New York Governor’s Executive Budget Proposal
Regarding Taxation of Cigars
December 16, 2008
Part R – Reform the tobacco products and cigarette taxes to remedy various compliance and enforcement problems and convert the tax on cigars from a value-based tax to a per-unit tax
Purpose:
The purpose of this bill is to reform the tobacco products and cigarette taxes imposed by Article 20 of the Tax Law to remedy various compliance and enforcement problems and to change the method of calculating the tobacco products tax imposed by Article 20 of the Tax Law on cigars from a percentage of wholesaler’s price to a 50 cent tax imposed per cigar.
Statement in Support, Summary of Provisions, Existing Law, and Prior Legislative History:
The tobacco products tax and cigarette excise taxes are in need of reform to address various compliance and enforcement problems. This bill would eliminate the condition that a product can be defined as a cigarette only if it is deemed a cigarette by Federal statute. It would thus allow little cigars that are practically indistinguishable from cigarettes to be treated and taxed like cigarettes. The imposition of a 50 cent per unit tax on cigars can be administered more easily, especially with respect to refunds. It makes clear exactly what tobacco products excise and use taxes are due on cigars, and eliminates the use of the wholesale price as a basis of tax, thus precluding manipulation of wholesale price information to deprive the State of legitimate tobacco tax revenues.
This bill would also enhance compliance with, and enforcement of, the tobacco products tax by providing more effective penalties for the possession or sale of contraband tobacco products. Penalties for failure to file informational returns as required are added to assist in the collection of third party information that is needed to identify unreported transactions on audit, to enable the Department to use its audit resources more efficiently, and to permit more effective audits.
In addition, the bill would incorporate, for both tobacco products and cigarette licenses, additional grounds for review based upon suitability and past criminal conduct to help address situations where the applicant should not be licensed or where a license should be canceled or suspended. The character and fitness amendment would provide authority similar (though somewhat narrower than) to that provided to the State Liquor Authority for determining whether to grant or deny a license and whether a current license should be canceled or suspended. Furthermore, the addition of "responsible person" penalties to Article 20 should help control evasion of these taxes by having the liability for evasion attach to those individuals responsible for making sure the tax is paid.
Section 1 of the bill would amend §470 of the Tax Law to remove from the definition of a cigarette the restriction that a product be treated as a cigarette for purposes of the Federal excise tax.
Section 2 of the bill would amend §471-b of the Tax Law to change the tax rate of the Article 20 tobacco products tax on cigars from 37 percent of the wholesaler’s price to 50 cents per cigar. Section 3 of the bill would amend §471-c of the Tax Law to make the parallel change to the rate of the use tax on cigars.
Section 4 of the bill would amend §480 of the Tax Law to add the suitability of the applicant or certain officers and owners of the applicant as an additional criterion for the review of an application for a license under Article 20. Section 5 would amend § 480 to add additional bases for the cancellation or suspension of licensees under Article 20, including conviction of a crime bearing on their duties and obligations, conviction of a crime of moral turpitude, and conduct bearing on the licensee's character and fitness.
Section 6 of the bill would amend §480-a of the Tax Law to authorize the Department to suspend or revoke a retail dealer’s certificate of registration if that dealer possesses or sells contraband tobacco products.
Section 7 of the bill would amend §481 of the Tax Law to entirely revise the civil penalties for the possession of contraband tobacco products, other than cigars and snuff. The civil penalty would be 200 percent of the amount of the tobacco products tax on tobacco, other than cigars and snuff, that was not paid or assumed when due. The penalty would apply when and to the extent the amount of tobacco products, other than snuff and cigars, equals or exceeds five pounds. This section would also impose penalties on informational return filers for failing to timely file, failing to file within sixty days of the due date of the return, failing to complete the return in full, and failing to provide accurate information.
Section 8 of the bill would add a new subdivision 2-a to §481 of the Tax Law to impose a monetary penalty equal to the total amount of the tax not paid upon persons who, in their capacity as representative of a corporation, partnership, or sole proprietorship, fail to pay the taxes under Article 20. The penalty imposes tax liability on those individuals responsible for making sure the tax is paid.
