.605, based on the non-settling manufacturer cigarettes and cigarette tobacco products required to be included on the distributor's returns under that section, and calculated using the fee rate under Section 161.604.

(2) "Brand family" means each style of cigarettes or cigarette tobacco products sold under the same trademark. The term includes any style of cigarettes or cigarette tobacco products that have a brand name, trademark, logo, symbol, motto, selling message, recognizable pattern of colors, or other indication of product identification that is identical to, similar to, or identifiable with a previously known brand of cigarettes or cigarette tobacco products.

(3) "Cigarette" means any product that contains nicotine and is intended to be burned or heated under ordinary conditions of use, and consists of or contains:

(A) a roll of tobacco wrapped in paper or another substance that does not contain tobacco;

(B) tobacco, in any form, that is functional in a product that, because of the product's appearance, the type of tobacco used in the filler, or the product's packaging and labeling, is likely to be offered to or purchased by a consumer as a cigarette; or

(C) a roll of tobacco wrapped in any substance containing tobacco that, because of the product's appearance, the type of tobacco used in the filler, or the product's packaging and labeling, is likely to be offered to or purchased by a consumer as a cigarette.

(4) "Cigarette tobacco product" means roll-your-own tobacco or tobacco that, because of the tobacco's appearance, type, packaging, or labeling, is suitable for use in making cigarettes and is likely to be offered to or purchased by a consumer for that purpose.

(5) "Credit amendment" means an amendment to the master settlement agreement that offers a credit to subsequent participating manufacturers for fees paid under this act with respect to their products in a form agreed upon by (1) Settling States (as defined in the master settlement agreement) with aggregate Allocable Shares (as defined in the master settlement agreement) equal to at least 99.937049%; (2) the original participating manufacturers (as defined in the master settlement agreement); and (3) subsequent participating manufacturers whose aggregate market share, expressed as a percentage, of the total number of individual cigarettes sold in the fifty United States, the District of Columbia, and Puerto Rico during the calendar year at issue, as measured by excise taxes collected by the federal government, and, in the case of cigarettes sold in Puerto Rico, by arbitrios de cigarillos collected by the Puerto Rico taxing authority, is greater than 2.5 percent. For purposes of calculation of subsequent participating manufacturer market share under this act, 0.09 ounces of "roll your own" tobacco shall constitute one cigarette.

(6) "Distributor" has the meaning assigned by Section 154.001 or 155.001, Tax Code, as appropriate.

(7) "Manufacturer" means a person that manufactures, fabricates, or assembles cigarettes or cigarette tobacco products, or causes or arranges for the manufacture, fabrication or assembly of cigarettes or cigarette tobacco products, for sale or distribution. For purposes of this subchapter, the term includes a person that is the first importer into the United States of cigarettes or cigarette tobacco products manufactured, fabricated, or assembled outside the United States.

(8) "Master settlement agreement" means the settlement agreement entered into on November 23, 1998 by 46 states and leading United States tobacco manufacturers, as amended to date;

(9) "Non-settling manufacturer" means a manufacturer of cigarettes or cigarette tobacco products that did not sign a tobacco settlement agreement as described in section 161.602(14).

(10) "Non-settling manufacturer cigarettes" means cigarettes of a non-settling manufacturer.

(11) "Non-settling manufacturer cigarette tobacco products" means cigarette tobacco products of a non-settling manufacturer.

(12) "Settling manufacturer" means a manufacturer of cigarettes or cigarette tobacco products that signed a tobacco settlement agreement as described in Section 161.602(14).

(13) "Subsequent participating manufacturer" shall have the same meaning as provided for that term in the master settlement agreement, except such term shall exclude any settling manufacturer under the tobacco settlement agreement described in section 161.602(14)(B). Provided that a manufacturer shall not be treated as a subsequent participating manufacturer for purposes of section 161.604(c) unless it has provided to the comptroller notice and proof, in such form and manner as the comptroller may prescribe, that it is a subsequent participating manufacturer.

(14) "Tobacco settlement agreement" means either (A) the Comprehensive Settlement Agreement and Release filed on January 16,1998, in the United States District Court, Eastern District of Texas, in the case styled The State of Texas v. The American Tobacco Co., et al., No. 5-96CV-91, and all subsequent amendments; or (B) the settlement agreement entered into on March 20, 1997 with respect to the matter described in paragraph (A), but only as to companies that signed such agreement on that date.

