Amends the percentages used to determine the presumed cost of doing business for agents and wholesale dealers that sell cigarettes.
BILL NUMBER: S1891D
TITLE OF BILL :
An act to amend the tax law, in relation to amending the percentages used to determine the presumed cost of doing business for agents, and wholesale and retail dealers of cigarettes and to amend the tax law, in relation to requiring the use of encrypted counterfeit-resistant cigarette tax stamps or markers
PURPOSE OR GENERAL IDEA OF BILL :
Amends the percentages used to determine the presumed cost of doing business for agents, retailers and wholesale dealers that sell cigarettes. Further, it enhances the current system used to collect cigarette taxes to raise additional revenue for the state of New York.
SUMMARY OF SPECIFIC PROVISIONS :
Section 1: Amends Tax Law section 483(b)(2) to increase the presumed cost of doing business from seven-eighths of a percent to two and five-eighths percent of the basic cost of cigarettes for sales to wholesale dealers. It also increases from one and one-half percent to four and one/half percent the percentage of the basic cost for sales to chain stores and from three and seven-eighths percent to six and one-half percent the percentage of basic costs for sales to retail dealers.
All percentages are in addition to a fixed component, left unchanged, of plus one cent per package of ten cigarettes, two cents per package of twenty cigarettes, and two and one-half cents per package exceeding twenty cigarettes. Also provides that the cost of doing business of the wholesale dealer making a sale with respect to sales to retail dealers shall be presumed to be increased from three to three and seven-eighths percent of the basic cost, and from five-eighths of one percent to one and seven-eighths percent of the basic cost with respect to sales to chain stores.
Section 2: Amends Tax Law section 483(b)(3) provide that the cost of doing business by the retail dealer shall be presumed to be increased from seven to eleven percent of the basic cost plus the cost of doing business by the agent with respect to cigarettes sold to retail dealers.
Section 3: Adds a new Tax Law section 472-a to require the Department of Taxation and Finance to incorporate a new encrypted counterfeit-resistant tax stamp or other means of identification for the collection of taxes on cigarettes and, at the discretion of the Commissioner, other tobacco products. This provision establishes standards for creating such an enhanced cigarette tax collection system. The cost of establishing this enhanced tax collection system shall be borne by wholesale cigarette dealers that are also licensed agents that are authorized to buy and affix tax stamps. The Cigarette Wholesalers Association is in support of this proposal.
Section 4: This free standing section of the law outlines the procedure for conducting a Request for proposal and time periods to select a vendor to operate such a system.
Section 5: Amends Tax Law section 472 to give the commissioner of Taxation and Finance the discretion to also use the tax stamp collection system and the new enhanced encrypted stamp on other tobacco products.
Section 6: Amends Tax Law section 480 to make it clear that the cost of establishing this system will be borne by wholesale cigarette dealers.
Increased excise taxes on tobacco in New York State, the passage of the bottle disposal legislation and a variety of other measures have created a difficult burden on convenience stores, bodegas and a variety of other retail and wholesale outlets. This legislation would give retailers and distributors a small but badly needed increase in their retail price. This legislation confers no benefits to manufacturers of tobacco products.
Due to the high tax rate on cigarettes in New York, there is an increasing amount of tax avoidance with regard to the purchase and delivery of cigarettes in this State. For example, over the past 7 years, the number of cartons of cigarettes legally sold and taxed has decreased from approximately 95 million cartons to only 45 million cartons annually. National studies have indicated that the demand for cigarettes is gradually declining; however demand had not been cut in half over the past 7 years. This sizable reduction has been caused, in part, by an increasing black market for the distribution of untaxed cigarettes. This bill establishes a newer system of tax collection to help minimize the evasion of the payment of cigarette taxes and reduce the amount of cigarettes that are sold on the black market.
In 2006, The Department of Health estimated that New York state may be losing as much as $550 million in taxes through the illegal sales of untaxed cigarettes. Other estimates maintain that up to 35% of all cigarettes sold in this State are not stamped legally for proper tax collection. The State of New York may be potentially losing up to hundreds of millions of dollars in uncollected revenues due to the illegal sale cigarettes. Further, those participating in this black market include organized crime and, perhaps terrorist organizations, who use revenue gained from this activity for their nefarious activities.
Last year the U.S. House Committee on Homeland Security completed an investigation on cigarette smuggling in New York, and they concluded that terrorist organizations, such as Hamas and Hezbollah, were benefiting from untaxed cigarette sales. Further, that this activity was causing losses in State revenue in the hundreds of millions of dollars.