Section 9 of the bill would provide that section one of the bill takes effect April 1, 2009, and would establish a transition rule for the certifications required from cigarette manufacturers under section 480-b.1 of the Tax Law. It also would provide that sections two, three and four of the bill would take effect on April 1, 2009 and apply the 50 cent tax per cigar prospectively only, not on existing inventory. It also provides that all other sections of this act would take effect on the first day of the first month next occurring 90 days after this act becomes a law and would apply to sales made on or after this date.
The Tax Law now limits the definition of cigarettes to include only what is deemed a cigarette by federal statute. Currently all tobacco products other than snuff are taxed under the Article 20 tobacco products tax at the rate of thirty-seven percent of the wholesale price. The use tax is imposed at the same rate.
With respect to applications, the suitability of the applicant or its officers or owners is not directly considered in either reviewing the application or deciding whether to cancel or suspend a license. The Tax Law authorizes the Department to cancel or suspend a license when the licensee or its officers or owners have been convicted of a felony bearing on their duties and obligations under the Tax Law. This same authority does not exist in situations where the licensee or its officers or owners have been convicted of a misdemeanor bearing on these same duties and obligations. The Tax Law authorizes the Department to suspend or revoke a retail dealer’s certificate of registration when a retail dealer possesses or sells unstamped or unlawfully stamped cigarettes, but does not provide a suspension or revocation remedy for possessing or selling contraband tobacco products.
Civil penalties for tobacco products are based upon the quantity of tobacco products and also contain certain monetary ceilings. There are no specific penalties for the failure to timely file or accurately complete informational returns.
Currently, Article 20 does not include a "responsible person" provision. Such a provision, which can be found in the sales, withholding, and motor fuel taxes, imposes personal liability for tax on those individuals who are responsible for ensuring that the taxpayer's tax obligation is met.
Budget Implications:
Enactment of this bill is necessary to implement the 2009-10 Executive Budget because these provision will generate $10 million in revenue in 2009-10 and $15 million annually thereafter.
Effective Date:
This bill takes effect immediately; provided however that section one takes effect April 1, 2009; provided, further, that any tobacco product manufacturer is required to file a certification between April 16 and April 30, 2008, under §480-b.1 of the Tax Law, with respect to cigarettes that are first being defined as cigarettes as a result of the amendments made by this bill. The certification must be filed no later than 60 days after the date this bill becomes a law. Sections two, three, and four take effect April 1, 2009, and apply to cigars that first become subject to taxation under Article 20 of the Tax Law on or after that date. All other sections of this bill take effect on the first day of the first month next occurring 90 days after this bill becomes a law and apply to sales made on or after this date.
17 PART R18 Section 1. Subdivision 1 of section 470 of the tax law, as amended by
19 section 1 of part MM1 of chapter 57 of the laws of 2008, is amended to
20 read as follows:
21 1. "Cigarette." (a) Any roll for smoking made wholly or in part of
22 tobacco or of any other substance wrapped in paper or in any other
23 substance not containing tobacco, and (b) any roll for smoking made
24 wholly or in part of tobacco wrapped in any substance containing tobacco
25 that, because of its appearance, the type of tobacco used in the filler,
26 or its packaging and labeling, is likely to be offered to, or purchased
27 by, consumers as a cigarette described in paragraph (a) of this subdivi-
28 sion. [However, a roll will not be considered to be a cigarette for
29purposes of paragraph (b) of this subdivision if it is not treated as a
30cigarette for federal excise tax purposes under the applicable federal
31statute in effect on April first, two thousand eight.]
32 § 2. Paragraph (a) of subdivision 1 of section 471-b of the tax law,
33 as amended by section 2 of part QQ1 of chapter 57 of the laws of 2008,
34 is amended and a new paragraph (c) is added to read as follows:
35 (a) Such tax on tobacco products other than snuff and cigars shall be
36 at the rate of thirty-seven percent of the wholesale price, and is
37 intended to be imposed only once upon the sale of any tobacco products
38 other than snuff and cigars.
