A3926

An Act concerning tobacco sales, amending P.L.1999, c.148 and amending and supplementing P.L.2003, c.25.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 2 of P.L.1999, c.148 (C.52:4D-2) is amended to read as follows:

2. As used in this act:

"Adjusted for inflation" means increased in accordance with the formula for inflation adjustment set forth in Exhibit C to the Master Settlement Agreement.

"Affiliate" means a person who directly or indirectly owns or controls, is owned or controlled by, or is under common ownership or control with, another person. Solely for purposes of this definition, the term "owns," "is owned" and "ownership" mean ownership of an equity interest, or the equivalent thereof, of 10% or more, and the term "person" means an individual, partnership, committee, association, corporation or any other organization or group of persons.

"Allocable share" means allocable share as that term is defined in the Master Settlement Agreement.

"Cigarette" means any product that contains nicotine, is intended to be burned or heated under ordinary conditions of use, and consists of or contains:

(1) any roll of tobacco wrapped in paper or in any substance not containing tobacco; or

(2) 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

(3) 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 paragraph (1) of this definition.

The term "cigarette" includes "roll-your-own," which means any tobacco that, 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 individual "cigarette."

"Master Settlement Agreement" means the settlement agreement, and related documents, entered into on November 23, 1998 by the State and leading United States tobacco product manufacturers.

"Qualified escrow fund" means an escrow arrangement with a federally or State chartered financial institution having no affiliation with any tobacco product manufacturer and having assets of at least $1,000,000,000 where such arrangement requires that such financial institution hold the escrowed funds' principal for the benefit of releasing parties and prohibits the tobacco product manufacturer placing the funds into escrow from using, accessing or directing the use of the funds' principal except as consistent with paragraph (2) of subsection b. of section 3 of this act.

"Released claims" means released claims as that term is defined in the Master Settlement Agreement.

"Releasing parties" means releasing parties as that term is defined in the Master Settlement Agreement.

"Tobacco Product Manufacturer" means an entity that after the date of enactment of this act directly, and not exclusively through any affiliate:

(1) manufactures anywhere cigarettes that the manufacturer intends to be sold in the United States, including cigarettes intended to be sold in the United States through an importer; provided, however, that an entity that manufactures cigarettes that it intends to be sold in the United States shall not be considered to be a tobacco product manufacturer under this paragraph (1) if (a) such cigarettes are sold in the United States exclusively through an importer that is an original participating manufacturer, as that term is defined in the Master Settlement Agreement, that will be responsible for the payments under the Master Settlement Agreement with respect to such cigarettes as a result of the provisions of subsection II(mm) of the Master Settlement Agreement and that pays the taxes specified in subsection II(z) of the Master Settlement Agreement, and (b) the manufacturer of such cigarettes does not market or advertise such cigarettes in the United States;

(2) is the first purchaser anywhere for resale in the United States of cigarettes manufactured anywhere that the manufacturer does not intend to be sold in the United States; or

(3) becomes a successor of an entity described in paragraph (1) or (2) of this definition.

The term "tobacco product manufacturer" shall not include an affiliate of a tobacco product manufacturer unless such affiliate itself falls within any of paragraphs (1) through (3) of this definition.

"Units sold" means the number of individual cigarettes on which the State has the authority under federal law to impose excise or similar taxes that were sold in the State by the applicable tobacco product manufacturer, whether directly or through a distributor, retailer or similar intermediary or intermediaries, during the year in question[, as measured by excise taxes collected by the State on containers of "roll-your-own" tobacco, and on packs of cigarettes bearing the excise tax stamp of the State]. The State Treasurer shall promulgate such regulations as are necessary to ascertain the amount of State excise tax paid on the cigarettes of such tobacco product manufacturer for each year.

