NY State Assembly Bill 2009-A10373

Assembly Bill A10373

2009-2010 Legislative Session

Amends the percentages used to determine the presumed cost of doing business for agents and wholesale dealers that sell cigarettes

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Archive: Last Bill Status - In Assembly Committee

Introduced
- In Committee Assembly
- In Committee Senate
- On Floor Calendar Assembly
- On Floor Calendar Senate
- Passed Assembly
- Passed Senate
Delivered to Governor
Signed By Governor

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	Assembly Actions - Lowercase Senate Actions - UPPERCASE
Apr 07, 2010	print number 10373a
Apr 07, 2010	amend (t) and recommit to ways and means
Mar 22, 2010	referred to ways and means

Bill Amendments

Original

A (Active)

2009-A10373 - Details

See Assembly Version of this Bill:: A8854
Current Committee:: Assembly Ways And Means
Law Section:: Tax Law
Laws Affected:: Amd §§483, 472 & 480, add §472-a, Tax L

2009-A10373 - Summary

Amends the percentages used to determine the presumed cost of doing business for agents and wholesale dealers that sell cigarettes.

2009-A10373 - Sponsor Memo

                                BILL NUMBER:A10373

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-re-
sistant cigarette tax stamps or markers

PURPOSE OR GENERAL IDEA OF BILL: Amends the Percentages used to deter-
mine 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-resis-
tant 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 ciga-
rette 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 Taxa-
tion 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.

JUSTIFICATION: Increased excise taxes on tobacco in New York State, the
passage of the bottle disposal legislation and a variety of other meas-
ures 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 manufactur-
ers of tobacco products.

Due to the high tax rate on cigarettes in New York, there is an increas-
ing 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 gradu-
ally 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 ciga-
rettes 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 ciga-
rettes 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 ille-
gal 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 Homes and Flezbollah, were bene-
fiting 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 Audi-
tor'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: 2009-2010 (A.8854-A Peralta)

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 ciga-
rette 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.

2009-A10373 - Bill Text download pdf

                            
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  10373

                          I N  A S S E M B L Y

                             March 22, 2010
                               ___________

Introduced by M. of A. BENJAMIN -- read once and referred to the Commit-
  tee on Ways and Means

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,
[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

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD02907-19-0

A. 10373                            2

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:
  (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

A. 10373                            3

  (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,  except
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

A. 10373                            4

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.

2009-A10373A (ACTIVE) - Details

See Assembly Version of this Bill:: A8854
Current Committee:: Assembly Ways And Means
Law Section:: Tax Law
Laws Affected:: Amd §§483, 472 & 480, add §472-a, Tax L

2009-A10373A (ACTIVE) - Summary

Amends the percentages used to determine the presumed cost of doing business for agents and wholesale dealers that sell cigarettes.

2009-A10373A (ACTIVE) - Sponsor Memo

                                BILL NUMBER:A10373A

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 requiring the
use of encrypted counterfeit-resistant cigarette tax stamps or markers

PURPOSE OR GENERAL IDEA OF BILL:  Amends the percentages used to deter-
mine 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-resis-
tant tax stamp or other means of identification for the collection of
taxes on cigarettes. This provision establishes standards for creating
such an enhanced cigarette tax collection system. The cost of establish-
ing 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 make technical amendments.

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.

JUSTIFICATION:  Increased excise taxes on tobacco in New York State, the
passage of the bottle disposal legislation and a variety of other meas-
ures 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 manufactur-
ers of tobacco products.

Due to the high tax rate on cigarettes in New York, there is an increas-
ing 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 gradu-
ally 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 ciga-
rettes 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 ciga-
rettes 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 ille-
gal 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 benefit-
ing from untaxed cigarette sales. Further, that this activity was caus-
ing 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 Audito-
ria 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 ciga-
rette 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.

2009-A10373A (ACTIVE) - Bill Text download pdf

                            
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                10373--A

                          I N  A S S E M B L Y

                             March 22, 2010
                               ___________

Introduced by M. of A. BENJAMIN -- read once and referred to the Commit-
  tee  on  Ways and Means -- 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 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,
[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

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD02907-21-0

A. 10373--A                         2

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:
  (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

A. 10373--A                         3

  (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 imposed by this article, and may from time to time
and as often as he deems advisable provide for the issuance  and  exclu-
sive  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,  except
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-

A. 10373--A                         4

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.

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