House Bill 1338

AN ACT TO ENACT THE "CIGARETTE ANTI-CONDUIT ACT" TO MAKE IT UNLAWFUL TO SHIP TO ANY PERSON IN THIS STATE OR ANOTHER STATE CIGARETTES BELONGING TO A BRAND FAMILY OF A MANUFACTURER WHO IS NOT PARTICIPATING IN THE MASTER SETTLEMENT AGREEMENT BETWEEN CERTAIN STATE AND TOBACCO PRODUCT MANUFACTURERS OR WHO IS NOT MAKING ESCROW PAYMENTS AS REQUIRED UNDER THE MASTER SETTLEMENT AGREEMENT; TO REQUIRE THE CHAIRMAN OF THE STATE TAX COMMISSION TO ANNUALLY COMPILE A LIST OF ALL BRAND FAMILIES OF CIGARETTE MANUFACTURERS WHO ARE PARTICIPATING IN THE MASTER SETTLEMENT AGREEMENT OR WHO ARE MAKING ESCROW PAYMENTS UNDER THE MASTER SETTLEMENT AGREEMENT; TO REQUIRE CERTAIN REPORTS BY PARTICIPATING MANUFACTURERS; TO PROVIDE CERTAIN PENALTIES AND INJUNCTIVE RELIEF FOR VIOLATIONS OF THIS ACT; TO GIVE THE CHAIRMAN OF THE STATE TAX COMMISSION AND THE ATTORNEY GENERAL CERTAIN ADDITIONAL AUTHORITY IN RELATION TO THIS ACT; TO AUTHORIZE THE CHAIRMAN OF THE STATE TAX COMMISSION TO ESTABLISH FEES TO BE PAID BY MANUFACTURERS SEEKING INCLUSION OF THEIR BRAND FAMILIES IN THE LIST REQUIRED BY THIS ACT; AND FOR RELATED PURPOSES.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:

SECTION 1. This chapter may be cited as the "Cigarette Anti-Conduit Act."

SECTION 2. (1) It is the policy of the state to reduce cigarette smoking by minors and adults who are residents of this state.

(2) According to public health authorities, higher cigarette prices help reduce cigarette consumption.

(3) In 1997 and 1998 leading United States cigarette manufacturers entered into a settlement agreement with this state, and into settlement agreements with other states, resolving various lawsuits brought by those states against those manufacturers.

(4) Pursuant to the settlement agreement with leading United States cigarette manufacturers known as the Master Settlement Agreement, or MSA, entered into on November 23, 1998, forty-six (46) states and six (6) territories have enacted statutes, known as the MSA Statute, requiring tobacco product manufacturers either (a) to sign the MSA, and thereby become participating manufacturers responsible for making settlement payments to those states and territories as specified in the MSA, or (b) to remain nonparticipating manufacturers, and thereby become responsible for making specified payments into escrow accounts for sales of their cigarettes to consumers within those states, in order to provide a source of recovery in the event that the states and territories assert claims against them in the future, and prevent such manufacturers from deriving large, short-term profits and then becoming judgment-proof before liability may arise.

(5) The MSA and the MSA Statutes enacted by the MSA States directly benefit the people of this state by requiring each tobacco product manufacturer that is a participating manufacturer or a nonparticipating manufacturer under the MSA to make settlement payments or escrow payments, as the case may be, that are reflected in higher prices for the cigarettes of such manufacturer in this state, which public health authorities believe help reduce cigarette consumption.

(6) Some nonparticipating manufacturers, however, either are circumventing or may attempt to circumvent the escrow payment requirements of the MSA Statute enacted by MSA States by using this state as a conduit, selling their cigarettes to distributors in this state for transshipment to states and territories covered by the MSA, and then claiming that the MSA Statute does not require them to make escrow payments for sales of the transshipped cigarettes in those states and territories.

(7) As a result of such circumvention of the escrow payment requirements of the MSA Statute, the prices of cigarettes of such nonparticipating manufacturers in this state do not reflect the escrow payments required by the MSA Statutes enacted by the MSA States, undermining the policy of this state to reduce smoking by the residents of this state by enabling such nonparticipating manufacturers to offer significantly lower prices than the tobacco product manufacturers that must make annual settlement payments under the MSA and the nonparticipating manufacturers that make such escrow payments.

(8) This use of the state as a conduit to circumvent the laws of other states and territories not only undermines the policy of this state to reduce smoking by residents of this state but also is generally contrary to the public policy of this state.

(9) Prohibiting the shipment or sale of cigarettes of a nonparticipating manufacturer that has not made all escrow payments required by the MSA Statutes enacted by the MSA States will help ensure that the nonparticipating manufacturer will make such payments, thereby serving the state’s policy of reducing smoking by its residents and avoiding its use as a conduit to circumvent the laws of other states.

SECTION 3. As used in this chapter:

(a) "Brand family" means all styles of cigarettes sold under the same trade mark and differentiated from one another by means of additional modifiers including, but not limited to, "menthol," "lights," "kings" and "100s."