Sec. 161.603. FEE IMPOSED. (a) A fee is imposed on the sale, use, consumption, or distribution in this state of:

(1) non-settling manufacturer cigarettes if a stamp is required to be affixed to a package of those cigarettes under Section 154.041, Tax Code;

(2) non-settling manufacturer cigarettes that are sold, purchased, or distributed in this state but that are not required to have a stamp affixed to a package of those cigarettes under Chapter 154, Tax Code;

(3) non-settling manufacturer cigarette tobacco products that are subject to the tax imposed by Section 155.0211, Tax Code; and

(4) non-settling manufacturer cigarette tobacco products that are sold, purchased, or distributed in this state but that are not subject to the tax imposed by Section 155.0211, Tax Code.

(b) The fee imposed by this section does not apply to cigarettes or cigarette tobacco products that a settling manufacturer claims as its own, and that are included in computing payments to be made by such settling manufacturer, under the tobacco settlement agreement described in section 161.602(14)(A).

(c) The fee imposed by this subchapter does not apply to cigarettes or cigarette tobacco products that are sold into another state for resale to consumers outside of this state, provided that the sale is reported to the state into which the cigarettes are sold pursuant to 15 U.S.C. section 376.

(d) The fee imposed by this subchapter is in addition to any other privilege, license, fee, or tax required or imposed by state law.

(e) Except as otherwise provided by this subchapter, the fee imposed by this subchapter is imposed, collected, paid, administered, and enforced in the same manner as the taxes imposed by Chapters 154 and 155, Tax Code, as appropriate.

(f) The fee imposed by this subchapter shall be collected only once as to each cigarette or cigarette tobacco product on which it is due.

Sec. 161.604. RATE OF FEE. (a) For cigarettes or tobacco products sold, used, consumed, or distributed in this state, as provided in section 161.603, during the calendar year 2013, the fee is imposed at the rate of 2.75 cents for:

(1) each non-settling manufacturer cigarette; and

(2) each 0.09 ounce of non-settling manufacturer cigarette tobacco product.

(b) Beginning in January 2014, and in January of each subsequent year, the comptroller shall compute the rate of the fee applicable during that calendar year by increasing the rate for the preceding calendar year by the greater of:

(1) three percent; or

(2) the actual total percent -change in the Consumer Price Index for All Urban Consumers, as published by the Bureau of Labor Statistics of the United States Department of Labor, during such preceding calendar year (calculated by comparing the CPI for December of such preceding calendar year with the CPI for December a year earlier).

(c) Notwithstanding Section 601.604(a), the rate of the fee on the cigarettes and cigarette tobacco products of subsequent participating manufacturers shall, for calendar months beginning prior to the effective date of a credit amendment, be calculated under subsections (a) and (b) of this section by substituting 0.75 cents for 2.75 cents in subsection (a) of this section. For calendar months beginning on or after the effective date of a credit amendment, the rate of the fee on the cigarettes and cigarette tobacco products of subsequent participating manufacturers shall be the same as the rate that applies for such months to the cigarettes of non-settling manufacturers who are not subsequent participating manufacturers.

Sec. 161.605. RETURN AND PAYMENT OF MONTHLY FEE. (a) A distributor required to file a report under Section 154.210 or 155.111, Tax Code, shall, along with the report required by those sections, make a return which includes, as appropriate:

(1) the number and denominations of stamps affixed to individual packages of non-settling manufacturer cigarettes during the preceding month;

(2) the amount of non-settling manufacturer cigarette tobacco products subject to the tax imposed by Section 155.0211, Tax Code, during the preceding month;

(3) the number of individual packages of non-settling manufacturer cigarettes and the amount of non-settling manufacturer cigarette tobacco products not subject to the tax imposed by Chapter 154, Tax Code, or Section 155.0211, Tax Code, sold or purchased in this state or otherwise distributed in this state for sale in the United States; and

(4) any other information the comptroller considers necessary or appropriate to determine the amount of the monthly fee or to enforce this subchapter.

(b) The information required by subsections (a)(1), (2), and (3) must be itemized for each place of business and by manufacturer and brand family.

(c) The return required under this Section shall include a calculation of the monthly fee, which shall be due and payable by the distributor with the return for that reporting period. To assist distributors in calculating the monthly fee, the comptroller shall publish and maintain on the comptroller's Internet website a current list of the names and brands of the settling manufacturers, non-settling manufacturers that are subsequent participating manufacturers, non-settling manufacturers that are not subsequent participating manufacturers, and the effective date of any credit amendment.

