Relates to the collection of the tax on cigarettes and penalties for evasion or defeat of such tax; repealer

* Amends the definitions for the following terms: Wholesale Dealer, Retail Dealer and Agent. Adds new definitions for the following terms: Indian Tribal Entity, Manufacturer, Importer, Stamp and Licensed.

* Licensing the Distribution Chain.

* Requires that all participants in the cigarette distribution chain -- from manufacturer to importer to wholesaler to retailer -- obtain and maintain a valid State license.

* Provides for a maximum licensing period of three years, so that licensees' qualifications can be re-validated on a periodic basis.

* Sets forth details of the license applications, while leaving discretion to the relevant State authorities.

* Requires industry participants involved in more than one aspect of cigarette distribution (i.e., both a wholesaler and a retailer) to obtain separate licenses for each purpose.

* Prescribes minimum standards of responsibility that an applicant must meet in order to qualify for a license to participate in cigarette distribution. For example, a manufacturer could not be granted or permitted to retain a license if it (i) fails to either be a participating manufacturer for the purposes of the MSA, or to fully comply with its NPM escrow requirements; (ii) violates the federal Imported Cigarette Compliance Act (designed to stem the flow of illicit cigarettes into the U.S.); or, (iii) fails to comply with the labeling and ingredients-reporting requirements of the Federal Cigarette Labeling and Advertising Act.

* Specifies license suspension or revocation as an additional penalty that the State may impose for failure to satisfy any condition of the license.

* Provides for the creation and maintenance by the State of a web site identifying current licensees, so trade participants will be on notice as to the parties with whom they may lawfully transact business in New York.

* Collection of State Excise Taxes (SET) on Tribal Sales to Non-Tribal Members.

* Affirms that cigarette sales on Indian Reservations to tribal members are not subject to State excise taxes.

* Makes it clear that, with respect to sales to non-tribal members, the seller must collect a tax equal to the state tax.

* Application of tax stamps.

* In order to help law enforcement officials more readily distinguish contraband cigarettes from legitimate product, requires that every cigarette package bear a tax stamp, indicating either that the SET has been paid, or that the package is tax-exempt.

* With serial numbers assigned to each distributor, that are designed to permit the tracing of every package back to its original wholesale dealer, so that diverted product can be accurately identified and sourced.

* Duties of Manufacturers, Distributors and Retailers.

* Requires distributors to apply tax stamps to all cigarette packages within 10 days of receipt, to reduce the opportunity for diversion of unstamped product. Requires unstamped product to be stored separately, and prohibits the transport of unstamped product between distributors' facilities.

* Provides that distributors may only apply stamps to packages obtained from manufacturers or importers with a valid Federal permit; this is designed to address the increasing level of illegal imports and counterfeit products that have been discovered in some states.

* Prohibits any cigarette sales to, and purchases from, any licensed entity at any point prior to final sale to the consumer. Manufacturers and importers could only sell to licensed wholesalers or retailers, and wholesalers could only sell to licensed retailers; conversely, retailers and wholesalers could only purchase cigarettes from licensed wholesalers, manufacturers or importers, and importers could only purchase from licensed manufacturers. Any participant dealing with an unlicensed entity at any point in the process would risk losing its license.

* Requires retailers to report transactions in excess of five cartons to State officials so they can better track customers obtaining volumes in excess of what can be consumed personally.

* Reports, Records and Inspections

* Requires detailed reporting to the State - from wholesalers, retailer and manufacturers-of all transactions down the distribution chain prior to the final retail sale to a consumer. Designed to provide information that will permit officials to determine the precise point in the chain where a diverted shipment was sold in violation of applicable law, the provisions are intended to minimize the burden on all reporting persons by closely resembling the commercial reporting that major manufacturers already require.

* Requires everyone in the distribution chain to retain records of all of their transactions in a commercially reasonable manner, to retain the records for a reasonable period of time, and to make them available to both regulators and the general public.

* Affords State officials reasonable access to inspect the facilities and vehicles of all participants in the distribution chain.

* Penalties.

* Established civil penalties for failure to comply with the provision of this article, including fines, penalties calculated as a percentage of any unpaid excise tax and forfeiture of all contraband product.

* Makes it a felony to defraud the State by knowingly failing to pay cigarette excise taxes, punishable to up to five years in prison and a significant fine.

* Sets forth specific, detailed criminal penalties for the sale or possession of counterfeit cigarettes.

Justification

Illegal trade in cigarettes deprives New York State of tax revenue and can result in counterfeit and unstamped products, hijacked cigarette trucks, sales to minors, trademark violations, and distortions in the legitimate market. As excise taxes and other costs increase, many smokers are seeking lower-priced cigarettes through a variety of alternative outlets, many of which are illegal, creating a need for increased enforcement and more stringent penalties to deter illegal conduct. This bill gives law enforcement officials better tools to combat the illegal cigarette trade in New York.

Prior legislative history

2004 - A.8709 - Referred to Ways & Means 2006 - S.4628 - Referred to Investigations & Government Operations 2008 - S.2251 - Referred to Investigations & Government Operations

Fiscal implications

Revenue generating.

Effective date

This act shall take effect on the ninetieth day after it shall have become a law.