(cf: P.L.1999, c.148, s.2)

2. Section 6 of P.L.2003, c.25 (C.52:4D-9) is amended to read as follows:

6. a. Any non-resident or foreign non-participating manufacturer that has not registered to do business in this State as a foreign corporation or business entity shall, as a condition precedent to having its brand families listed or retained in the directory established pursuant to section 4 of this act, appoint and continually engage without interruption the services of an agent in New Jersey to act as agent for the service of process on whom all process, and any action or proceeding against it concerning or arising out of the enforcement of the act and P.L.1999, c.148 (C.52:4D-1 et seq.), may be served in any manner authorized by law. Such service shall constitute legal and valid service of process on the non-participating manufacturer. The non-participating manufacturer shall provide the name, address, telephone number and proof of the appointment and availability of such agent to the Attorney General.

b. A non-participating manufacturer shall provide notice to the director and Attorney General not later than 30 calendar days prior to termination of the authority of an agent and shall further provide proof to the satisfaction of the Attorney General of the appointment of a new agent no less than five calendar days prior to the termination of an existing agent appointment. If an agent terminates an agency appointment, the non-participating manufacturer shall notify the director and Attorney General of that termination within five calendar days and shall include proof to the satisfaction of the Attorney General of the appointment of a new agent.

c. A non-participating manufacturer whose products are sold in this State, without appointing or designating an agent as herein required shall be deemed to have appointed the Secretary of State as that agent and may be proceeded against in the courts of this State by service of process upon the Secretary of State; provided however, that the appointment of the Secretary of State as that agent shall not satisfy the condition precedent to having its brand families listed or retained in the directory established pursuant to section 4 of [this act] P.L.2003, c.25 (c.52:4D-4 et seq.).

d. Any person who imports cigarettes on behalf of a foreign non-participating manufacturer for sale in this State, whether directly or through a distributor, retailer, or similar intermediary or intermediaries, shall be jointly responsible for any escrow deposit required by section 3 of P.L.1999, c.148 (C.52:4D-3), to the extent that the non-participating manufacturer failed to deposit the required escrow amount. Such person shall also be subject to the provisions of subsections a. and c. of section 8 of P.L.2003, c.25 (C.52:4D-11).

(cf: P.L.2003, c.25, s.6)

3. Section 7 of P.L.2003, c.25 (C.52:4D-10) is amended to read as follows:

7. a. Within 20 days after the end of each calendar quarter, and more frequently if so directed by the director, each licensed distributor and each holder of a certificate of authority pursuant to section 6 of P.L.1990, c.39 (C.54:40B-6) shall submit such information as the director requires to facilitate compliance with this section, including, but not limited to, a list by brand family of the total number of cigarettes or in the case of roll your own, the equivalent stick count, for which the licensed distributor affixed stamps or impressed or attached metered impressions or for which the holder of the certificate of authority otherwise paid the tax due for such cigarettes during the previous calendar quarter. Each licensed distributor and holder of a certificate of authority shall, for a period of five years, maintain, and make available to the director and the Attorney General, all invoices and documentation of sales of all cigarettes sold by the licensed distributor or holder of a certificate of authority that were manufactured by a non-participating manufacturer and any other information relied upon in reporting to the director.

b. The director is authorized to disclose to the Attorney General any information received under [this act] P.L.2003, c.25 (c.52:4D-4 et seq.) or requested by the Attorney General for purposes of determining compliance with and enforcing the provisions of [this act] P.L.2003, c.25 (c.52:4D-4 et seq.). The director and Attorney General shall share with each other the information received under [this act] P.L.2003, c.25 (c.52:4D-4 et seq.), and may share such information with other federal, State or local agencies only for purposes of enforcement of [this act] P.L.2003, c.25 (c.52:4D-4 et seq.), P.L.1999, c.148 (C.52:4D-1 et seq.), or the corresponding laws of other states, and with the data clearinghouse or similar entity established pursuant to the settlement of accrued claims for the 2003 through 2014 non-participating manufacturer adjustment, as described in the provisions of section IX(d) of the Master Settlement Agreement.

c. The Attorney General may require at any time that a non-participating manufacturer provide from the financial institution in which the manufacturer has established a qualified escrow fund for the purpose of compliance with P.L.1999, c.148 (C.52:4D-1 et seq.), proof of the amount of money in the fund being held on behalf of the State and the dates of deposits, and listing the amounts of all withdrawals from the fund and the dates thereof.

d. In addition to the information required to be submitted pursuant to this section, the director or Attorney General may require a stamping agent, licensed distributor, holder of a certificate of authority pursuant to section 6 of P.L.1990, c.39 (C.54:40B-6), or tobacco product manufacturer to submit any additional information including, but not limited to, samples of the packaging or labeling of each brand family, as is necessary to enable the Attorney General to determine whether a tobacco product manufacturer is in compliance with this act.