(b) "Cigarette" means any product that contains nicotine, is intended to be burned or heated under ordinary conditions of use, and consists of or contains (i) any roll of tobacco wrapped in paper or in any substance not containing tobacco; or (ii) tobacco, in any form, that is functional in the product, which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a cigarette; or (iii) any roll of tobacco wrapped in any substance containing tobacco which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a cigarette described in (i) of this definition. The term "cigarette" includes "roll-your-own," meaning any tobacco which, because of its appearance, type, packaging or labeling is suitable for use and likely to be offered to, or purchased by, consumers as tobacco for making cigarettes. For purposes of this definition of "cigarette," 0.09 ounces of "roll-your-own" tobacco shall constitute one (1) individual "cigarette."

(c) "Commissioner" means the Chairman of the State Tax Commission of the State of Mississippi, and his authorized agents and employees.

(d) "Master Settlement Agreement" means the settlement agreement and related documents entered into on November 23, 1998, by the MSA States and certain tobacco product manufacturers, and subsequently entered into by certain other tobacco product manufacturers.

(e) "MSA State" means a Settling State as defined in Section II(qq) of the Master Settlement Agreement.

(f) "MSA Statute" means the statute enacted by an MSA State to implement the Exhibit T to the Master Settlement Agreement.

(g) "Nonparticipating manufacturer" means any tobacco product manufacturer that is not a participating manufacturer, as defined in paragraph (h).

(h) "Participating manufacturer" means a participating manufacturer as that term is defined in Section II(jj) of the Master Settlement Agreement and any amendments thereto.

(i) "Permit holder" means a person who (i) holds a permit under Chapter 69 of Title 27 to operate as a wholesaler or operator of a terminal or warehouse; or (ii) has received permission to operate as an interstate dealer under Section 27-69-33.

(j) "State" means any state or territory of the United States.

(k) "Tobacco product manufacturer" means a tobacco product manufacturer as that term is defined in Section II(uu) of the Master Settlement Agreement.

SECTION 4. It shall be unlawful for apermit holder (a) to ship to any person in this state or another state cigarettes belonging to a brand family not included on the list provided by the commissioner to the permit holder under Section 27-70-5, or (b) to sell or possess for sale, to any person in this state or another state, for resale to a consumer in this state or another state, such cigarettes.

SECTION 5. The commissioner shall annually prepare, and not later than July 15 of each year shall transmit to all permit holders and post on the website of the commissioner, a list of all brand families manufactured for sale to consumers within the United States by (a) each tobacco product manufacturer that by May 1 of such year has provided the commissioner the certification and information specified in Section 6(1) of this act, and (b) each tobacco product manufacturer as to which the commissioner has made the determination described in Section 7(2) of this act.

SECTION 6. (1) The commissioner shall include on the list described in Section 5 of this act all brand families manufactured for sale to consumers within the United States by each tobacco product manufacturer that has provided the commissioner, not later than May 1 of the year in question or previously, (a) a certification, under penalty of perjury, that it is a participating manufacturer, and (b) the names of all such brand families. Such a tobacco product manufacturer shall be deemed to be the manufacturer of all those cigarettes, but only those cigarettes, that are counted as its cigarettes for purposes of calculating its payments under the Master Settlement Agreement for the year in question.

(2) The commissioner shall include on the list described in Section 5 of this act all brand families manufactured for sale to consumers within the United States by each nonparticipating manufacturer that has provided the commissioner, not later than May 1 of the year in question, (a) the certification described in Section 7 of this act, but only if the commissioner has determined that such certification is true and correct; and (b) the names of all such brand families. A nonparticipating manufacturer shall be deemed to be the manufacturer of all cigarettes as to which it is the first purchaser anywhere for resale in the United States of cigarettes manufactured anywhere that the manufacturer of such cigarettes did not intend to be sold in the United States.

SECTION 7. (1) For the brand families of a nonparticipating manufacturer that sells (whether directly or through a distributor or similar intermediary or intermediaries) cigarettes to any permit holder to be eligible for inclusion in the list described in Section 5 of this act, such manufacturer, not later than May 1 of the year in question, under penalty of perjury, must provide the commissioner:

(a) A certification that such manufacturer:

(i) Will make all escrow payments required by the MSA Statute of each MSA State for all cigarettes of such nonparticipating manufacturer that shall be sold to consumers within each such MSA State through April 30 of the year following the year in which such certification is provided; and

(ii) Has made all escrow payments required by the MSA Statute of each MSA State for cigarettes of such nonparticipating manufacturer that were sold to consumers within each such MSA State during the preceding calendar year; and

(b) Such information as the commissioner shall require to determine whether such certification is true and correct.