39(c) Such tax on cigars shall be at the rate of fifty cents per cigar.
40 § 3. Section 471-c of the tax law, as separately amended by section 3
41 of part QQ1 of chapter 57 and chapter 552 of the laws of 2008, is
42 amended to read as follows:
43 § 471-c. Use tax on tobacco products.(a) There is hereby imposed and
44 shall be paid a tax on all tobacco products used in the state by any
45 person, except that no such tax shall be imposed (1) if the tax provided
46 in section four hundred seventy-one-b of this article is paid, or (2) on
47 the use of tobacco products which are exempt from the tax imposed by
48 said section, or (3) on the use of two hundred fifty cigars or less, or
49 five pounds or less of tobacco other than roll-your-own tobacco, or
50 thirty-six ounces or less of roll-your-own tobacco brought into the
51 state on, or in the possession of, any person.
52 [(a)](i) Such tax on tobacco products other than snuff and cigars
53 shall be at the rate of thirty-seven percent of the wholesale price.
S. 60 85 A. 160
1 [(b)] (ii) Such tax on snuff shall be at the rate of ninety-six cents
2 per ounce and a proportionate rate on any fractional parts of an ounce,
3 provided that cans or packages of snuff with a net weight of less than
4 one ounce shall be taxed at the equivalent rate of cans or packages
5 weighing one ounce. Such tax shall be computed based on the net weight
6 as listed by the manufacturer.
7(iii) Such tax on cigars shall be at the rate of fifty cents per
8cigar.
9(b) Within twenty-four hours after liability for the tax accrues, each
10 such person shall file with the commissioner a return in such form as
11 the commissioner may prescribe together with a remittance of the tax
12 shown to be due thereon. For purposes of this article, the word "use"
13 means the exercise of any right or power actual or constructive and
14 shall include but is not limited to the receipt, storage or any keeping
15 or retention for any length of time, but shall not include possession
16 for sale. All the other provisions of this article, if not inconsistent,
17 shall apply to the administration and enforcement of the tax imposed by
18 this section in the same manner as if the language of said provisions
19 had been incorporated in full into this section.
20 § 4. Paragraphs (e) and (f) of subdivision 2 of section 480 of the tax
21 law, as amended by chapter 744 of the laws of 1990, are amended and a
22 new paragraph (g) is added to read as follows:
23 (e) [Any] Such applicant or any controlling person [of such applicant]
24 has committed any of the acts specified in subdivision three of this
25 section within the preceding five years, [or]
26 (f) Such applicant or any controlling person has been finally deter-
27 mined to have violated any of the provisions of this article or article
28 twenty-A of this chapter, or any rule or regulation adopted pursuant to
29 this article or article twenty-A of this chapter[.], or
30(g) After carefully evaluating the character, fitness, experience,
31maturity and financial responsibility of the applicant or any control-
32ling person, the commissioner determines that the public convenience and
33advantage would not be served by approval of the application.
34 § 5. Subparagraphs (ii), (iii) and (iv) of paragraph (b) of subdivi-
35 sion 3 of section 480 of the tax law, subparagraphs (ii) and (iii) as
36 added by chapter 860 of the laws of 1987 and subparagraph (iv) as
37 amended by chapter 61 of the laws of 1989, are amended and two new
38 subparagraphs (v) and (vi) are added to read as follows:
39 (ii) Has been convicted in a court of competent jurisdiction, either
40 within or without the state, of a [felony]crime, bearing on the
41 licensee's duties and obligations under this chapter,
42 (iii) Has impersonated any person represented to be a wholesale dealer
43 under this article but not in fact licensed under this section, [or]
44 (iv) Has knowingly aided and abetted the sale of cigarettes or tobacco
45 products by a person which such licensee or controlling person knows (A)
46 has not been licensed by the commissioner [of taxation and finance] and
47 (B) is a wholesale dealer pursuant to the terms of subdivision eight of
48 section four hundred seventy of this [chapter.] article,
49(v) Has been convicted in a court of competent jurisdiction, either
50within or without the state, of a crime involving moral turpitude, or
51(vi) Has engaged in conduct which bears on the licensee's or control-
52ling person's character, fitness, experience, maturity or financial
53responsibility and would have allowed the commissioner to refuse to
54issue a license to such licensee.