e. To promote compliance with the provisions of [this act] P.L.2003, c.25 (c.52:4D-4 et seq.), the Attorney General may promulgate regulations requiring a tobacco product manufacturer subject to the requirements of paragraph (2) of subsection a. of section 3 of [this act] P.L.2003, c.25 (C.52:4D-4 et seq.) to make the escrow deposits required in more frequent installments during the year in which the sales covered by the deposits are made. The Attorney General may require production of information sufficient to enable the Attorney General to determine the adequacy of the amount of the installment deposit.

(cf: P.L.2003, c.25, s.7)

4. Section 8 of P.L.2003, c.25 (C.52:4D-11) is amended to read as follows:

8. a. In addition to or in lieu of any other civil or criminal remedy provided by law, upon a determination that any person has violated section 5 of P.L. , c. (C. ) (pending before the Legislature as this bill) or section 5 of [this act] P.L.2003, c.25 (C.52:4D-8) or subsection d. of section 6 of P.L.2003, c.25 (C.52:4D-9) or any regulation adopted pursuant thereto, the director may revoke or suspend the license of any person pursuant to section 203 of P.L.1948, c.65 (C.54:40A-5) or revoke or suspend the holder's certificate of authority pursuant to procedures applicable to the suspension of a license set forth in section 203 of P.L.1948, c.65 (C.54:40A-5). Each stamp or metered impression affixed and each offer to sell cigarettes in violation of section 5 of [this act] P.L.2003, c.25 (C.52:4D-8) shall constitute a separate violation. For each violation hereof, the director may also impose a civil penalty in an amount not to exceed the greater of 500% of the retail value of the cigarettes sold or $5,000 upon a determination of violation of section 5 of [this act] P.L.2003, c.25 (C.52:4D-8) or any regulations adopted pursuant thereto.

b. Any cigarettes that have been sold, offered for sale or possessed for sale in this State in violation of section 5 of [this act] P.L.2003, c.25 (C.52:4D-8) shall be deemed contraband, without regard to whether the violation was knowing under section 607 of P.L.1948, c. 65 (C.54:40A-30), and those cigarettes shall be subject to seizure and forfeiture as provided in section 607, and all cigarettes so seized and forfeited shall be destroyed and not resold.

c. The Attorney General, on behalf of the director, may seek an injunction to restrain a threatened or actual violation of: section 5 of P.L. c. (C. ) (pending before the Legislature as this bill); section 5 of [this act] P.L.2003, c.25 (C.52:4D-8); or subsection d. of section 6 of P.L.2003, c.25 (C.52:4D-9); or subsection a. or subsection b. of section 7 of [this act] P.L.2003, c.25 (C.52:4D-10) by a licensed distributor or a holder of a certificate of authority pursuant to section 6 of P.L.1990, c.39 (C.54:40B-6) and to compel the licensed distributor or holder of a certificate of authority to comply with the requirements provided therein. In any action brought pursuant to this section, the State shall be entitled to recover the costs of investigation, costs of the action and reasonable attorney fees.

d. It shall be unlawful for any person to sell or distribute cigarettes or acquire, hold, own, possess, transport, import, or cause to be imported cigarettes that the person knows or should know are intended for distribution or sale in the State in violation of section 5 of [this act] P.L.2003, c.25 (C.52:4D-8). A violation of this subsection shall be a crime of the third degree.

(cf: P.L.2003, c.25, s.8)

5. (New section) A non-participating manufacturer that is not listed in the directory of manufacturers established pursuant to section 4 of P.L.2003, c.25 (C.52:4D-7) shall not be included in the directory until it posts a bond for the benefit of the State in the manner described herein:

a. The bond shall be posted by corporate surety in an amount equaling the greatest required escrow due from the non-participating manufacturer or its predecessor for any of the four preceding calendar years or $25,000, whichever amount is higher;

b. The bond shall be conditioned on the performance by the non-participating manufacturer of all its duties and obligations imposed by section 3 of P.L.1999, c.148 (C.52:4D-3), section 3 of P.L.2003, c.25 (C.52:4D-6), section 5 of P.L.2003, c.25 (C.52:4D-8) and section 6 of P.L.2003, c.25 (C.52:4D-9);