California was one of the first states in the nation to implement this new encrypted tax collection system and to phase out its old heat applied decal stamp tax collection system. Further, a California Auditor's report indicated that this new system has helped to significantly reduce tax avoidance in that State. Another benefit of the new encrypted system is that law enforcement agents will be able to utilize hand held scanning devices to monitor cigarette shipments and detect false or illegally stamped cigarettes.
PRIOR LEGISLATIVE HISTORY : This bill has been previously introduced as S.4802 in 2006 and S.2281 in 2007.
FISCAL IMPLICATIONS :
Increasing the minimum price of cigarettes sold in New York should help to generate $18 million annually to the State in increased revenue. Further, the establishment of a new encrypted cigarette tax collection system should raised significant amounts of money, perhaps well over tens of millions of dollars.
EFFECTIVE DATE : This act shall take effect immediately.
STATE OF NEW YORK ________________________________________________________________________ 1891--D 2009-2010 Regular Sessions IN SENATE February 9, 2009 ___________Introduced by Sens. KLEIN, DILAN, ESPADA, GOLDEN, HASSELL-THOMPSON, C. JOHNSON, KRUGER, SAVINO, STACHOWSKI -- read twice and ordered printed, and when printed to be committed to the Committee on Investi- gations and Government Operations -- committee discharged, bill amended, ordered reprinted as amended and recommitted to said commit- tee -- committee discharged, bill amended, ordered reprinted as amended and recommitted to said committee -- reported favorably from said committee and committed to the Committee on Finance -- committee discharged, bill amended, ordered reprinted as amended and recommitted to said committee -- committee discharged, bill amended, ordered reprinted as amended and recommitted to said committee AN ACT to amend the tax law, in relation to amending the percentages used to determine the presumed cost of doing business for agents, and wholesale and retail dealers of cigarettes and to amend the tax law, in relation to requiring the use of encrypted counterfeit-resistant cigarette tax stamps or markers THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Subparagraph (B) of paragraph 1 and subparagraph (B) of paragraph 2 of subdivision (b) of section 483 of the tax law, subpara- graph (B) of paragraph 1 as amended by chapter 1 of the laws of 1999 and subparagraph (B) of paragraph 2 as amended by chapter 4 of the laws of 1988, are amended to read as follows: (B) In the absence of the filing with the commissioner of satisfactory proof of a lesser cost of doing business of the agent making the sale, the cost of doing business by the agent shall be presumed to be
[seven- eighths of one]TWO AND FIVE-EIGHTHS percent of the basic cost of ciga- rettes for sales to wholesale dealers plus one cent per package of ten cigarettes, two cents per package of twenty cigarettes and in the case of a package containing more than twenty cigarettes, two cents and one- half of a cent for each five cigarettes in excess of twenty cigarettes,EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD02907-18-9 S. 1891--D 2 [one]FOUR and one-half percent of the basic cost of cigarettes for sales to chain stores plus one cent per package of ten cigarettes, two cents per package of twenty cigarettes and in the case of a package containing more than twenty cigarettes, two cents and one-half of a cent for each five cigarettes in excess of twenty cigarettes and [three and seven-eighths]SIX AND ONE-HALF percent of the basic cost of cigarettes with respect to sales to retail dealers plus one cent per package of ten cigarettes, two cents per package of twenty cigarettes and in the case of a package containing more than twenty cigarettes, two cents and one- half of a cent for each five cigarettes in excess of twenty cigarettes and the foregoing cents per pack shall be included in the "cost of doing business by the agent" referred to in paragraphs two and three of this subdivision. (B) In the absence of the filing with the tax commission of satisfac- tory proof of a lesser cost of doing business of the wholesale dealer making the sale, the cost of doing business by the wholesale dealer with respect to sales to retail dealers shall be presumed to be three AND SEVEN-EIGHTHS per centum of the basic cost of