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February/
March 2000

Targeting Tobacco
From combating underage sales to plugging budget shortfalls, a flurry of tobacco-related bills keeps the industry on alert for the ones that spell trouble for business.

A total of 1,457 tobacco-related legislative bills were introduced at the State level during the 1999 legislative sessions, according to the Tobacco Merchant's Association, which tracks bills nationwide. Approval was granted to 214 of these laws, dominated by increased taxes, control of sales to minors, self-serve bans, smoking restrictions, and ingredient disclosure and cigar labeling requirements.

Three new legislative issues also appeared at the state level last year, each as a result of the Master Settlement Agreement (MSA) reached by cigarette manufacturers and the States Attorneys General in 1998.

In all, 37 states approved Model Statute Legislation which requires manufacturers not participating in the MSA agreement to establish and maintain escrow accounts for any potential State Medicaid-related recovery claims. Manufacturers pay into the accounts based on their volume of cigarette sales in each state.

Gray Market legislation, which prohibits the domestic sale and distribution of U.S.-manufactured cigarettes intended for export but subsequently re-imported, was introduced in 32 states and approved in 24. Under these laws, state cigarette tax stamps are prohibited from being applied to cigarette packs that do not bear the U.S. Surgeon General's warning or are marked for "Export Only."

By far the most active and contentious state-level legislative issue was the appropriation of Master Settlement funds, with 317 bills introduced in 48 States, each jockeying for ways to spend the recovered funds. Approved bills created trust funds and established guidelines for spending the manufacturer payments obtained under the settlement agreement, a necessary requirement in order to release funds to the states.

Future Hot Spots Following the widespread adoption of legislation prohibiting the sale of tobacco products to underage consumers, states have now begun to focus on criminalizing underage tobacco use or possession. Of particular importance to retailers is the fact that underage sales bans and possession laws are also being extended to such non-tobacco products as RYO papers.

Internet retailing continues to attract legislative scrutiny. While bills proposing permanent tax exemptions, health warning requirements, youth sales regulations, and even an all-out ban on Internet tobacco sales all failed in 1999, the growing prominence of e-retailing in general will focus greater attention on Internet loopholes. A multi-state crackdown on underage sales of bidis over the Internet late last year typifies the building momentum.

Legislatures continue to view tobacco taxation as a valuable budget balancing tool. In December, New York state approved a 55 increase in its cigarette excise tax, once again giving New York the highest per per-pack tax in the nation at $1.11, a title it held several years back. The increase, which will go into effect March 1, could have been far worse for specialty smoke shops: disaster was narrowly averted when New York state governor George Pataki withdrew a similar increase on cigars and OTP at the eleventh hour.

PENDING OR RECENTLY APPROVED LEGISLATION
Bills have been passed into law as of press time law are shown in boldface.

Alabama
H.37 Tax increase for tobacco products sold in Washington County.

Arizona
H.2557 Would prohibit manufacture, sale, or distribution of cigarette packs containing fewer than 20 cigarettes, or RYO packs of less than .6 ounces of tobacco.
H.2313 Model Statute legislation
S.1120 Would preempt Indian reservations from tobacco taxation.

California
V.19 Proposition 28 would repeal the additional 50 per pack tobacco surtax on cigarettes and equivalent increase in the State tax on other tobacco products previously enacted by Proposition 10.

Florida
H.555 Would require tobacco products to be kept behind the counter or in an area inaccessible to minors.

Indiana
H.1262 Would limit tobacco sales to hours when curfew on children ages 15 to 17 is in effect. Iowa
H.S.B.526 Grey Market legislation

Kentucky
H.66, S.17 Grey Market legislation

Maine
S.3286 Would deny unemployment benefits to anyone terminated for selling cigarettes to minors.
S.897 Grey market legislation

Maryland
S.6 Would prohibit the sale and manufacture of cigarettes in packages of less than 20.

Michigan
H.5088 Model Statute legislation.
S.809 Gray market legislation.

Missouri
H.1196 Would allow local governments to increase taxes on cigarettes and OTP.
S.720, H.1372 Gray Market legislation.

Missouri
H.390 Gray Market legislation.

Nebraska
L.916 Grey Market legislation.

New Hampshire
H.1325 Would establish study committee to address smoking in vehicles where minors are present.
H.1577 Would revise the "Indoor Smoking Act" to prohibit smoking in restaurants, impose fines up to $2,000.
H.1579 Would provide for the suspension or revocation of a retail tobacco product's license for selling to minors.

New Jersey
A.1621 Would require cigarette, snuff, or chewing tobacco manufacturers to file annual ingredient disclosure reports.
A.1221 Would prohibit underage sale of any food, candy, or confectionary product packaged to resemble cigarettes.
A.390 Would prohibit tobacco sales in vending machines.
A.1374 Would prohibit smoking in shopping malls, but permitted in tobacco shops at management's discretion.
A.2254 Establishes penalties for purchase and possession of tobacco products by minors. A.128, A.3250 Gray Market legislation.
S.144 Would authorize cigarette retailers to participate in certain manufacturer promotions.

New York
A.9093 Imposes excise tax increase for cigarettes of 55 (from 56 to $1.11) per pack. Ohio
S.200 Permits electronic driver's license scans as defense against underage sales charges.
S.201 Requires delivery service vendors with sale via the Internet to display license number online.
S.218 Would expand the offense of illegal distribution of cigarettes or OTP.

Oklahoma
H.2097 Would prohibit the sale and distribution of all tobacco products beginning January 1, 2025.
H.2588 Would require tobacco products to be displayed behind a sales counter or at a minimum height of 48 inches.

Pennsylvania
H.1569 Gray Market legislation.
S.1243 Model Statute legislation.

Rhode Island
H.6714 Would reduce the State sales tax from 7% to 6%.

South Carolina
H.4286 Would impose 1.05 cent per-sheet excise tax on rolling papers, makes their sale to minors illegal, and stiffens penalties violating underage sale restrictions.
H.543 Would impose a tax on cigarette rolling papers.

Tennessee
H.8037 Would increase the privilege tax on cigarettes by 13 (from 13 to 26) per pack.
H.8040 Would raise excise tax on cigarettes by 12 to 25 and OTP to by 5.5%, 11.5% of wholesale price.
H.8041 Would increase excise tax on cigarettes by 13 (from 13 to 26) per pack.

Vermont
H.663 Would prohibit the sale of cigarettes singly or in packages containing fewer than 20 cigarettes.
H.662 Would prohibit all sales of bidis, provide fines of $500 for licensed tobacco retailers, $250 for purchaser.
H.583 Would require anyone buying a tobacco product to provide proof of age.
H.636 Model Statute legislation

West Virginia
H.2454 Would increase the excise tax on the sale of cigarettes by 50, from 17 currently to 67 per pack.
H.2452 Would impose a flat 50% tax of the wholesale price of all tobacco products other than cigarettes.
H.2379 Would impose a flat 50% tax of the wholesale price of smokeless tobacco products.

Wyoming
H.40 Would increase the excise tax on cigarettes by 3, from 12 currently to 15 per

Federal
H.C.R.190 Urges permanent ban on tarrifs relating to electronic commerce.
H.R.3235 Would amend the Internet Tax Freedom Act to extend moratorium on certain taxes.


SMOKESHOP - February 2000