(d) The requirement to make a return under this section shall be enforced in the same manner as the requirement to deliver to or file with the comptroller a report required under Section 154.210 or 155.111, Tax Code, as appropriate.

(e) Information obtained from a return provided under subsection (a) regarding cigarettes or cigarette tobacco products sold, purchased, or otherwise distributed by a non-settling manufacturer may be disclosed by the comptroller to that manufacturer or to the authorized representative of the manufacturer.

Sec. 161.606. REPORT TO ATTORNEY GENERAL BEFORE OFFERING NON-SETTLING MANUFACTURERCIGARETTES OR CIGARETTE TOBACCO PRODUCTS FOR SALE OR DISTRIBUTION IN THIS STATE. (a) If cigarettes or cigarette tobacco products of a non-settling manufacturer were not offered for sale or distribution in this state on September 1, 2013, such non-settling manufacturer shall, before the date the cigarettes or cigarette tobacco products are offered for sale or distribution in this state, provide to the attorney general on a form prescribed by the attorney general:

(1) the non-settling manufacturer's complete name, address, and telephone number;

(2) the date that the non-settling manufacturer will begin offering cigarettes or cigarette tobacco products for sale or distribution in this state;

(3) the names of the brand families of the cigarettes or cigarette tobacco products that the non-settling manufacturer will offer for sale or distribution in this state;

(4) a statement that the non-settling manufacturer intends to comply with this subchapter

(5) the name, address, telephone number, and signature of an officer of the non-settling manufacturer attesting to all of the included information.

(b) The attorney general shall make the information provided under this section available to the comptroller.

Sec. 161.607. PENALTIES FOR NONCOMPLIANCE. Cigarettes and cigarette tobacco products of a non-settling manufacturer that are sold, used, consumed or distributed in this state in violation of this subchapter, including failure to make full payment of the fees imposed by this subchapter, shall be treated as cigarettes or tobacco products for which the tax assessed by Chapter 154 or 155, Tax Code, as appropriate, has not been paid, and the distributor or manufacturer is subject to all penalties imposed by those chapters for violations of those chapters.

Sec. 161.608. APPOINTMENT OF AGENT FOR SERVICE OF PROCESS. A non-settling manufacturer shall appoint and engage a resident agent for service of process.

Sec. 161.609 AUDIT OR INSPECTION. The comptroller or attorney general is entitled to conduct reasonable periodic audits or inspections of the financial records of a non-settling manufacturer and its distributors to ensure compliance with this subchapter.

Sec. 161.610. COMPTROLLER INFORMATION SHARING. Upon request, the comptroller shall report annually to the Independent Auditor, or other entities responsible for making calculations or other determinations under a tobacco settlement agreement or the Master Settlement Agreement, as the Master Settlement Agreement may be hereafter amended or supplemented by some or all of the parties thereto, the volume of cigarettes on which the fee required under Section 161.603 of this subchapter is paid, itemized by cigarette manufacturer and brand family.

Sec. 161.611. REVENUE DEPOSITED IN GENERAL REVENUE FUND. The revenue from the fees imposed by this subchapter shall be deposited in the state treasury to the credit of the general revenue fund.

Sec. 161.612. APPLICATION OF SUBCHAPTER. This subchapter applies without regard to Section 154.022, Tax Code, or any other law that might be read to create an exemption for interstate sales.

SECTION 2. (a) Not later than September 30, 2013, a non-settling manufacturer, as that term is defined by Section 161.602, Health and Safety Code, as added by this Act, that is offering cigarettes or cigarette tobacco products for sale or distribution in this state on September 1, 2013, shall provide to the attorney general on a form prescribed by the attorney general:

(1) the non-settling manufacturer's complete name, address, and telephone number;

(2) the date that the non-settling manufacturer began offering cigarettes or cigarette tobacco products for sale or distribution in this state;

(3) the names of the brand families of the cigarettes or cigarette tobacco products that the non-settling manufacturer offers for sale or distribution in this state;

(4) a statement that the non-settling manufacturer intends to comply with Subchapter V, Chapter 161, Health and Safety Code, as added by this Act; and

(5) the name, address, telephone number, and signature of an officer of the non-settling manufacturer attesting to all of the included information.

(b) The attorney general shall make the information provided under subsection (a) of this section available to the comptroller.

SECTION 3. The comptroller and the attorney general shall have the authority to adopt rules as necessary to carry out or enforce Chapter 161, Subchapter V.

SECTION 4. This Act takes effect September 1, 2013.