cigarettes, and with respect to sales to chain stores, [five-eighths of]one AND SEVEN-EIGHTHS percent of the basic cost of cigarettes. S 2. Subparagraph (B) of paragraph 3 of subdivision (b) of section 483 of the tax law, as amended by chapter 744 of the laws of 1990, is amended to read as follows: (B) In the absence of the filing with the commissioner of taxation and finance of satisfactory proof of a lesser cost of doing business by the retail dealer making the sale, the cost of doing business by the retail dealer shall be presumed to be [seven]ELEVEN per centum of the sum of the basic cost of cigarettes plus the cost of doing business by the agent with respect to cigarettes sold to retail dealers. S 3. The tax law is amended by adding a new section 472-a to read as follows: S 472-A. PROVISION FOR ENHANCED CIGARETTE AND TOBACCO TAX COLLECTIONS. 1. PURSUANT TO THE POWERS VESTED IN THE COMMISSIONER UNDER THIS ARTICLE TO COLLECT TAXES ON CIGARETTES AND TOBACCO PRODUCTS, THE COMMISSIONER SHALL INCORPORATE AN ENHANCED SYSTEM TO SECURE THE COLLECTION OF SUCH TAXES DUE TO THE STATE. SUCH AN ENHANCED SYSTEM SHALL USE AN ENCRYPTED COUNTERFEIT-RESISTANT TAX STAMP OR OTHER MARKING SYSTEM TO INDICATE THAT THE TAXES ON SUCH CIGARETTE AND TOBACCO PRODUCTS HAVE BEEN PAID. SUCH SYSTEM SHALL BE COMPRISED OF AT LEAST THE FOLLOWING ITEMS: (A) THE USE OF ENCRYPTED TAX STAMPS OR OTHER MARKINGS BY STAMPING AGENTS LICENSED PURSUANT TO SECTION FOUR HUNDRED SEVENTY-TWO OF THIS ARTICLE AND OTHER TAX COLLECTION SYSTEMS OR MARKERS USED BY THE COMMIS- SIONER TO COLLECT CIGARETTE AND TOBACCO PRODUCT TAXES. SUCH STAMPS OR MARKERS SHALL BE ENCRYPTED TO IDENTIFY, AT A MINIMUM: (I) THE NAME AND ADDRESS OF THE LICENSED STAMPING AGENT AFFIXING THE STAMP OR OTHER MARKER; (II) THE DATE SUCH STAMP OR OTHER MARKER WAS AFFIXED TO THE PRODUCT; AND (III) THE DENOMINATED VALUE OF THE STAMP OR METER IMPRESSION. (B) THE SECURE MANAGEMENT OF ANY DATA REQUIRED UNDER PARAGRAPH (A) OF THIS SUBDIVISION AND OTHER DATA AS MAY BE REQUIRED BY THE COMMISSIONER; (C) THE ENFORCEMENT OF SECTION FOUR HUNDRED SEVENTY-TWO OF THIS ARTI- CLE, INCLUDING SUCH DEVICES AS MAY BE USED BY THE DEPARTMENT AND OTHER STATE EMPLOYEES AUTHORIZED BY THE COMMISSIONER. 2. SUCH ENCRYPTED TAX STAMPS OR OTHER MARKERS SHALL:S. 1891--D 3
(A) BE PRODUCED IN A PROVEN SECURE FACILITY AS CERTIFIED BY THE COMMISSIONER; (B) INCORPORATE A MINIMUM OF FOUR LAYERS OF OVERT, SEMI-COVERT AND COVERT DATA; (C) BE APPLIED BY MACHINES OR OTHER MEANS WHEREUPON THE ENCRYPTED DATA SHALL BE INSTANTANEOUSLY CAPTURED AND STORED BY AND FOR THE COMMISSION- ER; (D) BE READABLE AND TRACEABLE FROM THE POINT OF STAMP PRODUCTION TO SUCH POINT AS DEEMED APPROPRIATE BY THE COMMISSIONER; AND (E) BE CAPABLE OF BEING READ BY A SCANNING OR SIMILAR DEVICE THAT CAN BE UTILIZED BY ENFORCEMENT AGENTS OF THE STATE AND OTHERS DEEMED APPRO- PRIATE BY THE COMMISSIONER. 3. SUCH SYSTEM SHALL BE PERIODICALLY UPDATED TO FURTHER MINIMIZE THE EVASION OF THE COLLECTION OF CIGARETTE AND TOBACCO TAXES DUE TO THE STATE. 4. EVERY WHOLESALE DEALER THAT IS A LICENSED AGENT TO BUY AND AFFIX STAMPS TO BE USED IN PAYING THE TAX IMPOSED UNDER THIS ARTICLE SHALL BE REQUIRED TO BEAR THE INITIAL COST AND MAINTENANCE NECESSARY FOR THE DEPARTMENT TO IMPLEMENT SUCH ENHANCED TAX COLLECTION SYSTEM. S 4. The department of taxation and finance shall issue a request for proposals for the purpose of providing the system described in section 472-a of the tax law, as added by section three of this act. Bids from qualified vendors shall be received by the department of taxation and finance no later than 60 days following the issuance of the request for proposal. Any contract issued pursuant to this section shall be issued within 90 days following receipt of bids and installation of such system completed by the successful bidder within 180 days of the issuance of such contract. S 5. Subdivision 1 of section 472 of the tax law, as amended by chap- ter 629 of the laws of 1996, is amended to read as follows: 1. The commissioner shall prescribe, prepare and furnish stamps of such denominations and quantities as may be necessary for the payment of the tax on cigarettes AND, AT THE DISCRETION OF THE COMMISSIONER, ON OTHER TOBACCO PRODUCTS imposed by this article, and may from time to time and as often as he deems advisable provide for the issuance and exclusive use of stamps of a new design and forbid the use of stamps of any other design, in the manner and with the effect provided in section two hundred seventy-four of this chapter. The commissioner shall make provisions for the sale of such stamps at such places and at such times as he may deem necessary and may license agents for such purpose. The commissioner may license dealers in cigarettes, who maintain separate warehousing facilities for the purpose of receiving and distributing cigarettes and conducting their business, who have received commitments from at least two
