What's happening
This bill strengthens New York's cigarette tax law by tightening licensing, reporting, enforcement, and penalties for untaxed, counterfeit, or illegally distributed cigarettes.
Why it matters
Expands oversight of the cigarette supply chain. by requiring all manufacturers, importers, agents, wholesale dealers, and retailers—regardless of location—to be licensed or registered with the state. This closes loopholes for out-of-state actors and increases accountability at every step.
Mandates comprehensive tracking and reporting. of cigarette transactions, inventory, and movement, including detailed monthly reports by brand and destination. This enables the state to more effectively detect and prevent tax evasion, smuggling, and illegal sales, and supports data-driven enforcement.
Imposes stricter penalties and enforcement tools. for violations, including higher fines, felony charges, license revocation, and expanded authority for law enforcement and tax officials to seize vehicles, cigarettes, and counterfeit-related equipment. This raises the stakes for illegal operators and deters illicit activity.
Establishes clearer rules for sales on tribal lands and out-of-state shipments. , ensuring tax collection on sales to non-tribal members and requiring tax-exempt or stamped products depending on the buyer. This aims to resolve longstanding disputes and revenue loss associated with untaxed tribal and cross-border cigarette sales.
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Who cares
Headline styles
Toughen Cigarette Tax Enforcement
Plain English, a few words. Used as the page title.
Sponsors
No co-sponsors yet.
History
- Referred to budget and revenue
- Referred to budget and revenue
Companion bill
The same bill in the other chamber. A bill becomes law when one version passes both houses and the governor signs it, so either number can carry it.
Toughen Cigarette Tax Enforcement
In Assembly Committee · Ways And Means · Sponsor Steven Cymbrowitz
Full text
18 pagesUnderlined is new[Struck] is removedOfficial text on nysenate.gov ↗
STATE OF NEW YORK
3646
2019-2020 Regular Sessions
IN SENATE
February 11, 2019
Introduced by Sen. GOUNARDES -- read twice and ordered printed, and when printed to be committed to the Committee on Budget and Revenue
AN ACT to amend the tax law, in relation to collecting the tax on cigarettes; and to repeal section 471-e and subdivision 5 of section 480-a of such law relating thereto
The People of the State of New York, represented in Senate and Assembly, do enact as follows:
Section 1. Subdivisions 8, 9 and 11 of section 470 of the tax law, subdivision 8 as amended by section 1 of part K of chapter 61 of the laws of 2005, subdivisions 9 and 11 as amended by chapter 61 of the laws of 1989, are amended and four new subdivisions 20, 21, 22 and 23 are added to read as follows:
8. "Wholesale dealer." Any person, whether located within or outside of this state, who (a) sells cigarettes or tobacco products to retail dealers or other persons for purposes of resale, or (b) owns, operates or maintains one or more cigarette or tobacco product vending machines in, at or upon premises owned or occupied by any other person, or (c) sells cigarettes or tobacco products to an Indian nation or tribe or to a reservation cigarette seller on a qualified reservation. Such term shall not include any cigarette manufacturer, export warehouse proprietor, or importer with a valid permit under 26 U.S.C. § 5712, if such person sells or distributes cigarettes in this state only to licensed agents, or to an export warehouse proprietor or another manufacturer with a valid permit under 26 U.S.C. § 5712.
9. "Retail dealer." Any person, whether located within or outside of this state, other than a wholesale dealer, engaged in selling cigarettes or tobacco products to a consumer in this state.
11. "Agent." Any [person] wholesale dealer licensed by the commissioner of taxation and finance to purchase and affix adhesive or meter stamps on packages of cigarettes under this article.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD07490-01-9
S. 3646 2
20. "Manufacturer" means any person who manufactures, fabricates, assembles, processes, or labels a finished cigarette.
21. "Importer" means any person who imports into the United States, either directly or indirectly, a finished cigarette for sale or distribution.
22. "Stamp" or "stamps" means the indicia, including meter impressions, required to be placed on a cigarette package that evidence payment of the tax on cigarettes under section four hundred seventy-one of this article, or the indicia, including meter impressions, used to indicate that the cigarettes are intended for a sale or distribution in this state that is exempt from state tax under paragraph (a) of subdivision one of section four hundred seventy-one-e of this article.
23. "Licensed," when used with reference to a manufacturer, importer, agent, wholesale dealer or retail dealer, means only those persons who hold a valid and current license issued under section four hundred eighty of this article for the type of business being engaged in. When the term "licensed" is used before a list of entities, such as "licensed manufacturer, importer, agent or dealer," such term shall apply to each entity in such list.