S. 60 86 A. 160
1 § 6. Paragraphs (a) and (b) of subdivision 4 of section 480-a of the
2 tax law, as added by chapter 629 of the laws of 1996, are amended to
3 read as follows:
4 (a) If a retail dealer possesses or sells unstamped or unlawfully
5 stamped packages of cigarettes, or if a retail dealer is also licensed
6 as an agent pursuant to section four hundred seventy-two of this article
7 and it possesses unlawfully stamped packages of cigarettes or sells
8 unstamped or unlawfully stamped packages of cigarettes at retail, or if
9a retail dealer possesses or sells tobacco products with respect to
10which the tobacco products tax has not been paid or assumed by a
11distributor or a tobacco products dealer, (i) its registration shall be
12 suspended for a period of not more than six months, or (ii) for a second
13 such possession or sale within a period of five years, its registration
14 shall be suspended for a period of up to thirty-six months, or (iii) for
15 a third such possession or sale within a period of five years, its
16 registration may be revoked for a period of up to five years. A retail
17 dealer registration shall be suspended or revoked pursuant to this
18 subdivision immediately upon such dealer's receipt of written notice of
19 suspension or revocation from the commissioner. If a retail dealer sells
20 cigarettesor tobacco products through more than one place of business
21 in this state, the retail dealer registration shall not be suspended or
22 revoked pursuant to this subdivision, but the certificate of registra-
23 tion issued to the place of business, cart, stand, truck or other
24 merchandising device where unstamped or unlawfully stamped cigarettes or
25tobacco products with respect to which the tobacco products tax has not
26been paid or assumed by a distributor or a tobacco products dealer were
27 found shall be suspended or cancelled for possession or sale of
28 unstamped or unlawfully stamped packages of cigarettes or such tobacco
29products, as if such certificate of registration were a retail dealer
30 registration. A suspension or cancellation of a certificate of registra-
31 tion shall be treated as if it were a suspension or revocation of a
32 registration. If unstamped or unlawfully stamped cigarettes or such
33tobacco products are found in a retail dealer's warehouse, the suspen-
34 sion or revocation of the retail dealer's registration pursuant to this
35 subdivision shall be applicable to each retail place of business in this
36 state through which such retail dealer sells cigarettesor tobacco
37products.
38 (b) A retail dealer who is notified of a suspension or revocation of
39 its registration pursuant to this subdivision shall have the right to
40 have the suspension or revocation reviewed by the commissioner or his or
41her designee by contacting the department at a telephone number or an
42 address to be disclosed in the notice of suspension or revocation within
43 ten days of such dealer's receipt of such notification. The retail deal-
44 er may present written evidence or argument in support of its defense to
45 the suspension or revocation, or may appear at a scheduled conference
46 with the commissioner or his or her designee to present oral arguments
47 and written and oral evidence in support of such defense. The commis-
48 sioner or his or her designee is authorized to delay the effective date
49 of the suspension or revocation to enable the retail dealer to present
50 further evidence or arguments in connection with the suspension or revo-
51 cation. The commissioner or his or her designee shall cancel the suspen-
52 sion or revocation of registration if the commissioner or his or her
53 designee is not satisfied by a preponderance of the evidence that the
54 retail dealer possessed or sold unstamped or unlawfully stamped packages
55 of cigarettesor tobacco products with respect to which the tobacco
S. 60 87A. 160
1products tax had not been paid or assumed by a distributor or a tobacco
2products dealer.
3 § 7. Paragraph (b) of subdivision 1 of section 481 of the tax law, as