c. If a non-participating manufacturer that posted a bond has failed to make or have made on its behalf deposits equal to the full amount of escrow owed for a given year, within fifteen days following the due date for the deposit the State may execute upon the bond to recover any amount the non-participating manufacturer failed to deposit into escrow, as well as civil penalties, the costs of investigation, costs of the action and reasonable attorneys’ fees pursuant to subsections a. and c. of section 8 of P.L.2003, c.25 (C.52:4D-11); and

d. The bond shall be posted by April 15 of each calendar year as a condition to the inclusion of a non-participating manufacturer and its brand families in the directory of manufacturers for that year.

6. This act shall take effect on January 1, 2015.

STATEMENT

This bill modifies the “Model Statute” enacted by New Jersey in accordance with the “Master Settlement Agreement,” the national tobacco settlement reached on November 23, 1998 between the states’ attorneys general and the largest tobacco manufacturers. The modifications are required as a result of the “NPM Settlement Agreement” among 22 states, including New Jersey, and certain manufacturers of tobacco products, affirmed in March 2013.

In 1998, New Jersey, along with 51 other settling states and jurisdictions, entered into a Master Settlement Agreement (“MSA”) with major tobacco manufacturers, after the states had sued tobacco manufacturers to recover Medicaid and other health-related costs incurred as a result of smoking. Among other things, the MSA obligated the participating tobacco manufacturers to pay millions of dollars to the states in settlement of these anticipated claims. However, one of the ramifications of the MSA was that the participating manufacturers’ settlement costs were likely to place them at a competitive disadvantage when compared with the tobacco manufacturers that chose not to participate in the MSA, henceforth known as non-participating manufacturer(s), or “NPM(s).” To counteract this result and remove a disincentive that might prevent NPMs from joining the MSA, each settling state as part of the MSA agreed to enact a “Model Statute” that would compel each NPM to make payments into an escrow account in amounts comparable to what it would have paid to the state had it participated in the MSA. New Jersey passed its version of the Model Statute as P.L.1999, c.148, (C.52:4D-1 et seq).

The MSA included a provision known as an “NPM adjustment,” which was intended to ensure that each settling state would duly enforce its Model Statute. The NPM adjustment would enable participating manufacturers to reduce payments otherwise required under the MSA if the participating manufacturer market share were to decline by 2% or more, an independent economic consultant were to conclude that the MSA significantly contributed to this decline, and an arbitrator were to determine that a given state failed to diligently enforce its Model Statute.

Following a determination of reduced market share and analysis of the MSA’s impact on that decline, some participating manufacturers reduced or withheld payments required under the MSA, asserting an NPM adjustment based on an alleged failure by numerous individual states to diligently enforce the Model Statute. The dispute encompassed NPM adjustments for the period from 2003 through 2012. An arbitration panel was established and eventually began conducting hearings. Consequently, several states sought to negotiate toward a resolution with the tobacco industry. In December 2012, twenty-two states, including New Jersey, reached a settlement of their respective disputes with the participating manufacturers. In March 2013, the arbitration panel affirmed the NPM Settlement Agreement.

The NPM Settlement Agreement apportions withheld funds between the manufacturers and the settling states and makes various other changes to how future NPM adjustments will be calculated for states that participate. As part of the settlement, the settling states agreed to pursue two changes to their respective Model Statutes:

(1) amending the definition of “units sold” to include all NPM cigarettes sold in the state, not just those that are taxed and bear excise tax stamps; and

(2) sharing certain information with a “Data Clearinghouse” to facilitate the tracking of NPM cigarettes.

This bill effectuates those changes to the Model Statute, as contemplated by the NPM Settlement Agreement, by amending the definition of “units sold” to include all NPM cigarettes sold in New Jersey, and by authorizing the Division of Taxation to disclose certain information to the Attorney General, to permit disclosure of that information to the Data Clearinghouse as well.

In addition to the changes above, the bill effectuates the following additional modifications to the Model Statute which are intended to facilitate the State’s diligent enforcement of the Model Statute, including requiring the posting of escrow bonds by certain non-participating manufacturers, and requiring importers of foreign NPM products to be joint and severally liable for taxes, escrow and penalties.