State Tobacco State Tobacco Legislation UpdateLegislation Update

Ellen Borrow, Esq.Legislative Analyst

Tobacco Merchants Association

FTA Tobacco Conference September 12, 2005

Bozeman, Montana

ellen@tma.org

StateState HighlightsHighlights

State Legislative Tracking – 2005State Legislative Tracking – 2005(As of August 31, 2005)(As of August 31, 2005)

Introduced # of StatesApproved # of States

Anti-Counterfeit 30 21 7 7

Cigarette Fire Safety 24 16 1 1

Internet/Mail Order 27 17 7 6

Cigarette Excise Tax 112 30 9 7

OTP Excise Tax 43 23 6 5

Anti-Counterfeiting/SmugglingAnti-Counterfeiting/Smuggling As of August 31, 2005, there were 30 bills introduced in

21 States with 7 approvals.

This legislation was approved in the following States: FL, GA, HI, MD, SD, TN and VT.

US House Bill 3199 regarding The USA Patriot and Terrorism Prevention Reauthorization Act of 2005 has been referred to Conference Committee. This would amend the “threshold quantity for treatment as contraband cigarettes” by striking “60,000 cigarettes” and inserting “10,000 cigarettes.”

Cigarette Fire Safety Cigarette Fire Safety StandardsStandards

As of August 31, 2005, there were 24 bills introduced in 16 States with 1 approval (VT).

Bills that were introduced in CA, CO, DE, NH and OR passed one house of the legislature.

US House Bill 1850, which was last referred to a House Subcommittee, would create the “Cigarette Fire Safety Act of 2005” that would provide safety standards for cigarettes.

Internet/Mail Order LegislationInternet/Mail Order Legislation As of August 31, 2005, there were 27 bills introduced in 17

States with 6 approvals.

Internet/mail order legislation was approved in the following States: IN, MD, MN, NJ, RI (2) TN, and WY.

For LA and NV, both the State House and Senate have passed bills.

US House Bill 2813 was last referred to the House Committee on Government Reform, would amend the Title 39 of the U.S. Code, and prohibit cigarettes, smokeless tobacco, pipe tobacco, and roll-your-own-tobacco from being sent in the mail.

Both cigarette and OTP tax increase legislation is included in this map.

Cigarette Excise Tax IncreasesCigarette Excise Tax Increases As of August 31, 2005, there were 112 bills

introduced in 30 States with 9 approvals.

Of these 9 approvals, 8 states approved increases in the cigarette excise tax rate with the other (ID) rescinding its sunset clause.

Of the more significant increases, KY increased its tax rate from 3¢ to 30¢ per pack and NC increased its tax rate from 5¢ to 30¢ per pack.

Cigarette Excise Tax IncreasesCigarette Excise Tax Increases ME increased its tax rate from $1.00 to $2.00 per pack.

MN increased its tax rate from $.48 with a sales tax of $.255 per pack and a health impact fee of $.75 per pack to $1.485 per pack.

WA increased its tax rate from $1.425 to $2.025 per pack.

Other increases were enacted in NH (from 52¢ to 80¢ per pack) and OH (55¢ to $1.25 per pack).

Excise Tax Increases on Excise Tax Increases on Other Tobacco Products (OTP)Other Tobacco Products (OTP)

As of August 31, 2005, there were 43 bills introduced in 23 States with 6 approvals.

The following states enacted increases: MN, NH, NC, RI, and WA. KY enacted an OTP excise tax for the first time at the rate of 7.5% of the gross receipts of all other tobacco products except snuff; snuff will be taxed at the rate of 9.5 cents per unit (1.5 ounces).

MN doubled its OTP tax from 35% to 70% of the wholesale sales price.

NH now subjects smoking tobacco (for pipes) to the OTP tax (19% of the wholesale sales price).

NC imposes a tax at 3% of the OTP’s cost.

RI increased its OTP tax from 30% to 40% of the wholesale price.

WA changed its tax structure and actually reduced its OTP tax from 124.9% to 75% of the wholesale price.

Excise Tax Increases on Excise Tax Increases on Other Tobacco Products (OTP)Other Tobacco Products (OTP)

MSA-Related Legislative TrackingMSA-Related Legislative Tracking(As of August 31, 2005)(As of August 31, 2005)

Introduced # of StatesApproved # of States

MSA Compliance 12 10 6 6

Allocable Share 18 12 9 8

Equity Assessment 12 8 0 0

MSA Compliance LegislationMSA Compliance Legislation

As of August 31, 2005 there were 12 bills introduced in 10 States, with 6 approvals. The States in which bills were approved were MT, NV, SC, SD, UT and VA.

All of these States (except SD) impose reporting requirements on manufacturers and distributors.

NV and SC enacted prohibitions on stamping agents from affixing stamps on cigarettes of non-compliant manufacturers.

In addition, NV and SC enacted requirements that non-participating manufacturers make quarterly escrow payments.

MSA Compliance LegislationMSA Compliance Legislation

Allocable share is the percentage that the State receives of the total MSA monies based on actuarial / demographic estimates of its smoking population and the incidence of tobacco-related illnesses among Medicaid recipients back in 1998.

“Equity Assessment” Fee

The “equity assessment” is an additional State per pack “tax” assessed on all

Non-Participating Manufacturer sales in a given State and collected, paid,

administered, and enforced in the same manner as the cigarette excise tax.

TMA.org – MSA Compliance Report

Federal Taxable Removals (TTB-PWC)Federal Taxable Removals (TTB-PWC)vs.vs.

State Taxable Removals (Orze.-Walker)State Taxable Removals (Orze.-Walker)(20.8 billion units in 2004…397bn vs. 377bn)(20.8 billion units in 2004…397bn vs. 377bn)

1 bn packs @ 80 cents (wtd avg) State Tax a pack = $800 million lost1 bn packs @ 80 cents (wtd avg) State Tax a pack = $800 million lost

350

375

400

425

450

475

1998 1999 2000 2001 2002 2003 2004

Federal

State

A Question ….A Question ….

Federal taxable removals have consistently outnumbered State taxable removals but how much of this is due to tribal sales and how much to underreporting?

No one knows for sure. But for 1 billion packs at an average of $1, the weighted average State taxes (excise plus sales tax) per pack, yields a tax revenue loss of $1 billion. Are the tribes selling 20 billion units a year?

The Problem ….The Problem ….

How can the Federal government, the State government and the State Attorneys General agree

upon the correct number of whose cigarettes owe what tax?

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A world of tobacco information at your fingertips.

Thank You,

ellen@tma.org