Brief Description: Modifying cigarette regulatory provisions.

Sponsors: Representatives McIntire, Delvin, Conway, Gombosky, Armstrong, Clements, Edwards and Kenney.

Hearing Date: 2/27/03

Staff: Bob Longman (786-7139).

Background:

A tax is imposed on cigarettes at the rate of 142.5 cents per pack of 20 cigarettes. The tax is due from the first person who sells, uses, consumes, handles, possesses or distributes the cigarettes in this state. Taxpayers pay the tax by purchasing cigarette tax stamps from banks authorized by the Department of Revenue (Department). The stamps are placed on cigarette packs. A licensed wholesaler may possess cigarettes for a reasonable period before affixing stamps. Except for licensed wholesalers, it is unlawful to possess unstamped cigarettes unless the possessor files a notice of intent to possess with the Department before receiving the cigarettes.

Cigarettes without tax stamps are contraband and subject to seizure if in the possession of anyone other than a licensed wholesaler or a person who filed a notice of intent to possess. Possessing unstamped cigarettes or counterfeit cigarette stamps is a gross misdemeanor. Engaging in the business of purchasing, selling, consigning, or distributing cigarettes without a license from the state is a misdemeanor.

There are no criminal penalties for manufacturing or selling counterfeit cigarettes, as long as the counterfeit cigarettes have tax stamps. The owner of a trademark can bring a civil action for injunctive relief and damages against persons manufacturing or selling counterfeit cigarettes that infringe on the trademark.

Summary of Bill:

Only wholesalers may obtain or possess cigarette tax stamps. Wholesalers must not sell or provide stamps to any other person. Each roll of stamps, or group of sheets, provided to a wholesaler must have a separate and unique serial number. Wholesalers must affix stamps within 72 hours of receipt of the cigarettes. Retailers may obtain cigarettes only from a licenced wholesaler. These provisions do not limit any otherwise lawful activity under a cigarette tax compact with an Indian tribe.

The criminal classification for engaging in the business of purchasing, selling, consigning, or distributing cigarettes without a license is increased from a misdemeanor to a class C felony.

The manufacturing, selling, or possessing for sale of counterfeit cigarettes is prohibited. A

counterfeit cigarette is defines as any cigarette, or its packaging, that resembles an authentic cigarette or package and has been manufactured by someone not authorized by the trademark or brand holder. Violations are punishable with fines and imprisonment, with increasingly severe penalties for subsequent violations or amounts greater than two cartons of counterfeit cigarettes. For repeat violations, the fine can be as much as $50,000 or five times the retail value of the cigarettes involved, and/or imprisonment not to exceed five years. The Department may also revoke the license of any wholesaler or retailer involved with counterfeit cigarettes.

Appropriation: None.

Fiscal Note: Available.

Effective Date: The bill takes effect ninety days after adjournment of session in which bill is passed.