Relates to the creation of the cigarette tax enforcement fund

Summary of provisions

Section one of this bill amends Section 472(1) of the Tax Law to allow the Commissioner of the Department of Taxation and Finance (the "Commissioner") to prescribe, prepare and furnish stamps for the payment by the agent of the four cents per stamp concurrent expense allowance that is required to be deposited in the Cigarette Tax Enforcement Fund (the "Fund"), which is established in section three of this bill.

Section two of this bill adds a new subdivision (c) to Tax Law section 482. This new subdivision requires the Commissioner to deposit all taxes, fees, interest and penalties collected or received from the amount received pursuant to Tax Law section 482(1) into the Fund.

Section three of this bill amends the State Finance Law by adding a new section 97-qqqq to establish the Cigarette Tax Enforcement Fund. The Fund is in joint custody of the State Comptroller and the Commissioner. The Comptroller is authorized and directed to receive for deposit to the credit of the Fund monies received from the Commissioner from the concurrent expense allowance, sale of forfeited cigarettes, and other monies appropriated, credited or transferred thereto from any other fund or source and the Cigarette Marketing Standards Act. Monies in the Fund will be distributed to the Division of the State Police for cigarette tax enforcement purposes and used to pay those people who qualify for a reward under the rewards program established pursuant to section six of this bill.

Section four of this bill amends subdivisions (a), (b) and (c) of Tax Law section 1846 to provide the procedure for the sale, redemption and disposal of cigarettes that have been forfeited to the State due to violations of Criminal Procedure Law sections 1.20 or 2.10. All cigarettes that have been determined to be counterfeit or violate import laws must be destroyed. All revenue received is required to be deposited into the Fund.

Section five of this bill amends subparagraph (B) of Section 483(b)(1) of the Tax Law, relating to the "cost of the agent," to provide that, in the absence of the filing with the commissioner of satisfactory proof of a lesser cost of doing business of the agent making the sale, the cost of doing business by the agent shall be presumed to be 2.25% of the basic cost of cigarettes for sales to wholesale dealers plus 1 cent per package of 10 cigarettes, 2 cents per package of 20 cigarettes and 2.5 cents for each 5 cigarettes in excess of 20 cigarettes for packages in excess of 20 cigarettes The cost of doing business by the agent shall be presumed to be 5.75% of the basic cost of cigarettes for sales to chain stores plus 1 cent per package of 10 cigarettes, 2 cents per package of 20 cigarettes and 2.5 cents for

each 5 cigarettes in excess of 20 cigarettes for packages in excess of 20 cigarettes. The cost of doing business by the agent shall be presumed to be 5.75% of the basic cost of cigarettes with respect to sales to retail dealers plus 1 cent per package of 10 cigarettes, 2 cents per package of 20 cigarettes and 2.5 cents for each 5 cigarettes in excess of 20 cigarettes for packages in excess of 20 cigarettes.

This section of the bill also amends subparagraph (B) of Section 483(b)(2) of the Tax Law, relating to the "cost of the wholesale dealer," to provide that, in the absence of the filing with the commissioner of satisfactory proof of a lesser cost of doing business of the wholesale dealer making the sale, the cost of doing business by the wholesale dealer shall be presumed to be 1% of the basic cost of cigarettes, and with respect to sales to chain stores, 3.5% of the basic cost of cigarettes.

This section of the bill lastly amends subparagraph (B) of Section 483(b)(3) of the Tax Law, relating to the "cost of the retail dealer," to provide that, in the absence of the filing with the commissioner of satisfactory proof of a lesser cost of doing business of the retail dealer making the sale, the cost of doing business by the retail dealer shall be presumed to be 10% of the sum of the basic cost of cigarettes plus the cost of doing business by the agent with respect to cigarettes sold to retail dealers.

Section six of this bill amends Tax Law section 1814 by adding a new subdivision (j) to provide that the Commissioner shall establish a program to allow individuals to submit a sworn statement affirming the observation of a violation of the Cigarette Tax and, where the Commissioner deems it appropriate, allow for a reward for any such sworn statement. Where enforcement action is taken pursuant to Tax Law article 37 or article 20 based upon a sworn statement, the Commissioner shall offer as a reward to such individual or individuals that provided a sworn statement an amount that, in the aggregate, is five dollars. No peace officer, police officer or employee of the department, employee of any company under contract with the department, or employee of any governmental entity that, in conjunction with the department, conducts enforcement activity relating to a violation of Article 37 or Article 20 of this chapter, shall be entitled to obtain the benefit of any such reward when acting in the discharge of his or her official duties. All rewards paid pursuant to this section shall be paid from the Cigarette Tax Enforcement Fund.

Section seven of this bill appropriates to the Division of the State Police $6,000,000 from the Cigarette Tax Enforcement Fund to support cigarette tax enforcement activities and prescribes other methods in which the appropriation may be used in efforts to enforce the cigarette tax.

Section eight of this bill provides that this act shall take effect on the first day of the sales tax quarterly period, as described in subdivision (b) of section 1136 of the tax law, next succeeding the thirtieth day after it shall have become a law and shall apply in accordance with the applicable transitional provisions of section 1106 and 1217 of the tax law.

Justification

The "presumed cost of doing business" for cigarette stamping agents, which was enacted to help defer the cost of acting as the State's agent for .the collection of the cigarette excise tax, has not increased since 1999. Since 1999, the cigarette excise tax has increased almost three hundred percent, which stamping agents are required to prepay. This prepayment burden, in addition to a variety of other factors, has caused the cost of doing business for cigarette stamping agents to well exceed the "presumed cost of doing business" provided by the Tax Law. To bring the "presumed cost of doing business" more in line with the actual cost of doing business, the "presumed cost of doing business" requires an adjustment. This bill makes such an adjustment, which will enable the stamping agents to remain in business and help secure tax collection.

Because of the significant influx of cigarettes that are either unstamped or bear a stamp from another State into New York markets, this bill provides a revenue stream for the enforcement of the State's laws regarding the sale and taxation of cigarettes. With this revenue stream, the State's enforcement efforts should increase and the number of unstamped and stamped with another State's stamp cigarettes being sold in New York should decrease. This will increase the revenues to the State because more stamps will be sold. Additionally, when cigarettes are forfeited through the increased enforcement activities, their sale will generate revenue to the State.

Legislative history

Similar to: 2014: S.1958-D - Referred to Investigations and Government Operations 2013: S.1958-C - Passed the Senate 2011-2: S.4763-A - Passed the Senate both years

Fiscal implications

By increasing the minimum price of cigarettes sold in New York, the State will collect increased sales tax revenues

Effective date

This act shall take effect on the first day of the sales tax quarterly period, as described in subdivision (b) of section 1136 of the tax law, next succeeding the thirtieth day after it shall have become a law and shall apply in accordance with the applicable transitional provisions of section 1106 and 1217 of the tax law.