§ 2. Subdivisions 2 and 3 of section 471 of the tax law, subdivision 2 as amended by section 2 of part D of chapter 134 of the laws of 2010 and subdivision 3 as amended by chapter 6 of the laws of 1961, are amended to read as follows:
2. It is intended that the ultimate incidence of and liability for the tax shall be upon the consumer, and that any agent [or dealer] who shall pay the tax to the commissioner shall collect the tax from the purchaser or consumer. Except as [hereinafter] provided in this subdivision, the tax shall be advanced and paid by the agent. The agent shall be liable for the collection and payment of the tax on cigarettes imposed by this article and shall pay the tax to the commissioner by purchasing, under such regulations as he or she shall prescribe, adhesive stamps of such designs and denominations as he or she shall prescribe. The tax on cigarettes may also be paid by or through the use of metering machines if the commissioner so prescribes. Agents, located within or without the state, shall purchase stamps and affix such stamps in the manner prescribed to packages of cigarettes to be sold within the state[, in which case any dealer subsequently receiving such stamped packages of cigarettes will not be required to purchase and affix stamps on such packages of cigarettes]. All cigarettes sold by agents and wholesalers to Indian nations or tribes or reservation cigarette sellers located on an Indian reservation must bear a tax stamp.
3. The amount of taxes advanced and paid by the agent as [hereinabove] provided in this section shall be added to and collected as part of the sales price of the cigarettes.
§ 3. Section 471-a of the tax law, as amended by section 5 of part D of chapter 134 of the laws of 2010, is amended to read as follows:
§ 471-a. Use tax on cigarettes. There is hereby imposed and shall be paid by any consumer a tax on all cigarettes used in the state by any [person] such consumer, except that no tax shall be imposed (1) if the tax provided in section four hundred seventy-one of this article is paid, (2) on the use of cigarettes which are exempt from the tax imposed by said section, or (3) on the use of four hundred or less cigarettes, brought into the state on, or in the possession of, any [person] consumer. Such tax on cigarettes shall be at the rate of four dollars and thirty-five cents for each twenty cigarettes or fraction thereof, provided, however, that if a package of cigarettes contains more than
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twenty cigarettes, the rate of tax on the cigarettes in such package in excess of twenty shall be one dollar and eight and three-quarters cents for each five cigarettes or fraction thereof. Within twenty-four hours after liability for the tax accrues, each such [person] consumer shall file with the commissioner a return in such form as the commissioner may prescribe together with a remittance of the tax shown to be due thereon. For purposes of this article, the word "use" means the exercise of any right or power actual or constructive and shall include but is not limited to the receipt, storage or any keeping or retention for any length of time, but shall not include possession for sale, and the word "consumer" means any person who uses cigarettes in this state. All other provisions of this article if not inconsistent shall apply to the administration and enforcement of the tax imposed by this section in the same manner as if the language of said provisions had been incorporated in full into this section. By filing such return and paying such tax, a consumer shall not be relieved of any criminal or civil penalties that may be applicable under this article or article thirty-seven of this chapter.
§ 4. Section 471-e of the tax law is REPEALED and a new section 471-e is added to read as follows:
§ 471-e. Application of tax on tribal lands. 1. Exemption from tax. (a) Cigarettes sold to or received by members of a federally recognized Indian tribe on such tribe's Indian country shall not be subject to tax under this article.
(b) Cigarettes exempt from tax under 26 U.S.C. § 5701 and that are distributed in accordance with federal regulations shall not be subject to tax under this article.
2. Tax rate on sales to non-tribal members on Indian country. The tax rate applicable to cigarettes sold to or received by non-tribal members on Indian lands shall be equal to the state tax rate provided in section four hundred seventy-one of this article minus any tribal tax rate, if the resulting rate is a positive number and such rate shall be zero if the resulting rate would be a negative number. Cigarettes taxed pursuant to this subdivision shall bear a tax stamp as required by section four hundred seventy-two of this article in an amount equal to the tax imposed by section four hundred seventy-one of this article; provided, that the commissioner shall periodically rebate to any Indian tribal entity that is in compliance with this article an amount equal to the tribal tax imposed on sales under this subdivision or the face value of the tax stamps affixed to cigarettes under this subdivision, whichever amount is less.