(2) A nonparticipating manufacturer shall be determined to have made a true and correct certification under subsection (1) of this section if the commissioner determines that the total amount of the escrow payments made by the nonparticipating manufacturer in all MSA States for cigarettes of the nonparticipating manufacturer that were sold to consumers within all such states during the preceding year is equal to the product of (a) the applicable per-unit amount specified in the MSA Statutes of such states, including all adjustments for inflation, and (b) the number of units of cigarettes manufactured by the nonparticipating manufacturer that were sold to consumers within all MSA States during the preceding year.

(3) The commissioner shall promptly notify the nonparticipating manufacturer and the Attorney General of any determination made under this section.

(4) For purposes of this section, references to cigarettes "sold to consumers within" a state shall include any cigarettes sold to consumers within the state, whether sold by the manufacturer directly or by a distributor, retailer or similar intermediary or intermediaries.

SECTION 8. Not later than thirty (30) days after the end of each quarter, and more frequently if so directed by the commissioner, each permit holder shall report to the commissioner all shipments of cigarettes to persons in this state and other states during the preceding calendar quarter. The report shall state, by nonparticipating manufacturer and brand family, the quantity of cigarettes shipped to persons in each such state.

SECTION 9. (1) Upon a finding of a violation of Section 4 of this act by a permit holder, the commissioner may impose upon the permit holder a civil penalty in an amount not to exceed the greater of five hundred percent (500%) of the retail value of the cigarettes shipped in violation of Section 4 of this act or Five Thousand Dollars ($5,000.00). Upon a finding of a violation of Section 8 of this act by a permit holder, the commissioner may impose upon the permit holder a civil penalty in an amount not to exceed Five Thousand Dollars ($5,000.00). Upon a finding of a second or subsequent violation by a permit holder of Sections 4 or 8 of this act, the commissioner may revoke the license of the permit holder, in accordance with the procedures in Section 27-69-9.

(2) The Attorney General, on behalf of the commissioner, shall seek an injunction to restrain a permit holder from shipping cigarettes in violation of Section 4 of this act or to compel a permit holder to submit the information required by Section 8 of this act.

(3) Based on credible information provided by authorities in an MSA State or other credible information, the Attorney General shall bring an action in the Circuit Court of Hinds County, Mississippi, against a nonparticipating manufacturer for filing a false certification in violation of Section 7 of this act. Upon a finding that the nonparticipating manufacturer has filed a false certification under Section 7(1)(a)(ii) of this act or has fraudulently or intentionally filed a false certification under Section 7(1)(a)(i), the court shall issue a permanent injunction prohibiting any nonparticipating manufacturer from selling cigarettes (directly or through a distributor or other intermediary or intermediaries) to permit holders and consumers within the state for a period not to exceed two (2) years.

SECTION 10. If the commissioner determines to exclude or remove from the list described in Section 5 of this act the brand families of a nonparticipating manufacturer that timely submitted to the commissioner the certification and information described in Section 7(1)(b) of this act, such nonparticipating manufacturer may challenge such determination as erroneous and seek relief from such determination by bringing an action in the Circuit Court of Hinds County, Mississippi, to challenge the commissioner’s determination. Upon the filing of such an action, the commissioner’s determination shall be stayed for twenty (20) days. The Circuit Court of Hinds County, Mississippi, may extend the stay upon a showing by the nonparticipating manufacturer, after notice to the commissioner, that it has a substantial probability of success in the action and would suffer irreparable injury in the absence of a stay.

SECTION 11. (1) The commissioner shall update monthly the list described in Section 5 of this act in order to correct mistakes and to remove or add brand families, including brand families of nonparticipating manufacturers that have failed to make escrow payments required by the MSA Statute of an MSA State, or that have corrected such failures, and new brand families of participating manufacturers.

(2) The commissioner and Attorney General may share with each other, with other authorities within the state, and with authorities in other states the information they receive under this chapter, including audits under subsection (3) of this act, and may combine such information with information received from authorities in other states for purposes of analysis and enforcement.

(3) The Attorney General and the commissioner may audit, or engage others to audit, information supplied by nonparticipating manufacturers under Section 7(1), and the commissioner may audit the information supplied by permit holders under Section 8.

(4) The commissioner shall establish a fee, to be paid by nonparticipating manufacturers seeking inclusion of their brand families in the list described in Section 5 of this act, sufficient to cover the costs incurred by the commissioner in carrying out the functions of the commissioner described in Section 7 of this act.

SECTION 12. No person shall be issued a permit to act as a permit holder unless such person has certified, under penalty of perjury, that such person will comply fully with this act.

SECTION 13. For calendar year 2002, the reports of permit holders required by Section 8 of this act shall be due thirty (30) days after such effective date; the submissions of participating manufacturers and the certifications of nonparticipating manufacturers described in Section 6(1) and Section 7(1), respectively, shall be due forty-five (45) days after such effective date; and the transmission by the commissioner to permit holders and the website posting under Section 5 of this act shall be due ninety (90) days after such effective date.

SECTION 14. This act shall take effect and be in force from and after its passage.