Relates to the enforcement of state and city taxes on cigarettes and the regulation of tobacco products

This legislation removes matters relating to cigarette licensing from the jurisdiction of the New York City Tax Appeals Tribunal and authorizes the Commissioner to designate hearing officers or select an administrative tribunal for hearings concerning any matter under chapter 13 or chapter 40 of Title 11 of the Code. The bill further provides that judicial review of determinations made under chapter 13 of Title 11 of the Code must be sought within 30 days rather than the 4-month period generally applicable to Article 78 proceedings.

The applicable penalties for failure to pay the City's cigarette tax and for the possession of untaxed cigarettes and counterfeit cigarette tax stamps would be increased under this proposal. Additionally, the bill would increase penalties for the knowing possession of untaxed cigarettes and counterfeit cigarette tax stamps and would provide that a person in the possession of more than 400 cigarettes in unstamped or unlawfully stamped packages, who is also in the possession of unaffixed, false, altered or counterfeit cigarette tax stamps, imprints or impressions, would be presumed to be knowingly in the possession of unstamped or unlawfully stamped cigarette packages.

The legislation would lower the Class 2, D and C thresholds in section 114012 of the Code with respect to the criminal penalties for willfully evading the cigarette tax. It also lowers the threshold for applying the presumption that the cigarettes are possessed for purposes of sale..

Justification

The widespread availability of untaxed cigarettes for sale in New York City leads to adverse impacts on public health and deprives the City and New York State of millions of dollars of cigarette tax revenues every year. Targeted investigations of over 800 licensed retailers in 2012 by the Sheriff's Office found that 520 of these retailers

possessed cigarettes without the required New York City tax stamp. In addition, untaxed cigarettes remain widely available from street sellers and other illegitimate sources. Law abiding businesses that sell cigarettes suffer because they are undercut by illicit and unfair competition from the illegal acts of illegitimate dealers, and the currently available enforcement tools and penalties for engaging in the illicit cigarette trade have proven to be inadequate.

The bill corrects these various enforcement deficiencies with a comprehensive, multi-faceted strategy: (1) increasing the civil and criminal penalties for illegal acts; (2) expanding the law enforcement authority of the New York City Sheriff's Office - the law enforcement personnel most directly involved in enforcing the City's cigarette tax laws; and (3) granting the New York City Commissioner of Finance the authority to require cigarette dealers to file reports and submit other information in electronic form.

The civil and criminal penalties in the current law are too low to effectively deter the trade of illicit cigarettes and counterfeit tax stamps. The bill increases the penalties for possessing untaxed cigarettes and unaffixed counterfeit tax stamps, and reduces the penalty threshold in a manner consistent with the existing personal use exemptions. The bill also reduces the possession thresholds for class E and class D felonies. These changes will expand the scope of cases eligible for- felony prosecution and more effectively deter the most egregious offenses involving untaxed cigarettes.

The Sheriff's Office is the primary law enforcement agency responsible for the enforcement of the City's cigarette tax laws. Under current law, Department of Finance investigators must rely on other law enforcement agencies for key enforcement mechanisms, such as obtaining and executing warrants. Given the inherent mobility of untaxed cigarettes, time is of the essence in moving to shut down illegal cigarette operations. The new authority created in the bill will allow Department of Finance investigators to obtain and execute search and arrest warrants directly so that they can expeditiously enforce the cigarette tax laws. The bill would also enhance the ability of the Sheriff's Office to enforce other tax laws administered by the Department of Finance.

At present, the Commissioner of Finance can require stamping agents and wholesale and retail cigarette dealers to file reports, but cannot require that these reports be submitted in electronic form. Paper submission cannot be easily searched for important data. By requiring the electronic submission of reports and other data from stamping agents and wholesale and retail cigarette dealers, Department of Finance investigators and other Department of Finance employees can search fox trends in the electronic data and better track the unauthorized distribution of cigarettes.

Prior legislative history

New bill.

Fiscal implications

None.

Effective date

Immediately.