[cigarette]manufacturers whose aggregate market share is at least forty percent of the New York state [cigarette]market, and importers, exporters and manufacturers of cigarettes, and other persons within or without the state as agents to buy or affix stamps to be used in paying the tax herein imposed, but an agent shall at all times have the right to appoint the person in his employ who is to affix the stamps to any cigarettes under the agent's control. The fee for filing such application for an agent's license shall be one thousand five hundred dollars, unless such fee has been paid during the preceding twelve months, in which case, the fee for a new license shall be one thousand dollars. All of the provisions of section four hundred eighty OF THIS ARTICLE relating to wholesale dealers' licenses, including the procedure for suspension, revocation, refusal to license and for hearings, exceptS. 1891--D 4
for paragraphs (c) and (g) of subdivision one of such section, shall be applicable to agents' licenses applied for or granted pursuant to this section, as if such provisions had been set forth in full in this subdi- vision and had expressly referred to the applicant for, or the holder of, an agent's license. Whenever the commissioner shall sell and deliver to any such agent any such stamps, such agent shall be entitled to receive as compensation for his services and expenses as such agent in selling or affixing such stamps, and to retain out of the moneys to be paid by him for such stamps, a commission on the par value thereof. The commissioner is hereby authorized to prescribe a schedule of commis- sions, not exceeding five per centum, allowable to such agent for buying and affixing such stamps. Such schedule shall be uniform with respect to the different types of stamps used, and may be on a graduated scale with respect to the number of stamps purchased. The commissioner may, in his discretion, permit an agent to pay for such stamps within thirty days after the date of purchase and may require any such agent to file with the department
[of taxation and finance]a bond issued by a surety company approved by the superintendent of insurance as to solvency and responsibility and authorized to transact business in the state or other security acceptable to the commissioner, in such amount as the commis- sioner may fix, to secure the payment of any sums due from such agent pursuant to this article. If securities are deposited as security under this subdivision, such securities shall be kept in the custody of the commissioner and may be sold by the commissioner if it becomes necessary so to do in order to recover any sums due from such agent pursuant to this article, but no such sale shall be had until after such agent shall have had opportunity to litigate the validity of any tax if it elects so to do. Upon any such sale, the surplus, if any, above the sums due under this article shall be returned to such agent. S 6. Subdivision 1 of section 480 of the tax law is amended by adding a new paragraph (g-1) to read as follows: (G-1) IN ADDITION TO THE LICENSE FEE REQUIRED PURSUANT TO THIS SECTION TO OBTAIN A WHOLESALE DEALER'S LICENSE SUCH APPLICANT SHALL ALSO PAY AN ADDITIONAL FEE OR SURCHARGE PURSUANT TO SUBDIVISION FOUR OF SECTION FOUR HUNDRED SEVENTY-TWO-A OF THIS ARTICLE. S 7. This act shall take effect immediately, provided, however, that sections one and two of this act shall take effect on the fourteenth day after it shall have become a law; provided further that section four of this act shall take effect on the one hundred eightieth day after it shall have become a law; provided further that any product in the possession of a cigarette retail dealer on the effective date of this act and stamped to the commissioner of taxation and finance's satisfac- tion may continue to be offered for sale and sold to cigarette purchas- ers.