§ 5. Subdivision 1 of section 472 of the tax law, as amended by chapter 629 of the laws of 1996 and as further amended by section 104 of part A of chapter 62 of the laws of 2011, is amended, subdivisions 2 and 3 are renumbered subdivisions 3 and 4 and a new subdivision 2 is added to read as follows:
1. The commissioner shall prescribe, prepare and furnish stamps of such denominations and quantities as may be necessary for the payment of the tax on cigarettes imposed by this article, or for indication that the cigarettes are tax-exempt under section four hundred seventy-one-e of this article, and may from time to time and as often as he or she deems advisable provide for the issuance and exclusive use of stamps of a new design and forbid the use of stamps of any other design, in the manner and with the effect provided in section two hundred seventy-four of this chapter. The commissioner shall make provisions for the sale of such stamps at such places and at such times as he or she may deem
S. 3646 4
necessary and may license agents for such purpose. The commissioner may license wholesale dealers in cigarettes, who maintain separate warehousing facilities for the purpose of receiving and distributing cigarettes and conducting their business, and who have received commitments from at least two cigarette manufacturers whose aggregate market share is at least forty percent of the New York state cigarette market, [and importers, exporters and manufacturers of cigarettes, and other persons within or without the state as] or are themselves also licensed as manufacturers, importers or agents to buy [or] and affix stamps to be used in paying the tax [herein] imposed by this article. No person other than a licensed agent may purchase or affix stamps and agents shall not sell or provide such stamps to any other agent or person, but an agent shall at all times have the right to appoint the person in his or her employ who is to affix the stamps to any cigarettes under the agent's control. The fee for filing such application for an agent's license shall be one thousand five hundred dollars, unless such fee has been paid during the preceding twelve months, in which case, the fee for a new license shall be one thousand dollars. All of the provisions of section four hundred eighty of this article relating to wholesale dealers' licenses, including the procedure for suspension, revocation, refusal to license and for hearings, except for paragraphs (c) and [(g)] (f) of subdivision one of such section, shall be applicable to agents' licenses applied for or granted pursuant to this section, as if such provisions had been set forth in full in this subdivision and had expressly referred to the applicant for, or the holder of, an agent's license. Whenever the commissioner shall sell and deliver to any such agent any such stamps, such agent shall be entitled to receive as compensation for his or her services and expenses as such agent in [selling or] affixing such stamps, and to retain out of the moneys to be paid by him or her for such stamps, a commission on the par value thereof. The commissioner is hereby authorized to prescribe a schedule of commissions, not exceeding five per centum, allowable to such agent for buying and affixing such stamps. Such schedule shall be uniform with respect to the different types of stamps used, and may be on a graduated scale with respect to the number of stamps purchased. The commissioner may, in his or her discretion, permit an agent to pay for such stamps within thirty days after the date of purchase and may require any such agent to file with the department [of taxation and finance] a bond issued by a surety company approved by the superintendent of financial services as to solvency and responsibility and authorized to transact business in the state or other security acceptable to the commissioner, in such amount as the commissioner may fix, to secure the payment of any sums due from such agent pursuant to this article. If securities are deposited as security under this subdivision, such securities shall be kept in the custody of the commissioner and may be sold by the commissioner if it becomes necessary so to do in order to recover any sums due from such agent pursuant to this article, but no such sale shall be had until after such agent shall have had opportunity to litigate the validity of any tax if it elects so to do. Upon any such sale, the surplus, if any, above the sums due under this article shall be returned to such agent.
2. Stamps shall be applied by a licensed agent to each package of cigarettes sold or distributed within this state as follows: (a) A tax stamp shall be applied to all cigarette packages containing cigarettes subject to state tax under this article, including to cigarettes subject to reduced state tax under subdivision two of section four hundred seventy-one-e of this article.
S. 3646 5
(b) Except as provided in paragraph (c) of this subdivision, a tax-exempt stamp shall be applied to all cigarette packages intended for sale or distribution to consumers not subject to state tax under paragraph (a) of subdivision one of section four hundred seventy-one-e of this article.
Reflowed for reading: line numbers and page breaks removed. Cite the official text.
Sponsor's memo
Title of bill
An act to amend the tax law, in relation to collecting the tax on cigarettes; and to repeal section 471-e and subdivision 5 of section 480-a of such law relating thereto
Purpose or general idea of bill
This bill is designed to provide better tools for law enforcement offi- cials to eliminate contraband and counterfeit cigarette products, and to help ensure that all industry participants comply with the rules govern- ing the legitimate distribution and sale of cigarettes.
Summary of provisions
Amends Article 20 of the tax law--Tax on Cigarettes and Tobacco Products as follows:
Read the full memo (1,049 words)
*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 licen- sees' 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 participat- ing manufacturer for the purposes of the MSA, or to fully comply with its NPM escrow requirements; (ii) violates the federal Imported Cig rette Compliance Act (designed to stem the flow of illicit cigarettes into the U.S.); or, (iii) fails to comply with the labeling and ingre- dients-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 ciga- rette 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 deal- er, 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 21 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 partic- ipant 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 smok- ers 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
2017-8: S.3866-A - Referred to Investigations and Government Operations
Fiscal implications
To be determined
Effective date
This act shall take effect on the ninetieth day after it shall have become a law.
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